THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 


CASES 


ON 


THE  LAW  OF  INSURANCE 


SELECTED  FROM- DECISIONS  OF 


ENGLISH  AND  AMERICAN  COURTS 


WILLIAM  REYNOLDS  VANCE 

DEAN   OF  THE   LAW  SCHOOL,   UNIVERSITY 
OF  MINNESOTA 


AMERICAN  CASEBOOK  SERIES 
JAMES  BROWN  SCOTT 

GENERAL   EDITOR 


ST.    PAUL 

WEST  PUBLISHING  COMPANY 
1914 


T 


Copyright,  1914 

BY 

WEST  PUBLISHING  COMPANY 


(Vance  Ins.) 


THE  AMERICAN  CASEBOOK 
SERIES 


For  years  past  the  science  of  law  has  been  taught  by  lectures,  the 
use  of  text-books  and  more  recently  by  the  detailed  study,  in  the 
class-room,  of  selected  cases. 

Each  method  has  its  advocates,  but  it  is  generally  agreed  that  the 
lecture  system  should  be  discarded  because  in  it  the  lecturer  does 
the  work  and  the  student  is  either  a  willing  receptacle  or  offers  a 
passive  resistance.  It  is  not  too  much  to  say  that  the  lecture  system 
is  doomed. 

Instruction  by  the  means  of  text-books  as  a  supplement  or  sub- 
stitute for  the  formal  lecture  has  made  its  formal  entry  into  the  educa- 
tional world  and  obtains  widely ;  but  the  system  is  faulty  and  must  pass 
away  as  the  exclusive  means  of  studying  and  teaching  law.  It  is  an 
improvement  on  the  formal  lecture  in  that  the  student  works,  but  if  it 
cannot  be  said  that  he  works  to  no  purpose,  it  is  a  fact  that  he  works 
from  the  wrong  end.  The  rule  is  learned  without  the  reason,  or  both 
rule  and  reason  are  stated  in  the  abstract  as  the  resultant  rather  than 
as  the  process.  If  we  forget  the  rule  we  cannot  solve  the  problem;  if 
we  have  learned  to  solve  the  problem  it  is  a  simple  matter  to  formulate 
a  rule  of  our  own.  The  text-book  method  may  strengthen  the  mem- 
ory; it  may  not  train  the  mind,  nor  does  it  necessarily  strengthen  it. 
A  text,  if  it  be  short,  is  at  best  a  summary,  and  a  summary  presup- 
poses previous  knowledge. 

If,  however,  law  be  considered  as  a  science  rather  than  a  collection 
of  arbitrary  rules  and  regulations,  it  follows  that  it  should  be  studied 
as  a  science.  Thus  to  state  the  problem  is  to  solve  it ;  the  laboratory 
method  has  displaced  the  lecture,  and  the  text  yields  to  the  actual 
experiment.  The  law  reports  are  in  more  senses  than  one  books  of 
experiments,  and,  by  studying  the  actual  case,  the  student  co-operates 
with  the  judge  and  works  out  the  conclusion  however  complicated 
the  facts  or  the  principles  involved.  A  study  of  cases  arranged  his- 
torically develops  the  knowledge  of  the  law,  and  each  case  is  seen  to 
be  not  an  isolated  fact  but  a  necessary  link  in  the  chain  of  develop- 
ment. The  study  of  the  case  is  clearly  the  most  practical  method, 
for  the  student  already  does  in  his  undergraduate  days  what  he  must 
do  all  his  life;  it  is  curiously  the  most  theoretical  and  the  most  prac- 
tical. For  a  discussion  of  the  case  in  all  its  parts  develops  analysis, 
the  comparison   of   many   cases   establishes   a   general   principle,   and 

(iii) 


IV  I'KKFACE 

the  arrai^c^cment  and  classification  of  principles  dealing  with  a  sub- 
ject make  the  law  on  that  subject. 

In  this  way  training  and  knowledge,  the  means  and  the  end  of 
legal  study,  go  hand  and  hand. 

The  obvious  advantages  of  the  study  of  law  by  means  of  selected 
cases  make  its  universal  adoption  a  mere  question  of  time. 

The  only  serious  objections  made  to  the  case  method  are  that  it  takes 
too  much  time  to  give  a  student  the  requisite  knowledge  of  the  sub- 
ject in  this  way  and  that  the  system  loses  sight  of  the  difference  be- 
tween the  preparation  of  the  student  and  the  lifelong  training  of  the 
lawyer.  Many  collections  of  cases  seem  open  to  these  objections, 
for  they  are  so  bulky  that  it  is  impossible  to  cover  a  particular  sub- 
ject with  them  in  the  time  ordinarily  allotted  to  it  in  the  class.  In 
this  way  the  student  discusses  only  a  part  of  a  subject.  His  knowl- 
edge is  thorough  as  far  as  it  goes,  but  it  is  incomplete  and  frag- 
mentary. The  knowledge  of  the  subject  as  a  whole  is  deliberately 
sacrificed  to  training  in  a  part  of  the  suljject. 

It  would  seem  axiomatic  that  the  size  of  the  casebook  should  cor- 
respond in  general  to  the  amount  of  time  at  the  disposal  of  instructor 
and  student.  As  the  time  element  is,  in  most  cases,  a  nonexpansive 
quantity,  it  necessarily  follows  that,  if  only  a  half  to  two-thirds  of  the 
cases  in  the  present  collections  can  be  discussed  in  class,  the  pres- 
ent casebooks  are  a  third  to  a  half  too  long.  From  a  purely  practical 
and  economic  standpoint  it  is  a  mistake  to  ask  students  to  pay  for 
1,200  pages  when  they  can  only  use  600,  and  it  must  be  remembered 
that  in  many  schools,  and  with  many  students  in  all  schools,  the  mat- 
ter of  the  cost  of  casebooks  is  important.  Therefore,  for  purely 
practical  reasons,  it  is  believed  that  there  is  a  demand  for  casebooks 
physically  adapted  and  intended  for  use  as  a  whole  in  the  class-room. 

But  aside  from  this,  as  has  been  said,  the  existing  plan  sacrifices 
knowledge  to  training.  It  is  not  denied  that  training  is  important, 
nor  that  for  a  law  student,  considering  the  small  amount  of  actual 
knowledge  the  school  can  hope  to  give  him  in  comparison  with  the 
vast  and  daily  growing  body  of  the  law,  it  is  more  important  than 
mere  knowledge.  It  is,  however,  confidently  asserted  that  knowledge 
is,  after  all,  not  unimportant,  and  that,  in  the  inevitable  compromise 
between  training  and  knowledge,  the  present  casebooks  not  only  de- 
vote too  little  attention  relatively  to  the  inculcation  of  knowledge, 
but  that  they  sacrifice  unnecessarily  knowledge  to  training.  It  is  be- 
lieved that  a  greater  efifort  should  be  made  to  cover  the  general  prin- 
ciples of  a  given  subject  in  the  time  allotted,  even  at  the  expense  of 
a  considerable  sacrifice  of  detail.  But  in  this  proposed  readjustment 
of  the  means  to  the  end,  the  fundamental  fact  cannot  be  overlooked 
that  law  is  a  developing  science  and  that  its  present  can  only  be  un- 
derstood through  the  medium  of  its  past.  It  is  recognized  as  im- 
perative that  a  sufficient  number  of  cases  be  given  under  each  topic 


PREFACE  V 

treated  to  afford  a  basis  for  comparison  and  discrimination;  to  show 
the  development  of  the  law  of  the  particular  topic  under  discussion ; 
and  to  afford  the  mental  training  for  which  the  case  system  neces- 
sarily stands.  To  take  a  familiar  illustration:  If  it  is  proposed  to 
include  in  a  casebook  on  Criminal  Law  one  case  on  abortion,  one  on 
libel,  two  on  perjury,  one  on  larceny  from  an  office,  and  if  in  order  to 
do  this  it  is  necessary  to  limit  the  number  of  cases  on  specific  intent  to 
such  a  degree  as  to  leave  too  few  on  this  topic  to  develop  it  fully 
and  to  furnish  the  student  with  training,  then  the  subjects  of  abor- 
tion, libel,  perjury,  and  larceny  from  an  office  should  be  wholly  omit- 
ted. The  student  must  needs  acquire  an  adequate  knowledge  of  these 
subjects,  but  the  training  already  had  in  the  underlying  principles  of 
criminal  law  will  render  the  acquisition  of  this  knowledge  compara- 
tively easy.  The  exercise  of  a  wise  discretion  would  treat  fundamen- 
tals thoroughly ;    principle  should  not  yield  to  detail. 

Impressed  by  the  excellence  of  the  case  system  as  a  means  of  legal 
education,  but  convinced  that  no  satisfactory  adjustment  of  the  con- 
flict between  training  and  knowledge  under  existing  time  restrictions 
has  yet  been  found,  the  General  Editor  takes  pleasure  in  announcing 
a  series  of  scholarly  casebooks,  prepared  with  special  reference  to 
the  needs  and  limitations  of  the  class-room,  on  the  fundamental  sub- 
jects of  legal  education,  which,  through  a  judicious  rearrangement 
of  emphasis,  shall  provide  adequate  training  combined  with  a  thor- 
ough knowledge  of  the  general  principles  of  the  subject.  The  collec- 
tion will  develop  the  law  historically  and  scientifically;  English  cases 
will  give  the  origin  and  development  of  the  law  in  England ;  Ameri- 
can cases  will  trace  its  expansion  and  modification  in  America ;  notes 
and  annotations  will  suggest  phases  omitted  in  the  printed  case. 
Cumulative  references  will  be  avoided,  for  the  footnote  may  not  hope 
to  rival  the  digest. 

The  law  will  thus  be  presented  as  an  organic  growth,  and  the  neces- 
sary connection  between  the  past  and  the  present  will  be  obvious. 

The  importance  and  difficulty  of  the  subject  as  well  as  the  time  that 
can  properly  be  devoted  to  it  will  be  carefully  considered  so  that  each 
book  may  be  completed  within  the  time  allotted  to  the  particular  sub- 
ject. 

It  is  equally  obvious  that  some  subjects  are  treated  at  too  great 
length,  and  that  a  less  important  subject  demands  briefer  treatment. 
A  small  book  for  a  small  subject. 

In  this  way  it  will  be  alike  possible  for  teacher  and  class  to  com- 
plete each  book  instead  of  skimming  it  or  neglecting  whole  sections ; 
and  more  subjects  may  be  elected  by  the  student  if  presented  in  short- 
er form  based  upon  the  relative  importance  of  the  subject  and  the 
time  allotted  to  its  mastery. 

Training  and  knowledge  go  hand  in  hand,  and  Training  and  Knowl- 
edge are  the  keynotes  of  the  series. 


Vi  PREFACE 

If  it  be  f:^ranted  that  all.  or  nearly  all,  the  studies  required  for  ad- 
mission to  the  bar  should  be  studied  in  course  by  every  student — and 
the  soundness  of  this  contention  can  hardly  be  seriously  doubted — it 
follows  necessarily  that  the  preparation  and  publication  of  collections 
of  cases  exactly  adapted  to  the  purpose  would  1)e  a  genuine  and  by 
no  means  unimportant  service  to  the  cause  of  legal  education.  And 
this  result  can  best  be  obtained  by  the  preparation  of  a  systematic 
series  of  casebooks  constructed  upon  a  uniform  plan  under  the  super- 
vision of  an  editor  in  chief. 

For  the  basis  of  calculation  the  hour  has  been  taken  as  the  unit.  The 
General  Editor's  personal  experience,  supplemented  by  the  experience 
of  others  in  the  class-room,  leads  to  the  belief  that  approximately  a 
book  of  400  pages  may  be  covered  by  the  average  student  in  half  a 
year  of  two  hours  a  week ;  that  a  book  of  GOO  pages  may  be  discussed 
in  class  in  three  hours  for  half  a  year;  that  a  book  of  800  pages  may 
be  completed  by  the  student  in  two  hours  a  week  throughout  the  year : 
and  a  class  may  reasonably  hope  to  master  a  volume  of  1,000  pages 
in  a  year  of  three  hours  a  week.  The  general  rule  will  be  subject  to 
some  modifications  in  connection  with  particular  topics  on  due  con- 
sideration of  their  relative  importance  and  difficulty,  and  the  time 
ordinarily  allotted  to  them  in  the  law  school  curriculum. 

The  following  subjects  are  deemed  essential  in  that  a  knowledge  of 
them  (with  the  exception  of  International  Law  and  General  Juris- 
prudence) is  universally  required  for  admission  to  the  bar: 


Administrative  Law. 

Insurance. 

Agency. 

International  Law. 

Bills  and  Notes. 

Jurisprudence. 

Carriers. 

Mortgages. 

Contracts. 

Partnership. 

Corporations. 

Personal  Property,  including 

Constitutional  Law. 

the  Law  of  Bailment. 

Criminal  Law. 
Criminal  Procedure. 

Real  Property,  -j  A     ^'^^" 

Common-Law  Pleading. 

Public  Corporations. 

Conflict  of  Laws. 

Quasi  Contracts. 

Code  Pleading. 

Sales. 

Damages. 

Suretyship. 

Domestic  Relations. 

Torts. 

Equity. 

Trusts. 

Equity  Pleading. 

Wills  and  Administration. 

Evidence. 

International  Law  is  included  in  the  list  of  essentials  from  its  in- 
trinsic importance  in  our  system  of  law.  As  its  principles  are  simple 
in  comparison  with  municipal  law,  as  their  application  is  less  technical. 


PREFACE  VII 

and  as  the  cases  are  generally  interesting,  it  is  thought  that  the  book 
may  be  larger  than  otherwise  would  be  the  case. 

As  an  introduction  to  the  series  a  book  of  Selections  on  General 
Jurisprudence  of  about  500  pages  is  deemed  essential  to  completeness. 

The  preparation  of  the  casebooks  has  been  intrusted  to  experienced 
and  well-known  teachers  of  the  various  subjects  included,  so  that  the 
experience  of  the  class-room  and  the  needs  of  the  students  will  fur- 
nish a  sound  basis  of  selection. 

While  a  further  list  is  contemplated  of  usual  but  relatively  less  im- 
portant subjects  as  tested  by  the  requirements  for  admission  to  the 
bar,  no  announcement  of  them  is  made  at  present. 

The  following  gentlemen  of  standing  and  repute  in  the  profession 
have  written  or  are  at  present  actively  engaged  in  the  preparation  of 
the  various  casebooks  on  the  indicated  subjects : 

George  W.  Kirchwey,  Professor  of  Law,  Columbia  University,  School 
of  Law.     Subject,  Real  Property. 

Nathan  Abbott,  Professor  of  Law,  Columbia  University.  (Formerly 
Dean  of  the  Stanford  University  Law  School.)  Subject,  Per- 
sonal Property. 

Frank  Irvine,  Dean  of  the  Cornell  University  School  of  Law.  Sub- 
ject, Evidence. 

Harry  S.  Richards,  Dean  of  the  University  of  Wisconsin  School  of 
Law.    Subject,  Corporations. 

James  Parker  Hall,  Dean  of  the  University  of  Chicago  School  of  Law. 
Subject,  Constitutional  Law. 

William  R.  Vance,  Dean  of  the  University  of  Minnesota  Law  School. 
Subject,  Insurance. 

Charles  M.  Hepburn,  Professor  of  Law,  University  of  Indiana.  Sub- 
ject, Torts. 

William  E.  Mikell,  Professor  of  Law,  University  of  Pennsylvania. 
Subjects,  Criminal  Lazv  and  Criminal  Procedure. 

George  P.  Costigan,  Jr.,  Professor  of  Law,  Northwestern  University 
Law  School.    Subject,  Wills  and  Administration. 

Floyd  R.  Mechem,  Professor  of  Law,  Chicago  University.  Subject, 
Damages.     (Co-author  with  Barry  Gilbert.) 

Barry  Gilbert,  Professor  of  Law,  University  of  low^a.  Subject, 
Damages.     (Co-author  with  Floyd  R.  Mechem.) 

Thaddeus  D.  Kenneson,  Professor  of  Law,  University  of  New  York. 
Subject,  Trusts. 

Charles  Thaddeus  Terry,  Professor  of  Law,  Columbia  University, 
Subject,  Contracts. 


Vlll  PREFACE 

Albert  j\T.  Kales,  Professor  of  Law,  Northwestern  University.  Sub- 
ject, Persons. 

Edwin  C.  Godclard,  Professor  of  Law,  University  of  Michigan.  Sub- 
ject, Agency. 

Howard  L.  Smith,  Professor  of  Law,  University  of  Wisconsin.  .9?^^- 
ject,  Bills  and  Notes.     (Co-author  with  Wm.  Underbill   Moore.) 

\Vm.  Underbill  Moore,  Professor  of  Law,  University  of  Wisconsin. 
Subject,  Bills  and  Notes.    (Co-author  with  Ploward  L.  Smith.) 

Edward  S.  Thurston,  Professor  of  Law,  University  of  Minnesota. 
Subject,  Quasi  Contracts. 

Crawford  D.  Hening,  Professor  of  Law,  University  of  Pennsylvania. 
Subject,  Suretyship. 

Clarke  B.  Whittier,  Professor  of  Law,  University  of  Chicago.  Sub- 
ject, Pleading. 

Eugene  A.  Gilmore,  Professor  of  Law,  University  of  Wisconsin. 
Subject,  Partnership. 

Ernst  Freund,  Professor  of  Law,  University  of  Chicago.  Subject, 
Administrative  Laiv. 

Frederick  Green,  Professor  of  Law,  University  of  Illinois.  Subject, 
Carriers. 

Ernest  G.  Lorenzen,  Professor  of  Law,  University  of  W^isconsin. 
Subject,  Conflict  of  Laivs. 

Frederic  C.  Woodward,  Dean  of  the  Stanford  University  Law  School. 
Subject,  Sales. 

George  H.  Boke,  Professor  of  Law,  University  of  California.  Sub- 
ject, Equity. 

James  Brown  Scott,  Lecturer  on  International  Law  and  Diplomacy  in 
Johns  Hopkins  University ;  formerly  Professor  of  Law,  Colum- 
bia University.  Subjects,  International  Law;  General  Jurispru- 
dence. 

James  Brown  Scott, 
Washington,  D.  C,  October,  1914.  General  Editor. 

Following  are  the  books  of  the  Series  now  published,  or  in  press: 

Administrative    Law  Insurance 

Agency  Partnership 

Bills  and  Notes  Persons 

Carriers  Pleading 

Conflict  of  Laws  Principal  and  Agent 

Constitutional  Law  Sales 

Corporations  Suretyship 

Criminal  Law  Trusts 

Criminal  Procedure  Wills  and  Administration 

Damages 


AUTHOR'S    PREFATORY    NOTE 


The  compiler  of  a  casebook  on  the  law  of  insurance  must  resist  much 
temptation.  Cases  involving  the  construction  of  the  insurance  con- 
tract are  so  numerous,  and  frequently  so  interesting,  that  one  is  sorely 
tempted  to  take  them  into  the  class-room.  But  with  rare  exceptions 
such  cases  have  little  to  do  with  the  distinctive  rules  of  insurance  law, 
unless  it  be  to  give  illustration,  sometimes  almost  grotesque,  of  the 
extent  to  which  the  courts  have  carried  the  rule,  omnia  contra  pro- 
ferentem prccsumuntur,  in  the  construction  of  insurance  contracts. 
They  have  little  value  for  instructional  purposes,  and  are  given  little 
space  in  this  book. 

This  collection  is  made  upon  the  theory  that  better  results  can  be 
gotten  in  the  class-room  by  the  reasonably  complete  presentation  of  a 
few  distinctive  topics  than  by  a  sketchy  attempt  to  reflect  the  digest 
headings  of  the  subject  in  hand,  or  the  indexes  of  standard  text-books. 
It  is  manifest  that  the  topics  selected  in  accordance  with  this  theory 
for  presentation  should  be  those  which  are  peculiar  to,  or  which  have 
had  a  peculiar  development  in  the  law  of  insurance.  Of  those  rules 
peculiar  to  the  law  of  insurance  the  most  striking  are  those  govern- 
ing insurable  interest,  concealment,  representations  and  warranties, 
while  of  those  that  have  exhibited  a  peculiar  development,  the  most 
interesting  and  important  have  to  do  with  the  much  litigated  questions 
pertaining  to  waiver  and  estoppel,  and  the  many  problems  that  have 
developed  in  connection  with  claims  to  the  proceeds  of  insurance  con- 
tracts when  matured.  Therefore  an  effort  has  been  made  to  present 
as  complete  a  collection  of  cases  on  these  topics  as  limitation  of  space 
would  permit,  even  though  such  a  course  has  necessitated  the  total 
omission  of  other  topics  customarily  treated  in  works  on  insurance. 

The  fact  that  the  business  of  insurance  is  so  carefully  regulated  by 
statute,  as  well  as  intrinsic  interest,  requires  the  inclusion  of  cases 
showing  the  nature  of  the  contract  of  insurance,  as  distinguished  from 
other  contracts  of  somewhat  similar  character,  and  they  are  naturally 
followed  by  the  chapter  on  making  the  contract. 

The  cases  in  the  two  final  chapters,  dealing  with  the  construction  of 
the  insurance  policy,  are  frankly  illustrative.  The  principles  of  con- 
struction are  simple  and  settled,  and  the  cases  involving  their  applica- 
tion to  particular  terms  of  the  insurance  contract,  under  special  states 
of  fact,  while  invaluable  in  the  court-room,  are  of  little  value  in  the 
class-room,  save  as  they  illustrate  certain  tendencies  on  the  part  of 

(ix) 


X  author's  prefatory  note 

court  and  jury  which,  in  turn,  throw  Hght  upon  the  peculiar  features 
of  the  contract. 

Insurance  cases,  especially  those  of  more  recent  date,  are  usually 
long  and  generally  involve  many  different  issues.  This  fact  has  ren- 
dered necessary  frequent  abbreviation  of  the  cases  printed.  In  omit- 
ting parts  of  opinions  an  earnest  effort  has  been  made  to  avoid  the 
danger,  of  which  every  user  of  casebooks  is  painfully  aware,  that 
abbreviation  may  result  in  mutilation  and  misrepresentation.  To  this 
end  the  fact  of  omission  has  always  been  indicated,  and,  in  most  cases, 
the  subject  matter  of  the  omitted  portion  is  stated  in  a  footnote. 

W.  R.  Vance. 

August  28,  1914. 


TABLE  OF  CONTENTS 


CHAPTER  I 


Intboductort 

Section  Page 

1.  Historical    1 

2.  The  Nature  of  the  Contract 6 

CHAPTER  II 

The  Subject-Matteb  of  the  Contract — Insurable  Interest 

1.  Necessity  for  the  Existence  of  the  Insurable  Interest 38 

2.  What  Constitutes  Insurable  Interest — Marine  Insurance 65 

3.  What  Constitutes  Insurable  Interest — Fire  Insurance 95 

4.  What  Constitutes  Insurable  Interest — Life  Insurance 121 

CHAPTER  III 

Making  The  Contract 

1.  The    Agreement ISO 

2.  The    Form 201 

3.  Delivery     212 

4.  Mutual    Benefit   Insurance 219 

CHAPTER  IV 

Concealment 

1.  General    Principles 234 

2.  Marine    Insurance 244 

3.  Fire    Insurance 270 

4.  Life    Insurance 285 

5.  Guaranty  Insurance 307 

6.  When  Duty  to  Disclose  Terminates 313 

CHAPTER  V 

Representations 

1.  Marine    Insurance 317 

2.  Fire    Insurance 338 

3.  Life    Insurance 359 

CHAPTER  VI 

Warranties 

1.  Marine    Insurance 373 

2.  Fire     Insurance 392 

3.  Life    Insurance 41G 

4.  Warranty  as  Affected  by  Statute 434 

Vance  Ins.  (xi) 


XU  TABLK   OF    CONTKNTS 


CHAPTER  VII 

Imi'liei)  Conditions   of  Forfeiture 
Section  Pa^e 

1.  Seavvortliinoss     445 

2.  Deviation    44S 

:j.     IlleLrality     453 

4.  Suicide    455 

5.  Death  by  Legal  Execution 468 

CHAPTER     VIII 
Waiver  and  Estoppel 

1.  Waiver  and  Estoppel  Distinguished 477 

2.  Parol  Waiver  Prior  to  Issue  of  Policy 4S)2 

3.  Waiver    Subsequent  to   Issue  of   Policy 496 

4.  Estoppel    506 

5.  Waiver  and  Estoppel  as  Affected  by  Limitations  upon  the  Authority 

of    the    Agent 54S 

6.  What  Constitutes  Waiver  and  Estopi)el 560 

CHAPTER   IX 

Rights  Under  the  Contract 

1.  Fire    Insurance 572 

I.  Bailor    and    Bailee 572 

II.     Assignor  and   Assignee 576 

III.     Vendor    and    Vendee 585 

IV.     Mortgagor    and    Mortgagee 594 

V.  Measure   of   Recovery 602 

2.  Life    Insurance • 611 

I.  Beneficiaries    611 

I I.  Assignees    636 

III.     Creditors     637 

3.  Recovery   of  Prenuiinis 63S 

4.  Subrogation  643 

CHAPTER  X 
Construction    of   the    Policy— Property   Insurance 

1.  Conditions    Operative   Before  Loss 656 

I.     Sole  and  Unconditional  Ownership 656 

II.  Change  of  Interest 660 

III.  Vacancy    668 

IV.  Increase  of  Risk 674 

V.  Prohibited    Articles 677 

VI.  Other    Insurance 682 

VII.  Concurrent    Insurance 687 

2.  Loss  or    Damage 690 

I.     What  is  Loss  by  Fire 690 

3.  Conditions  Operative  After  Loss 700 

I.     Proofs    of    Loss 700 

II.  Arbitration     705 

III.     Limitation    of   Actions 709 


TABLE  OF  CONTENTS  Xlll 


CHAPTER  XI 

Construction   of   the  Policy — Other   Kinds   of  Insurance 
Section  Page 

1.  Life    Insurance 71o 

I.     Forfeiture  for  Nonpayment  of  Policy   Loans 7L'5 

11.     Incontestable    Clause TIS 

2.  Accident  Insurance 720 

I.     Death    by    Accident 720 

II.     Accident   Due    to   Intoxication 72;> 

III.     Accident  Due  to  Violation  of  Law 725 

3.  Liability    Insurance 730 

* 


TABLE  OF  CASES 


[cases  cited  in  footnotes  aue  indicated  by  italics,     where  small  capitals 
are  used,  the  case  is  referred  to  in  the  text] 


.-E/no  Life  Ins.  Co.  v.  Boclcting.  . 

Minn.  Life  Ins.  Co.  v.  France.  ..  . 

^:tna  Life  Ins.  Co.  v.  J.  B.  Parker 
d    Co 

/Etna  Life  Ins.  Co.  v.  Paul 

Alabama  State  Mut.  Assnr.  Co.  v. 
Long  Clothing  d  Shoe  Co 

Alston  V.  Mechanics'  Mut.  Ins.  Co. 
of  City  of  Troy 

American  Cent.  Ins.  Co.  v.  Dis- 
trict Court,  Ramsey  County, 
Second  Judicial  Dist 

American  Cent.  Life  Ins.  Co^  v. 
Rosenstein    

American  Employers'  Liability 
Ins.  Co.  V.  Barr 

American  Mut.  Life  Ins.  Co.  v. 
Mead    

Amicable    Soc.   v.    Bolland 

Anderson  v.   Edie 

Anderson  v.  Fitzgerald 

Anderson  v.  MANcnE.sTER  F.  As- 

SUR.     Co 

Anderson  v.  Mutual  Life  Ins.  Co. 

Anderson's    Estate 

Anonymous     

Arkansas    Mut.   Fire   Ins.    Co.    v. 

Claihorne    

Armour  v.  Transatlantic  Fire  Ins. 

Co.  of  Hamburg,  Germany 

Armstrong  v.  Insurance  Co 

Arnold  v.  Empire  Mut.  Annuity 

&  Life   Ins.   Co 

Assievedo   v.   Cambridge 

Association   v.  Kirgin 

Atkinson  v.  ABBorr 

Austin   v.   Drew 

Ayers     v.     Ancient     Order     of 

United    Workmen 

Babcock   v.   Bonnell 

Babcock  v.  Montgomery  County 

Ins.    Co 

Baker  v.  Assurance  Co 

Barber'  v.  Fletcher 

Barber  v.  Morris 

Barclay  v.  Cousins 

Barker  v.  Insurance  Co 

Barnes  v.  London,  Edinburgh  & 

Glasgow  Life  Ins.  Co 

Vance  Ins. — b 


Page 
571 
423 

656 
641 

566 

338 


705 
642 
159 


638 
472 
122 
420 

487 
560 
617 
317 

285 

354 
563 

627 

39 

632 

454 

690 

231 

164 

692 
192 
327 
127 
67 
3S9 

138 


Bassett  v.  Farmers'  &  Merchants' 
Ins.    Co 

Baumgartol  v.  Providence  Wash- 
ington Ins.  Co 

Beach  v.  Supreme  Tent  of  the 
Knights  of  the  Maccabees  of 
THE    World 

Bean   v.    Stupart 

Beard    v.    Sharp 

Bennett  v.  Union  Cent.  Life  Ins. 
Co 

Biggar  v.  Rock  Life  Assur.  Co... 

Bishop  v.   Insurance   Co 

Bize   V.    Fletcher 

Bize   V.    Fletcher 

Black  V.   Atlantic  Home  Ins.   Co. 

Black  v.  Ward 

Blackburn,  Low  &  Co.  v.  Vigors. . 

Blake  v.  Exch.  Mut.  Ins.  Co.... 

Bochm   V.  Bell 

Bohaker  v.  Travelers'  Ins.  Co.  of 
Hartford,    Conn 

Bond  v.  Brig  Cora 

Boston  &  A.  R.  Co.  v.  Mercan- 
tile Trust  &  Deposit  Co 

Boyer  v.  State  Farmers'  Mut. 
Hail  Ins.   Ass'n 

Bradley  v.  Mutual  Ben.  L.  Ins. 
Co 

Brakhage    v.    Tracy 

Brennan  v.  Prudential  Ins.  Co.  of 
AmeHca    

British  America  Assur.  Co.  v.  Mil- 
ler     

British  Workmen's  d  General  As- 
sur. Co.  V.  Cunliffe 

Britton's    Appeal 

Bronii'eg's  Adm'r  v.  Washington 
Life  Ins.  Co 

Brough    v.    Whit>[ore 

Broicnlie   v.   Campbell 

Bryant  v.  Ocean  Ins.  Co 

Bufe  V.    Turner 

Burgess  v.  P^quitable  ^Marine  Ins. 
Co.    of   Provincetown 

Burleigh  v.   Insurance   Co 

BURNAUD     V.     RonoCANACIII 

lUirritt  V.   Saratoga  County  Mut. 

Fire   Ins.    Co 

Burt  v.  Union  Cent.  L.  Ins.  Co. 


P;ig^ 
115 
502 


230 
376 
146 

488 
523 
563 
323 
379 
49) 
641 
259 
688 
66 

720 
451 

26 

200 

727 
591 

174 

398 

642 
95 

60 

83 

288 

335 

270 

448 
397 
646 

272 
474 


(XV) 


XVI 


TABLE    OP    CASES 


Page 
Burton     v.     Connecticut     Mut. 
Like  Ins.  Co 144 

California    Ins.    Co.    v.    Union 

Compress   Co 24 

Cammack  v.  Lewis 173 

Campbell    v.     Supreme    Conclave 
Improved  Order  Ileptasophs.  . .   459 

Carey   v.   Insurance    Co 499 

Carpenter  v.  Insurance  Co 357 

Carpenter  v.  Providence  Washing- 
ton  Ins.    Co 530 

Carter    v.    Boehm 234 

Case  v.  Sun  Ins.  Co 711 

Castellain    v.    Preston 643 

Cathcart  v.  Life  Ins.  Co 410 

Catlin  v.  Springfield  Ins.  Co...  396 
Cazenove   v.   British  Equitable 

AssuR.    Co 421 

Chandler  v.  Insurance  Co 348 

Chapln  V.  Ocean  Accident  &  Guar- 
antee Corp 730 

Chicago  Title  &  Trust  Co.  v.  Hax- 

tun    165 

City  Fire  Ins.  Co.  v.  Corlies...   693 

City  Fire  Ins.  Co.  v.  Marks 583 

Claflin  v.  System  Co 10 

Clapman    v.    Cologan 389 

CJark  V.  Diirand 614 

Clark,  V.  Manufacturers'  Ins.  Co.  275 
Clark    v.    Manufacturers'    Ins. 

Co 279 

Clay  v.   Insurance  Co 219 

Cleaver  v.  Mutual  Reserve  Fund 

Life    Ass'n 613 

Cogswell    V.   Chubb 390 

Coke  Co.   v.   Downey 19 

Collingridge     v.     Royal    IJIxch. 

AssuR.    Corp 590 

Collins  V.  Metropolitan   Life   Ins. 

Co 468 

Collins  V.  St.  Paul  Fire  &  Marine 

Ins.    Co 659 

Columbia  Ins.  Co.  v.  Catlett...  452 
Commerical    Mut.     Marine    Ins. 

Co.   v.   Union  Mut.   Ins.   Co...   188 
Commonwealth      v.     Beneficial 

Ass'n     35 

Commomvealth  v.  Providence  Bi- 

'  cycle    Ass'n 11 

Commonwealth    v.    Wetherbee.  . . .     27 
Connecticut  Fire  Ins.  Co.  v.  Colo- 
rado Leasing,  Min.  &  Mill.  Co.  281 
Connecticut  INIut.  Life  Ins.  Co. 

v.    dunscomb 167 

Connecticut  Mut.  Life  Ins.  Co.  v. 

Pyle    641 

Connecticut  Mut.  Life  Ins.  Co. 

v.    Schaefer 150 

Continental  Ins.  Co.  v.  Kasey.  . .  .  351 
Continental  Ins.  Co.  v.  Pearce  555 
Continental  Life  Ins.  Co.  v.  Busby  642 


Page 
Continental      Life     Tns.      Co.      v. 

Chamberlain    557 

Conris  v.  Citizens'  Mut.  Fire  Ins. 

Co 610 

Cory  V.  Paiton 316 

Crane  v.  Bell 5 

Cue  V.  Connecticut  Fire  Ins.  Co.  516 
Cunat  V.   Supreme  Tribe   of  Ben 

Uur    636 

Currier     v.     Continental     Life 

Ins.    Co 143 

Daily   v.   Board 641 

Dalby  v.  India  &  London  Life-As- 

sur.    Co 122 

Dalglish  V,  Jarvie 291 

Dane      v.      ^Mortgage      Insurance 

Corp.,    Limited 29 

Daniels    v.    Hudson    River    Fire 

Ins.    Co 344 

Darrell    v.    Tibbitts 648 

David    v.  Hartford  Ins.   Co 687 

Davis  V.  Bremer  County  Farmers' 

Mut.  Fire  Ins.  Ass'n 576 

Davis  V.  Supreme   Council  Royal 

Arcanum     467 

Davis   Co.    v.   Hartford    F.    Ins. 

Co 482 

Dean  v.   Dicker 43 

De   Costa  v.    Scandret 244 

De  Graff  v.  Insurance  Co 398 

De  Hahn  v.  Hartley 383 

Delancy  v.  Robson 25 

Dennistoun,    Buchanan    &    Co.    v. 

Lillie     329 

Depaba   v.  Ludlow 57 

Dewees  v.  Manhattan  Ins.  Co...   517 

Dixon  V.  Sadler 445 

Doud   v.   Citizens'    Ins.   Co 674 

Drysdale   v.    Piggott 637 

Duffy   v.   Bankers'    Life   Ass'n   of 

Des    Moines 195 

Dwyer  v.  Edie 121 

Dyer  v.  Dyer 168 

Eames  v.  Home  Ins.  Co 532 

Eaton    v.    Smith 350 

Ebrand    v.    Dancer 168 

Eddy  v.  Hawkeye  Ins.  Co 673 

Eddy  v.  London  Assur.  Corp..  .  599 

Edwards  v.  Footner 328 

Egerton    v.    Brownlow 22 

Electrova    Co.   v.    Spring    Garden 

Ins.    Co 455 

Elton  v.  Brogden 4.50 

English  v.  Insurance  Co 397 

Evans  v.  Southern  Tier  Mason- 
ic  Relief   Ass'n 231 

Farley  v.  Spring  Garden  Ins.  Co.  488 
Farmers'  Mutual  Equity  Ins.  Soc. 
V.    Smith 672 


TABLE    OF    CASES 


XVII 


Page 
Farmers'    Mut.    Ins.    Co.    v.    New 

Holland  Turnpike  Road  Co 112 

Farra  v.  Braman 625 

Fauntleroy's    Case 401 

Fayerweather  v.  I'henix  Ins.  Co.  652 
Fergaison    v.    Massachusetts    Mut. 

Life  Ins.  Co 160 

Fidelity  Mnt.  Life  Ass'n  of  I'hil- 

adeli)hia  v.  Ficklln 434 

Fillis  V.   Brutton JJliS 

Filmorc  v.  Metropolitan  Life  Ins. 

Co 615 

Fire     Ass'n     of     Philadelphia     v. 

Wells    649 

First  Baptist  Church  v.  Brook- 
lyn Fire  Ins.  Co 186 

Fitch   V.    American   Popular  Life 

Ins.   Co : 366 

Fitts  V.  Grocery  Co 595 

Fitzgerald  v.  RaxcUngs  Implement 

Co 638 

FiTZHERBERT    V.    MaTHER 252 

Flinn  v.  Tobin 334 

Foley  V.  Manufacturer'  &  Build- 
ers' Fire  Ins.  Co.  of  New  York..   106 

Fowler  v.  JEtna  Fire  Ins.  Co 394 

Franklin  Fire  Ins.  Co.  v.  Kep- 
ler   . .  . .  / 673 

Franklin  Fire  Ins.  Co.  v.  Martin  516 

Freund    v.    Freund 626 

Fuller   V.    Boston    Mut.   Fire  Ins. 

Co 602 

Fuller  V.  Insurance  Co 704 

Funke  v.   Insurance  Co 683 

Gale    v.    Belknap    County    Ins. 

Co 686 

Garner  v.   Milwaukee  Mechanics' 

Ins.    Co 663 

Garrick   v.   Taylor 169 

Gates  v.  Madison   County  Mut. 

Ins.    Co 279 

Gazzam  v.  German  Union  Ins.  Co.  212 
Gedgre  v.  Royal  Exchange  Assur. 

Corp 48 

Georgia  Home  Ins.  Co.  v.  Allen.  .  411 
German  Alliance  Ins.  Co.  v.  Kan- 
sas         37 

Germania  Fire  Ins.  Co.  v.  Thomp- 
son       109 

Gibb    V.    Philadelphia    Fire    Ins. 

Co 660 

GiBB  V.  Philadelphia  Fire  Ins. 

Co 664 

Gibson   Electric   Co.    v.  Liverpool 

&  London  &  Globe  Ins.  Co 560 

Gilbert  v.  Port 591 

Gilbert  v.  Sykes 63 

Gladstone    v.    Kino 252,261 

Glendale   Mfg.    Co.    v.    Protection 

Ins.    Co 395 

Glendale  Woolen  Co.  v.  Protection 
Ins.   Co 402 


Page 

fJlohe  Mut.  Ins.  Co.  v.  Wolft 502 

Glover  V.  Black 38 

Goddard  v.  East  Texas  Fire  Ins. 

Co 380 

Goddart    v.    (Jarrett 38 

GoDSALL    v.     I50LUEK0 01,  120 

Go.ss    V.    Withers 39 

Gould   V.    Brock 32 

(Jkand  Lodge  v.  Child 632 

Grant   v.    Parkinson 47 

(iREEN  V.  Merchants'  Ins.  Co....  258 

Grevemeyer  v.  Insurance  Co....  99 
Grevemeyer     v.      Southern     Mut. 

Fire  Ins.  Co 95 

Grieve   v.   Young 257 

Grigsby  v.  Russell 176,  636 

Grim  v.  Piicenix  Ins.  Co 693 

Groce  v.  Phoenix  Ins.  Co 659 

Grosvenor  v.  Atlantic  Fire  Ins. 

Co 581 

Giirnett  v.  Insurance  Co 516 

Haas  V.  Mutual  Life  Ins.  Co 717 

Hagan  v.  Scottish  Ins.  Co 574 

hahn  V.   Supreme   Lodge 146 

Hainer  v.  Legion  of  Honor 634 

Halford  v.  Kymer 129 

Hancox  v.  Fishing  Ins.  Co 80 

Hardy  v.  .^tna  Life  Ins.  Co..  .182,  637 

Harper  v.  Albany  Ins.  Co 678 

Harper  v.  New  York  City  Ins.  Co.  677 
Harse  v.  Pearl  Life  Assur.  Co...  146 

Hart  v.  Citizens'  Ins.  Co 709 

Hartford  Fire  Ins.  Co.  v.  Bourhon 

County    Court 608 

Hartford  Fire  Ins.  Co.  v.  Wilson..  219 
Hartford    Protection    Ins.    Co.    v. 

Harmer    270 

Hatch   v.   Insurance   Co 404 

Hatch  V.  United  States  Casualty 

Co 704 

Hebdon  v.  West 128 

Heilbrunn  v.  German  Alliance  Ins. 

Co 601 

Hendricks  v.  Commercial  Ins.  Co.  385 

Herkimer   v.    Rice 101 

Her  many  v.  Association 439 

Herrman  v.  Adriatic  Fire  Ins.  Co.  668 
Herrman  v.  INIerchants'  Ins.  Co.  669 

Hess'  Adm'r  v.  Segenfelter 147 

Hcicins  V.  London  Assur.  Corp..  .  212 

Hibbert  v.  Pigou 380 

Hicks  V.  British  American  Assur. 

Co 202 

Higgins   v.   Livermore 388 

Hill  v.  Patten 83 

Hinckley  v.  Germania  Ins.  Co.  676 
Holdom    v.    Ancient    Order    of 

United    Workmen 470 

Home  Ins.  Co.  v.  Minneapois,  St. 

P.,  Etc.,  R.  Co 574 

Hooper    v.    Robinson 87 


XVIU 


TABLE    OP    CASES 


Page 
Hooper  v.  Standard  Life  cC-  Acci- 
dent  In^.    Co 723 

Hopkins  V.  Northwestern  Life  As- 

sur.    Co 628 

Hore   V.    Whitmore 379 

Hormel  v.  American  Bonding  Co.  31 
Hosford    V.    Germania    Fire    Ins. 

Co 408 

Hoivard  Fire  &  Marine  Ins.  Co.  v. 

Cornhck 397 

Howard  Ins.  Co.  v.  Scribner...  (588 
Hyde  v.  Bruce 382 

Illinois  Mut.  Fire  Ins.  Co.  v.  Fix  581 
Imperial    Fire    Ins.    Co.   v.    Coos 

County    414,  415 

Indiana  Nat.  Life  Ins.  Co.  v.  Mc- 

Ginnis    622,  720 

Inman   v.    Railway  Co 654 

Insurance  Co.   v.  Allen 101 

Insurance  Co.  v.  Armstrong....  463 

Insurance  Co.  v.  Bank 558 

Insurance  Co.  v.  Brodie 545 

Insurance  Co.   v.  Carrugi 545 

Insurance  Co.  v.  Darrin 558 

Insurance  Co.   v.   Davis 557 

Insurance  Co.  v.  Downs 703 

Insurance  Co.  v.  Fletcher 569 

Insurance   Co.   v.  Gilbert 568 

Insurance  Co.  v.  Gray 557 

Insurance  Co.   v.   Hallock 218 

Insurance  Co.  v.  Mowry 492 

Insurance   Co.    v.   Murray 115 

Insurance  Co.  v.  Norton 490 

Insurance  Co.  v.  Palmer 617 

Insurance  Co.   v.   Eeed 568 

Insurance  Co.   v.   Thomson 217 

Insurance  Co.  v.  Wilkinson 506 

Insurance  Co.  v.  Wilkinson...  520 
Irwin    V.    Westchester    Fire    Ins. 

Co 109 

Jackson  Co.  v.  Insurance  Co..  ..  654 
Janney,  Semple  &  Co.  v.  Goeiir- 

INGER     707 

Jefferies    v.    Legendra 373 

Jeffries  v.  Life  Ins.   Co 418 

Joel  V.  Law  Union  Ins.  Co 434 

Johnson  v.  /Etna  Lns.  Co 491 

Johnson  v.  National  Life  Ins.  Co.  440 

Johnson   v.  Van  Epps 166 

Juhel  V.  Church 51 

Kansas     City    Life    Ins.     Co.     v. 

Blackstone    422 

Karelsen  v.  Sun  Fire  Office...  203 
Kausal     v.     Minnesota     Farmers' 

Mut.  Fire  Ins.  Ass'n 548 

Kelley  v.  People's  Nat.  Fire  Ins. 

Co 682 

Kelly  V.  People's   Nat.   Fire  Ins. 

Co 566 


Page 
Kenniston     v.     Merrimack    Ins. 

Co 692 

Kent  v.  Bird 50 

Kenyon  v.  Berthon 379 

Ketcham   v.   Accident  Ass'n....  568 

Kiernan   v.   Insurance   Co 564 

Kinff  V.  h'tatc  Mut.  Fire  Ins.  Co..  .  595 

Kinney  v.  Kailroad  Co 26 

Kipp  V.  IIanna 621 

Kludt  V.   German  Mut.  Fire  Ins. 

Co 610 

Knights    of    Honor    v.    Menk- 

iiausen    471 

Knights  of  Maccabees  v.  Shields. .  427 

Knooo   V.   Wood 48 

Korn  v.  Mutual  Assur.  Co 223 

Kyte  V.  Commercial  Union  Assur. 

Co 674 

Lake  v.  New  York  Life  Ins.   Co. 

174,  636 
L.aklca   v.   Modern  Brotherhood. .  429 

La  Mesurier  v.  Vauyhau 386 

Lampasas  Hotel  &  Park  Co.   v. 

Phcenix   Ins.    Co 667 

Lane  v.   Insurance   Co 120 

Langan     v.     Supreme     Council 

American  Legion   of  Honor.  .  230 

Lanier  v.  Insurance  Co 628 

Laselle   v.   Insurance  Co 674 

Lavin  v.  Empire  Life  Ins,  Co....  642 

Law  V.  George  Newnes 635 

Law   v.   Hollingsworth 447 

Le  Cras  v.  Hughes 65 

Leisen  v.  St.  Paul,  Fire  &  Marine 

Ins.    Co 539 

Lethuliers'    Case 374 

Lewis   V.   Rucker 55 

Lewis  V.  Thatcher 387 

Ley  V.  Metropolitan  Life  Ins.  Co.  439 

Ley  den  v.   Lawrence 594,  649 

Life  Ins.  Co.  v.  Armstrong 184 

Lindenau  v.  Desborough 285 

Lipman  v.  Insurance  Co 203 

Liverpool  &  London  &  Globe  Ins. 

Co.  V.  Sheffy 503 

Loeffler  v.  Modern  Woodmen  of 

America 224 

London  Assur.  v.  Mansel 288 

London  Assur.   v.  Mansel 298 

Lord  V.  Dall 134 

Lord  v.  Dall 144 

Lovelace  v.   Travelers'  Protective 

Ass'n    724 

LowRY  V.  Bourdieu 52 

Loyd  V.  Planters'  Mut.  Ins.  Co...   117 

Lucena    v.    Craufurd 17 

Lucena  v.  Craufurd 71 

Lynch  v.   Dalzell 43 

Lynchburg     Fire     Ins.     Co.     v. 

West    409 

Lynn  Gas  &  Electric  Co.  v.  Meri- 

'den  Fire  Ins.  Co 696 


TABLE    OF    CASES 


XIX 


Page  , 

McClure  V.  Mutual  Fire  Ins.  Co.  495 

McDowell  V.  Fraser 324 

McElroy  v.  Metropolitan  Life  Ins. 

Co 499 

McGlinchcy    v.    Fidelity    d    Cas. 

Co 724 

Mcduirc  V.   Chicago,   B.  d   Q.   R. 

Co 26 

Mackie  v.   Pleasants oOG 

McKiM    V.    Glenn 4;io 

McLanaiian    V,    The    Universal 

Ins.    Co 257 

Maieb  v.  Association 568 

Manufacturers'     Accident     In- 
demnity   Co.    v.   Dorgan 722 

Mapes    v.    Coffin 100 

Matthews  v.  Capital  F.  Ins.  Co.  4S4 

Maynard  v.   Rhode 361 

Mayne  v.   Walter 247 

Mechanics'    i(-    Traders'    Ins.    Co. 

V.    Davis 661 

Merchants'   Mat.    Ins.   Co.    v.    Ly- 
man      313 

Merrill  v.  Agr.  Ins.  Co 671 

Metropolitan    Life     Ins.     Co.     v. 

Freedman    642 

Metropolitan     Life     his.     Co.     v. 

People's    Trust    Co 704 

Metropolitan    Life     Ins.     Co.     v. 

Shane    615 

MicKLES    V.    Bank 101 

Mills  v.  Insurance  Co 120 

MiUville  Aerie  No.  1S36  F.  0.  of 

Eagles    v.    Weather  by 591 

Milwaukee  &  St.  P.  Ry.  v.  Kel- 
logg      698 

Mobile  Life  Ins.  Co.  v.  Brame...  656 

MoENS  V.  Heyworth 292 

MoLLisoN    V.    Staples 14 

MoNTOYA  V.  London  Assur.  Co.. .  694 

Moody  v.  Insurance  Co 674 

Moore    v.    Woolsey 462 

Morrison  v.  Muspratt 287 

Monlor  v.  American  Life  Ins.  Co.  425 
Mudge  V.  Supreme  Court,  I.  O.  F.  567 
Murray  v.  New  York  Life  Ins.  Co.  725 
Mutual  Life  ins.  Co.  v.  Blodgett  160 
Mutual  Life  Ins.  Co.  v.  Cummings  636 
Mutual  Life   Ins.   Co.   v.  Durden 

467,  468 
Myers  v.  Life  Ins.  Co 515 

Nance  v.  Oklahoma  Fire  Ins.  Co... 

659,  700 
National  Annuity  Ass'n  v.  McCall  427 
National  Bank  v.  Insurance  Co..  .  402 
National     Bank     v.    Insurance 

Co 409 

National     Paper     Box     Co.     v. 

^^TNA  Life  Ins.  Co 733 

Nelson  v.  Salvador 389 

Neptune  Ins.  Co.  v.  Robinson....  248 


Page 
Newark    Mach.    Co.    v.    Kenton 

Ins.    Co 217 

New  England  Marine   Ins.   Co.   v. 

Dunham    1 

Newiiall  v.  American  Legion  of 

Honor     223 

New  York  Bowery  Fire  Ins.  Co. 

V.  New  York  Fire  Ins.  Co....  301 
New  York  Life  Ins.  Co.  v.  Bab- 
cock    212 

New  Yoi'lc  Life  Ins.  Co.  v.  Fletch- 
er     511,  533 

New     York     Life     Ins.     Co.     v. 

Fletcher    524 

N.  E.  Fire  &  Marine  Ins.  Co.  v. 

Wetmore    583 

Nichols  v.  Fayette  Ins.  Co 297 

North  British  d   Mercantile   Ins. 

Co.  V.  Steiger 566 

Northern  Assur.  Co.  of  London  v. 

Grand  View  Building  Ass'n....  525 
Noj-thicestern     Life    Ins.     Co.     v. 

Montgomery   306 

Northwestern  Mut.  Life   Ins.    Co. 

V.    McCue 473 

Northwestern    Mut.    Life     Ins. 

Co.   V.   Neafus 199 

Oatman    v.    Banker.^'    Mut.    Fire 

Relief    Ass'n 487 

Ogden  V.  East  River  Ins.  Co 687 

O'Niel  V.  Buffalo  Fire  Ins.  Co 395 

Orient  Ins.  Co.  v.  Clark 702 

Pabst  Brewing  Co,  v.  Milwau- 
kee       565 

Palmer  v.  Mutual  Life  Ins.  Co.  of 

New    York 713 

Parno  v.  Insurance  Co 556 

Partridge    v.    Gopp 621 

Paterson  v.  Powell 12 

Patterson   v.  Insurance  Co 464 

Pawson  V.  Bamcvelt ■. 380 

Pawson  v.  Ewer 376 

Pawson  v.    Watson 318 

Pawson  V.  Watson 325 

Penman  v.  St.  Paul  Ins.  Co 495 

Pennefeatheb       v.       Baltimore 

Steam  Packet   Co 575 

PenAi  Mut.  Life  Ins.  Co.  v.  Me- 
chanics' Savings  Bank  &  Trust 

Co 28,  2'99 

Penn  Mut.  Life  Ins.  Co.  v.  Me- 
chanics' Savings  Bank  &  Trust 

Co 300 

People  ex  rel.  Kasson  v.  Rose. ...  16 
People's  Fire  Ins.  Ass'n  v.  Goyne  532 
People's     Fire     Ins.     Ass'n     v. 

Goyne     546 

People's  St.  R.  Co.  v.  Silencer....  592 

Perky   v.  Mutual   Life   Co 569 

Pfeiler  v.  Penn  Allen  Portland 
Cement   Co 655 


XX 


TAI5LE    OK    CASKS 


Page 
Pfiester    v.    Missouri    State    Life 

Ins.    Co 495 

Pfiester    v.    Missouri    State    Life 

lus.    Co 552 

Phelps   v.   Auldjo 450 

I'henix  Tiis.  Co.   v.  Ullliard G5G 

I'hiladelphia  Life  Ins.  Co.  of  Pliil- 

adolphia,   I'a.,  v.  Arnold 71S 

Phillips   v.   E.\<st\vood 127 

Phinizy    r.    Gucniscji 001 

I'hanix  Ins.  Co.  v.  Annd 411 

PiicENix   In.s.   Co.   v.   Erie  &  W. 

Transp.    Co 24 

Plianiix    Milt.     Life    Ins.     Co.    v. 

Raddin    294 

Physicians'  Defense  Co.  v.  Cooper  11 
PiNDAB    V.    Resolute    Fire    Ins. 

Co 515 

Planche  v.   Fletcher 244 

Plath    v.   Minn.    Farmers'    Mut. 

Fire    Ins.    Ass'n 6S6 

Policy  No.  6402  of  Scottish  Equi- 
table   Life    Assur.    Society,    In 

re     167,  622 

Ponieroy  v.  ^tna  Ins.  Co 665 

Port  Bhikely  Mill   Co.  v.   Spring- 
field Fire  t£-  Marine  Ins.  Co 414 

Powlcs    V.    Innes 576 

Pratt   v.   Insurance    Co 563 

Pritchet  v.  Insurance  Co.  of  North 

America    52 

Proudfoot  V.   Montefiore 250 

Pboudfoot  v.  Montefiore.  .  .258,  261 
Putnam  v.  Insurance  Co 99 

Quinlan   v.   Insurance  Co 564 

Rahders,  Merritt  &  Hagler  v.  Peo- 
ple's Bank  of  Minneapolis.  .179,  637 
Rasicot    V.    Royal    Neighbors    of 

America    428 

Ratcliffe  v.   Shoolbred 246 

Rawls  v.  American  Life  Ins.  Co.  164 

Rayner    v.   Preston 585 

Redfield   v.   Holland  Purchase 

Ins.    Co 116 

Redstrake    v.     Cumberland    Mut. 

Fire    Ins.    Co 477 

Reed    v.    Firemen's    Ins.    Co.    of 

Newark    597 

Reed    v.    Provident    Savings    Life 

Assur.  Society  of  New  York.,  155 
Reilly  v.  Franklin  B"'ire  Ins.  Co. .  .  605 
Reserve    Loan    Life    Ins.    Co.    v. 

Boreing    571 

Reserve  Mut.  Ins.  Co.  v.  Kane...  146 
Reserve    Mut.    Life    Ins.    Co.    v. 

Kane     143 

Reynolds  v.  London,  etc.,  Ins.  Co.  595 
Reynolds    v.    Supreme   Council   of 

Royal    Arcanum 219 

Richelieu  &  O.  Nav.  Co.  v.  Boston 

Marine   Ins.    Co 446 


Page 
Ricker  v.  ('liartcr  Oak  Ins.  Co...  611 

Rider  v.  Kiddkk 169 

Rigi,'s    V.    Conunercial    Mut.    Ins. 

Co 104 

Ripley  v.  ^Etna  Ins.  Co 39S 

RjPLEY   V.  .Etna  Ins.  Co 515 

Ritter  v.  Mutual  Life  Ins.  Co.  of 

New    York 455 

Rohertson    v.    Frkncif 399 

Robinson  V.  Mcnnonite  Mut.  Fire 

Ins.    Co 669 

RobVs  Fstate,  In  re 594 

RouY  V.  Insurance  Co 563 

Roebuck  v.  Hamerton 14 

Ruhrbach   v.   Gerniania   Life   Ins. 

Co 96 

Ronald   v.   Association 564 

Ross    V.    Bradshaw 416 

Routledge   v.   Burr  ell 380 

RuGGLES     V.    General    Interest 

Ins.    Co 253 

Ruggles  v.  Insurance  Co 203 

Ruse  V.  Mutual  Benefit  Life  Ins. 

Co 56 

Ruse    v.    Mutual    Benefit    Life 

Ins.    Co 164 

Sadlers'  Co.  v.  Badcock 40,  576 

St.  John  v.  Insurance  Co 173 

Salisbury  v.   Hekla  Fire  Ins.  Co. 

of    Madison.    Wis 201 

Scammell  v.  China  Mut.  Ins.  Co..  .   191 

Schwerdt  v.   Schwerdt 140 

Scott    v.    Brown,    Doering,    Mc- 

Nab    &    Co 51 

Scott   v.   Thompson 450 

Scripture    v.     Ix)well    Mut.     Fire 

Ins,    Co 690 

Seal    V.    Farmers'    &    Merchants' 

Ins.    Co 358 

Seaton  v.  Burnand 307 

Security    Mut.    Life    Ins.    Co.    v. 

Prcwitt 37 

Shackelton  v.  Sun   Fire  Office 

OF  London,   England 673 

Shader  v.  Railway  Passenger  Ins, 

Co 723 

Shadgett  v.  Phillips 595 

Shakman    v.    Credit-System    Co.     18 

Shaw  v.  ^tna  lus.  Co 93 

Shipman  v.  Protected  Home  Cir- 
cle      229 

Sikes  V.  Life  Ins.  Co 4l'0 

Simpson  v.  Thomson 647 

Singleton  v.  St.  Louis  Ins.  Co.  144 
Slocum  V.  Northwestern  Nat.  Life 

his.    Co 642 

Snow  v.  Mercantile  Mut.  Ins.  Co.  255 

Southern  Ins.  Co.  v.  Parker 411 

Southern  Mut.  Ins.  Co.  v.  Yates  409 

Sparkes   v.  Marshall 86 

Stackpole  v.   Simon 360 

State  V.  Alley 11 


TABLE    OF    CASES 


XXI 


Page 

t^tate    V.    Beard f<1  If 11 

State  V.    Ilogan 6 

State  V.  Hoicard 37 

State  v.  Railroad  Co 35 

State  V.  Towle 15 

State  v.  Wichita  Mutual  Buri- 
al   Ass'n 36 

State  V.  Willett 33 

Statiiam's    Case 501 

Steam    Engine    Works    v.    Sun 

MuT.  Ins.  Co 581 

Steele  v    Insurance  Co 703 

Stcinhach    v.    La     Fayette     Fire 

Ins.    Co GSl 

Steineack   v.    Diepenisrock 183 

fitcrnaman    v.    Metropolitan    Life 

Ins.    Co 550 

Stout  v.  City  Fire  Ins.  Co 408 

Straker  v.  PnENix  Ins.  Co 484 

Sullivan  v.  Mercantile  Mut.   Ins. 

Co 537 

Sullivan  v.  Phenix  Ins.  Co 657 

Sumter  Tohaceo  Warehouse  Co.  v. 

Phoenix    his.    Co 414 

Sun  Ins.  OfKce  of  London  v.  Merz  119 
Smi  Life  Ins.   Co.  v.  Phillips.  .. .  571 

Supreme   Conclave   v.    TT'oorf 440 

Supreme     Conclave     Royal     Adel- 

phia    V.    Cappella 629 

Supreme  Council  Royal  Arcanum 

V.    Kaca' 629 

Sweeny    v.   Insurance  Co 115 

Symmers  v.   Carroll 572 

Syndicate  Ins.  Co.   v.  Bohn....  COO 

Taunton  v.  Royal  Ins.  Co 590 

Tebbets  v.  Guaranty  Co 19 

Thames  &  Mersey  Marine  Ins.  Co. 

V.   Gunford    Ship   Co 264 

Thomas  v.  National  Ben.  Ass'n.  .  65 
TiLLON    V.    Kingston    Mut.    Ins. 

Co 581 

Titus    v.   Insurance   Co 562 

TOWNE    V.    I'lTCHBURG   InS.    CO.  .  .  .    297 

Townsend  v.  Townsend 627 

Traders'  Ins.  Co.  v.  Robert 581 

Trenton  Mut.  Life  &  Fire  Ins.  Co. 
V.    Johnson 60 

Trenton  Pass.  R.  Co.  v.  Guaran- 
tors'  Liability   Indemnity  Co..  .     20 

Trinity  College  v.  Travelers'  Ins. 
Co 185 

Trustees  v.  Brooklyn  F.  Ins. 
Co 514 

Trustees  of  First  Baptist  Church 
V.  Brooklyn  Fire  Ins.  Co 186 

Union  Central  Life  Ins.  Co.  v. 
Spinlcs    712 

United  Brethren  Mut.  Aid  So- 
ciety  V.  McDonald 144 

L'nited  States  Casualty  Co.  v. 
Kacer    628 


Page 

United    States    TAfe    Ins.    Co.    v. 
Smith     642 

Valton   v.  National  L.   F.  Life 

Ass'n   So 64 

Van  Schoicli  v.  Niagara  Fire  Ins. 

Co 511 

Van  Tassel  v.  Insurance  Co..  .  564 

Veedon  v.    Wilmot 382 

Vezian    v.    Grant 378 

Victoria  S.  S.  Co.  v.  Western  As- 

sur.    Co 439 

Virginia    Fire    &    Marine    Ins. 

Co.  v.  Buck  &  Newson 407 

Virginia  Fire  &  Marine  Ins.  Co.  v. 

Morgan    406 

VosE  v.  Insurance  Co 306,  346 

Vredenburf/h    v.    Physicians'    De- 
fense   Co 11 

Wainwright  v.  Bland 364 

Walden  v.   Louisiana  Ins.  Co....  271 

Walker  v.   Farmers'  Ins.  Co....  200 

Walker   v.   Insurance  Co 564 

Ward  v.  Wood 454 

Waring  v.  Indemnity  Fire  Ins. 

Co 573 

Warner  v.  Karragansett  Ins.   Co.  704 

Warnock   v.  Davis 170,  636 

Warren    v.     Manufacturers'     Ins. 

Co 453 

Washington  Central  Nat.  Bank  v. 

Hume     615 

Washington    Life    Ins.     Co.     v. 

Berwald    626 

Washington  Mills  Emery  Mfg.  Co. 
V.  Weymouth  &  Braintree  Mut. 

Fire    Ins.    Co 2S0,  608 

Watson  v.  Delafield 257 

Watson  V.   Mainwaring 360 

Weed  v.  Insurance  Co 563 

Welch  V.  Fire  Ass'n  of  Philadel- 
phia      481 

Wendt  V.  Legion  of  Honor 631 

Western  Assur.  Co.  v.  Reddhig.  .  410 
Western  Horse  <&  Cattle  Ins.  Co. 

V.    O'Neill 458 

Western    &    A.    Pipe    Lines    v. 

Home  Ins.   Co 121 

Western  &  Southern  Life  Ins.  Co. 

V.  Grimes'  Adm'r 152 

Wharton  v.  De  La  Rive 14 

Wheeler   v.  Insurance   Co 595 

Wheclton  v.  Hardisty 363 

White  V.  Oilman 588 

White  V.  Home  iMut.  Ins.  Co 702 

White  V.  Provident  Sav.  Life  As- 
sur. Soc.  of  New  York 437 

Whitney   v.  Haven 338 

Whitney    v.  Mayer 344 

Whittingham   v.  Thornburgh 359 

Wild   Rice   Lumber   Co.   v.   Royal 

Ins.    Co 211 


XXll 


TABLE    OF    CASES 


Page 

Williams  v.  LUlcy 591 

Williams    v.    Washington    Life 

Ins.    Co 143 

WilliatnfthitroJi  Citi/  Fire  Ins.  Co. 

V.    Millard 700 

Willis  V.  Poole 417 

Wilson  v.  Insurance  Co 115 

Wilson   v.    Jones 105 

Wilson  V.  Salamandra  Assur.  Co.  263 
Wolf    V.     Theresa    Village    Mut. 

Fire   Ins.    Co 6G5 

Wood  V.  Hartford  Fire  Ins.  Co..  .  392 

Wood  v.  Insurance  Co 541 

Wood  V.  Insuratvce  Co 661 

Woodman  Ace.  Ass'n  v.  Pratt. .  . .  704 
Woodman  Acc.  Ass'n  v.  Pratt.  .  733 


Page 

Woods  V.  Woods'  Adm'r 141 

Woolnier  v.  Muilman 375 

Woislcy  V.  Wood 380 

WOKTIIINGTON     V.     BeARSE 90 

Worthin.^ton  v.  Curtis 131 

Wright   V.   Knights  of   Maccabees 
of   the   World 225 

WUNDERLE    V.     WUNDEULE 20 

Wyman  v.  IFy/Hoi 594 

Xenos  V.  Wickham 219 

YoNGE  V.  Society 218 

Zcnor  V.  Hayes 58.V 


CASES 


ON  THE 


LAW  OF  INSURANCE 


CHAPTER  I 
INTRODUCTORY 


SECTION  I.— HISTORICAL 


NEW  ENGLAND  MARINE  INS.  CO.  v.  DUNHAM. 
(Supreme  Court  of  the  United  States,  1870.    11  Wall.  1,  20  L.  E<i.  90.) 

BradIvEy,  J.^  This  case  comes  before  us  on  a  certificate  of 
division  in  opinion  between  the  judges  of  the  Circuit  Court  for 
the  District  of  Massachusetts,  on  appeal  from  the  District  Court 
of  that  district.     *     *     * 

The  case  as  thus  presented  is  as  follows :  A  libel  in  personam 
was  filed  in  the  District  Court  for  the  District  of  Massachusetts, 
by  Dunham  against  the  New  England  Mutual  Marine  Insurance 
Company,  on  a  policy  of  insurance,  dated  at  Boston,  on  the  2d 
day  of  March,  1863,  whereby  the  Insurance  Company,  a  corporation 
of  Massachusetts,  agreed  to  insure  to  Dunham,  the  libelant,  a  cit- 
izen of  New  York,  in  the  sum  of  $10,000,  for  whom  it  might  con- 
cern, on  a  vessel  called  the  Albina,  for  one  year,  against  the  perils 
of  the  seas  and  other  perils  in  the  policy  mentioned ;  and  the  libel- 
ant alleged  that  within  one  year  the  said  vessel  was  run  into  by 
another  vessel  on  the  high  seas,  through  the  negligence  of  those 
navigating  the  said  other  vessel,  and  sustained  much  damage,  and 
that  the  libelant  had  expended  large  sums  of  money  in  repairing 
the  same,  of  which  he  claimed  payment  of  the  Insurance  Com- 
pany;   and  the  question  is,  whether  the  District  Court,  sitting  in 

1  The  statement  of  facts  and  part  of  the  opinion  are  omitted. 
Vance  Ins. — 1 


2  INTllODUCTOUY  (Ch.  1 

admiralty,  has  jurisdiction  to  entertain  a  libel  in  personam,  on  a 
policy  of  marine  insurance,  to  recover  for  a  loss      *     *     * 

It  only  remains,  then,  to  enquire  whether  the  contract  of  marine 
insurance,  as  set  forth  in  the  present  case,  is  or  is  not  a  mari- 
time contract. 

It  is  objected  that  it  is  not  a  maritime  contract  because  it  is 
made  on  the  land  and  is  to  be  performed  (by  payment  of  the  loss) 
on  the  land,  and  is  therefore  entirely  a  common  law  transaction. 
This  objection  would  equally  apply  to  bottomry  and  respondentia 
loans,  which  are  also  usually  made  on  the  land,  and  are  to  be  paid 
on  the  land.  But  in  both  cases  payment  is  made  to  depend  on  a 
maritime  risk;  in  the  one  case  upon  the  loss  of  the  ship  or  goods, 
and  in  the  other  upon  their  safe  arrival  at  their  destination.  So 
the  contract  of  afifreightment  is  also  made  on  land,  and  is  to  be 
performed  on  the  land  by  the  delivery  of  the  goods  and  the  pay- 
ment of  the  freight.  It  is  true  that  in  the  latter  case  a  maritime 
service  is  to  be  performed,  in  the  transportation  of  the  goods.  But 
if  we  carefully  analyze  the  contract  of  insurance  we  shall  find  that, 
in  effect,  it  is  a  contract,  or  guaranty,  on  the  part  of  the  insurer, 
that  the  ship  or  goods  shall  pass  safely  over  the  sea,  and  through 
its  storms  and  its  many  casualties,  to  the  port  of  its  destination ; 
and  if  they  do  not  pass  safely,  but  meet  with  disaster  from  any  of 
the  misadventures  insured  against,  the  insurer  will  pay  the  loss 
sustained.  So,  in  the  contract  of  affreightment,  the  master  guar- 
antees that  the  goods  shall  be  safely  transported  (dangers  of  the 
seas  excepted)  from  the  port  of  shipment  to  the  port  of  delivery, 
and  there  delivered.  The  contract  of  the  one  guarantees  against 
loss  from  the  dangers  of  the  sea,  the  contract  of  the  other  against 
loss  from  all  other  dangers.  Of  course  these  contracts  do  not 
always  run  precisely  parallel  to  each  other,  as  now  stated;  spe- 
cial terms  are  inserted  in  each  at  the  option  of  the  parties.  But 
this  statement  shows  the  general  nature  of  the  two  contracts. 
And  how  a  fair  mind  can  discern  any  substantial  distinction  between 
them,  on  the  question  whether  they  are  or  are  not  maritime  con- 
tracts, is  difficult  to  imagine.  The  object  of  the  two  contracts  is, 
in  the  one  case,  maritime  service,  and,  in  the  other,  maritime  cas- 
ualties. 

And  then  the  contract  of  insurance,  and  the  rights  of  the  parties 
arismg  therefrom,  are  affected  by  and  mixed  up  with  all  the  ques- 
tions that  can  arise  in  maritime  commerce — jettison,  abandonment, 
average,  salvage,  capture,  prize,  bottomry,  etc. 

Perhaps  the  best  criterion  of  the  maritime  character  of  a  contract  is 
the  system  of  law  from  which  it  arises  and  by  which  it  is  governed. 
And  it  is  well  known  that  the  contract  of  insurance  sprang  from  the 
law  maritime,  and  derives  all  its  material  rules  and  incidents  therefrom. 
It  was  unknown  to  the  common  law ;  and  the  common  law  remedies, 
when  applied  to  it,  were  so  inadequate  and  clumsy  that  disputes 


Sec.  1)  HISTORICAL  3 

arising  out  of  the  contract  were  generally  left  to  arbitration,  until 
the  year  A.  D.  1601,  when  the  statute  of  43  Elizabeth  was  passed 
creating  a  special  court,  or  commission,  for  hearing  and  determin- 
ing causes  arising  on  policies  of  insurance.  The  preamble  to  that 
act,  after  mentioning  the  great  benefit  arising  to  commerce  by  the 
use  of  policies  of  insurance,  has  this  singular  statement:  "And 
whereas,  heretofore  such  assurers  have  used  to  stand  so  justly  and 
precisely  upon  their  credits  as  few  or  no  controversies  have  arisen 
thereupon,  and  if  any  have  grown  the  same  have,  from  time  to 
time,  been  ended  and  ordered  by  certain  grave  and  discreet  mer- 
chants appointed  by  the  Lord  Mayor  of  the  City  of  London,  as 
men,  by  reason  of  their  experience,  fittest  to  understand  and  speed- 
ily to  decide  those  causes,  until  of  late  years  that  divers  persons 
have  withdrawn  themselves  from  that  arbitrary  course,  and  have 
sought  to  draw  the  parties  assured  to  seek  their  moneys  of  every 
several  assurer  by  suits  commenced  in  Her  INIajesty's  courts,  to 
their  great  charges  and  delays."  The  commission  created  by  this 
act  was  to  be  directed  to  the  judge  of  the  admiralty  for  the  time 
being,  the  recorder  of  London,  two  doctors  of  civil  law,  and  two 
common  lawyers,  and  eight  grave  and  discreet  merchants.-  The 
act  was  thus  an  acknowledgment  of  the  jurisdiction  to  which  the 
case  properly  belonged. 

Had  it  not  been  for  the  jealousy  exhibited  by  the  common  law 
courts  against  the  Court  of  Admiralty,  in  prohibiting  its  cognizance 
of  policies  of  insurance  half  a  century  before  (4  Inst.  139),  the 
latter  court,  as  the  natural  and  proper  tribunal  for  determining  all 
maritime  causes,  would  have  furnished  a  remedy  at  once  easy, 
expeditious  and  adequate.  It  was  only  after  the  common  law, 
under  the  influence  of  Lord  Mansfield  and  other  judges  of  enlight- 
ened views,  had  imported  into  itself  the  various  provisions  of  the 
law  maritime  relating  to  insurance,  that  the  courts  at  Westmin- 
ster Hall  began  to  furnish  satisfactory  relief  to  suitors.  And  even 
then,  as  remarked  by  Sir  W.  D.  Evans,  "the  inadequacy  of  the 
existing  law  to  settle,  proprio  vigore,  complicated  questions  of 
average  and  contribution,  is  very  manifest  and  notorious.  Such 
questions  are,  by  consent,  as  matter  of  course,  and  from  conviction 
of  counsel  that  justice  cannot  be  attained  in  any  other  way;  refer- 
red to  private  examination;  but  a  law  can  hardly  be  considered 
as  perfect  which  is  not  possessed  of  adequate  powers  within  itself 
to  complete  its  purpose,  and  which  requires  the  intrinsic  aid  of 
personal  consent."  Evans,  Statutes  (3d  ed.)  vol.  2.  p.  226.  The 
contrivances  to  which  Lord  Mansfield  resorted,  to   remedy,   in  a 

2  The  Court  of  Insurance  Comniissionors  did  not  prove  successful.  For  the 
causes  leading  to  its  faikn-e,  .see  1  Park,  Ins.  (Gth  Ed).  Introduction,  pp. 
xxxix-xliii ;  3  BlacUstone,  Comm.  74,  75.  See,  also,  Denoyr  v.  Oyle.  Style, 
166  (1649)  ;  Came  v.  Moye,  2  Sidertiu,  121  (1658) ;  Delbye  v.  Proudfoot,  1 
Stiower,  396  (1692). 


4  INTRODUCTORY  (CIl.  1 

measure,  these  difficulties,  are  stated  by  Mr.  Justice  Park  in  the 
introduction  to  his  work  on  Insurance. 

These  facts  go  to  show,  demonstrably,  that  the  contract  of 
marine  insurance  is  an  exotic  in  the  common  law.  And  we  know 
the  fact,  historically,  that  its  first  appearance  in  any  code  or  sys- 
tem of  laws  was  in  the  law  maritime  as  promulgated  by  the  vari- 
ous maritime  states  and  cities  of  Europe.  It  undoubtedly  grew 
out  of  the  doctrine  of  contribution  and  general  average,  which  is 
found  in  the  maritime  laws  of  the  ancient  Rhodians.  By  this  law, 
if  either  ship,  freight  or  cargo  was  sacrificed  to  save  the  others, 
all  had  to  contribute  their  proportionate  share  of  the  loss.  This 
division  of  loss  naturally  suggested  a  provisional  division  of  risk: 
First,  amongst  those  engaged  in  the  same  enterprise ;  and  next, 
amongst  associations  of  ship  owners  and  shipping  merchants. 
Hence  it  is  found  that  the  earliest  form  of  contract  of  insurance 
was  that  of  mutual  insurance,  which,  according  to  Pardessus,  dates 
back  to  the  tenth  century,  if  not  earlier,  and  in  Italy  and  Portugal 
was  made  obligatory.  By  a  regulation  of  the  latter  kingdom,  made 
in  the  fourteenth  century,  every  ship  owner  and  merchant  in  Lis- 
bon and  Oporto  was  bound  to  contribute  two  per  cent,  of  the  prof- 
its of  each  voyage  to  a  common  fund  from  which  to  pay  losses 
whenever  they  should  occur.  2  Pardes.  Lois  Mar.  369;  6  Id.  303. 
The  next  step  in  the  system  was  that  of  insurance  upon  premium. 
Capitalists,  familiar  with  the  risks  of  navigation,  were  found  will- 
ing to  guaranty  against  them  for  a  small  consideration  or  premium 
paid.  This,  the  final  form  of  the  contract,  was  in  use  as  early  as 
the  beginning  of  the  fourteenth  century  (Pardessus,  Lois  Mari- 
times,  vol.  2,  pp.  369,  370;  vol.  4,  p.  566;  vol.  5,  pp.  331,  493),  and 
the  tradition  is  that  it  was  introduced  into  England  in  that  century 
by  the  Lombard  merchants  who  settled  in  London  and  brought 
with  them  the  maritime  usages  of  Venice  and  other  Italian  cities. 

Express  regulations  respecting  the  contract,  however,  do  not 
appear  in  any  code  or  compilation  of  laws  earlier  than  the  com- 
mencement of  the  fifteenth  century.  The  earliest  which  Pardessus 
was  able  to  find  were  those  contained  in  the  Ordinances  of  Bar- 
celona, A.  D.  1435  ;  of  Venice,  A.  D.  1468;  of  Florence,  A.  D.  1533  ; 
of  Antwerp,  A.  D.  1537,  etc.  Pardessus,  vol.  5,  pp.  493,  65 ;  vol. 
4,  pp.  598,  Z7 .  Distinct  traces  of  earlier  regulations  are  found,  but 
the  ordinances  themselves  are  not  extant.  In  the  more  elaborate 
monuments  of  maritime  law  which  appeared  in  the  sixteenth  and 
seventeenth  centuries,  the  contract  of  insurance  occupies  a  large 
space.  The  Guidon  de  la  Mer,  which  appeared  at  Rouen  at  the 
close  of  the  sixteenth  century,  was  an  elaborate  treatise  on  the  sub- 
ject; but  in  its  discussion,  the  principles  of  every  other  maritime 
contract  were  explained.  In  the  celebrated  Marine  Ordinance  of 
Louis  XIV,  issued  in  1681,  it  forms  the  subject  of  one  of  the  prin- 


Sec.  1)  HISTORICAL  5 

cipal  titles.  Lib.  3,  title  6.  As  is  well  known,  it  has  always  formed 
a  part  of  the  Scotch  maritime  law. 

Suffice  it  to  say,  that  in  every  maritime  code  of  Europe,  unless 
England  is  excepted,  marine  insurance  constitutes  one  of  the  prin- 
cipal heads.  It  is  treated  in  every  one  of  those  collected  by  Par- 
dessus,  except  the  more  ancient  ones,  which  were  compiled  before 
the  contract  had  assumed  its  place  in  written  law.  It  is,  in  fact. 
a  part  of  the  general  maritime  law  of  the  world;  slightly  modified, 
it  is  true,  in  each  country,  according  to  the  circumstances  or  genius 
of  the  people.  Can  stronger  proof  be  presented  that  the  contract 
is  a  maritime  contract? 

But  an  additional  argument  is  found  in  the  fact  that  in  all  other 
countries,  except  England,  even  in  Scotland,  suits  and  contro- 
versies arising  upon  the  contract  of  marine  insurance  are  within 
the  jurisdiction  of  the  admiralty  or  other  marine  courts.  See  Ben- 
edict's Admiralty  (Ed.  1870)  §  294.  The  French  Ordinance  of  1681 
touching  the  Marine,  in  enumerating  the  cases  subject  to  the  juris- 
diction of  the  judges  of  admiralty,  expressly  mentions  those  arising 
upon  policies  of  assurance,  and  concludes  with  this  broad  language : 
"And  generally  all  contracts  concerning  the  commerce  of  the  sea." 
Sea  Laws,  256.  The  Italian  writer,  Roccus,  says:  "These  subjects 
of  insurance  and  disputes  relative  to  ships  are  to  be  decided  accord- 
ing to  maritime  law,  and  the  usages  and  customs  of  these  are  to 
be  respected.  The  proceedings  are  to  be  according  to  the  forms  of 
maritime  courts  and  the  rules  and  principles  laid  down  in  the 
book  called  'The  Consulate  of  the  Sea,'  printed  at  Barcelona  in 
the  year  1592."    Roccus,  Insurance,  note  80. 

It  is  also  clear  that,  originally,  the  English  admiralty  had  juris- 
diction of  this  as  well  of  other  maritime  contracts.  It  is  expressly 
included  in  the  commissions  of  the  admiral.  Benedict,  §  48.  Dr. 
Browne  says :  "The  cognizance  of  policies  of  insurance  was  of  old 
claimed  by  the  Court  of  Admiralty,  in  which  they  had  the  great 
advantage  attending  all  their  proceedings  as  to  the  examination  of 
witnesses  beyond  the  seas  or  speedily  going  out  of  the  kingdom." 
2  Bro.  Civ.  and  Adm.  Law,  82.  But  the  intolerance  of  the  common 
law  courts  prohibited  the  exercise  of  it.  In  the  early  case  of  Crane 
V.  Bell,  38  Henry  VIII  (1546),  a  prohibition  was  granted  for  this 
purpose.^  See  4  Co.  Inst.  139.  Mr.  Browne  says  very  pertinently : 
"What  is  the  rationale,  and  what  the  true  principle  which  ought  to 
govern  this  question,  viz. :     What  contracts  should  be  cognizable 

3  Coke's  misleading  report  of  Crane  v.  Bell  very  natui-ally  caused  this  mis- 
statement of  Mr.  Justice  Bradley.  As  a  matter  of  fact,  Crane  v.  Bell  had 
nothing  to  do  with  insurance.  See  Selden  Soc.  Pub.  vol.  vi.  pp.  Ixviii,  IL'9. 
229.  Admiralty  courts  continued  to  hear  insurance  cases  for  nearly  half  a 
century  after  Crane  v.  Bell.  For  example,  see  Moye  v.  Hawkyus  (1573)  Sel- 
den  Soc.  Pub.  vol.  xi,  p.  149,  in  which  the  insurer  of  goods  captured  by 
pirates  was  subrogated  to  the  claim  of  the  insured  against  Hawkyns,  the 
famous  admiral,  who  had  recaptured  the  goods. 


G  INTRODUCTORY  (Ch.  1 

in  admiralty?  Is  it  not  this?  All  contracts  which  relate  purely 
to  maritime  affairs,  the  natural,  short  and  easy  method  of  enforc- 
ing which  is  found  in  the  admiralty  proceeding's."  2  Browne,  88. 
Another  consideration  bearinq-  directly  on  this  question  is  the  fact 
that  the  commission  in  admiralty,  issued  to  our  colonial  governors 
and  admiralty  judges,  prior  to  the  Revolution,  which  may  be  fairly 
suj)posed  to  have  been  in  the  minds  of  the  convention  which 
framed  the  Constitution,  contained  either  express  jurisdiction  over 
policies  of  insurance  or  such  general  jurisdiction  over  maritime 
contracts  as  to  embrace  them.     Benedict,  ch.  IX. 

The  discussions  that  have  taken  place  in  the  District  and  Cir- 
cuit Courts  of  the  United  States  have  not  been  adverted  to.  Many 
of  them  are  characterized  by  much  learning  and  research.  The 
learned  and  exhaustive  opinion  of  Justice  Story,  in  the  case  of  De 
Lovio  V.  Boit,  2  Gall.  398,  Fed.  Cas.  No.  3,776,  affirming  the  admi- 
ralty jurisdiction  over  policies  of  marine  insurance,  has  never  been 
answered,  and  will  always  stand  as  a  monument  of  his  great  erudi- 
tion. That  case  was  decided  in  1815.  It  has  been  followed  in  sev- 
eral other  cases  in  the  First  Circuit.  Ins.  Co.  v.  Younger,  2  Curt. 
322,  Fed.  Cas.  No.  5,487.  In  1842  Justice  Story,  in  reaffirming 
his  first  judgment,  says  that  he  had  reason  to  believe  that  Chief 
Justice  Marshall  and  Justice  Washington  were  prepared  to  main- 
tain the  jurisdiction.  What  the  opinion  of  other  judges  was  he 
did  not  know.  Hale  v.  Ins.  Co.,  2  Story,  183,  Fed.  Cas.  No.  5,916. 
Doubts  as  to  the  jurisdiction  have  occasionally  been  expressed  by 
other  judges.  But  we  are  of  opinion  that  the  conclusion  of  Jus- 
tice Story  was  correct.* 

The  answer  of  the  court,  therefore,  to  the  question  propounded  by 
the  Circuit  Court,  will  be,  that  the  District  Court  for  the  District  of 
Massachusetts,  sitting  in  admiralty,  has  jurisdiction  to  entertain  the 
libel  in  this  case. 


SECTION  2.— THE  NATURE  OF  THE  CONTRACT 


STATE  V.  HOGAN. 

(Supreme  Court  of  North  Dakota,  1899.    8  N.  D.  301,  78  N.  W.  1051,  45  L.  R. 
A.   166,   73  Am.   St.   Rep.   759.) 

In  the  matter  of  the  application  of  C.  N.  Hogan  for  a  writ  of 
habeas  corpus.     Writ  denied. 

Bartholomew,  C.  J.  One  C.  N.  Hogan  presented  to  this  court 
his  petition  for  a  writ  of  habeas  corpus,  alleging  that  he  was  unlaw- 

4  For  an  extensive  account  of  the  early  history  of  insiirance  law,  see  Select 
Essays  in  Anglo-American  Legal  History,  vol.  ill,  pp.  98-116;  8  Columbia  L. 
Rev.  1-17. 


Sec.  2)  NATURE   OF   THE   CONTRACT  7 

fully  restrained  of  his  liberty  by  the  sheriff  of  Foster  county,  in  this 
state.  His  petition  sets  forth  that  he  was  arrested  upon  a  warrant 
issued  by  a  justice  of  the  peace  of  said  county,  which  said  warrant 
was  based  upon  a  complaint  duly  laid  before  said  justice  by  one  Fer- 
guson, wherein  said  petitioner  was  accused  of  having  acted  as  agent 
for  an  insurance  company  without  having  procured  the  certificate 
required  by  section  3124,  Rev.  Codes  of  this  state,  that  a  preliminary 
hearing  was  duly  had  before  said  justice,  and  that  upon  such  hearing 
said  justice  adjudged  that  the  petitioner  be  held  to  answer  to  said 
charge  before  the  district  court  of  said  county,  and  fixed  his  appear- 
ance bond  at  the  sum  of  $500,  which  the  petitioner  failed  to  give, 
whereupon  he  was  duly  committed  to  the  custody  of  said  sherifif,  and 
was  by  him  restrained.  Copies  of  the  complaint,  the  warrant,  of  all 
the  testimony  introduced  at  the  hearing,  of  the  entries  in  the  docket 
of  the  justice  and  of  the  mittimus  were  attached  to,  and  made  a  part, 
of,  the  petition.  The  writ  was  duly  issued  by  this  court,  directed  to 
said  sherifif,  who  in  due  time  made  return  thereto  setting  forth  the 
grounds  upon  which  he  restrained  the  petitioner,  which  were  sub- 
stantially in  all  respects  as  shown  in  the  petition.  To  this  return  the 
petitioner  demurred,  and  upon  the  issues  of  law  thus  raised  the  case 
was  argued  to  this  court. 

The  petitioner  contends  (1)  that  a  violation  of  the  provisions  of 
said  section  3124  does  not  constitute  a  crime,  under  the  laws  of  this 
state,  and,  (2)  granting  that  such  violation  does  constitute  a  crime, 
there  is  no  reasonable  or  probable  cause  to  believe  that  petitioner  has 
committed  such  crime.    We  notice  the  points  in  this  order. 

Section  3124,  Rev.  Codes,  declares:  "No  agent  shall  act  for  any 
insurance  company  directly  or  indirectly  in  taking  risks  or  trans- 
acting the  business  of  insurance  without  procuring  from  the  com- 
missioner of  insurance  a  certificate  of  authority,  stating  that  such 
corporation  or  company  has  complied  with  all  the  requisites  of 
this  chapter."     *     *     *  5 

Petitioner's  second  proposition  presents  more  difificulties,  and,  as 
preparatory  to  its  discussion,  we  remark  that  no  point  is  made  by 
petitioner  as  to  the  regularity  of  any  of  the  proceedings  that  led  up 
to  his  incarceration.  They  are  concededly  regular.  It  is  admitted, 
also,  that  petitioner  was  soliciting  business  as  agent  for  a  corpora- 
tion known  as  the  Realty  Revenue  Guaranty  Company,  of  Minne- 
apolis, Minn.  It  is  admitted  that  petitioner  never  procured  the  cer- 
tificate of  authority  specified  in  said  section  3124,  and  that  he  took  an 
application  from  the  complaining  witness  in  form  as  set  forth  in 
the  evidence,  and  procured  for  said  witness  the  contract  of  said  com- 
pany as  set  out  in  the  evidence,  and  took  the  promissory  note  of  the 

5  That  part  of  the  opinion  denying  the  petitioner's  first  contention  is 
omitted. 


8  INTRODUCTORY  (Ch.  1 

witness,  secured  by  chattel  mortgage,  for  the  consideration  mentioned 
in  said  contract.  These  admissions  leave  but  one  question  for  our 
determination:  Is  or  is  not  the  Realty  Revenue  Guaranty  Company, 
in  fact  or  in  effect,  an  insurance  company?  If  it  be,  then  clearly  the 
petitioner  was  properly  held ;  otherwise,  he  should  be  discharged. 
While  the  attorneys  representing  the  state  claim  that  the  oral  evi- 
dence in  the  record  strengthens  their  claim  that  said  corporation  is 
in  fact  an  insurance  company,  yet  we  shall  rest  our  conclusions  on 
this  point  upon  the  documentary  evidence. 

Our  statute  (section  4441,  Rev.  Codes)  defines  insurance  as  fol- 
lows :  "Insurance  is  a  contract  whereby  one  undertakes  to  indemnify 
another  against  loss,  damage  or  liability  arising  from  an  unknown  or 
contingent  event."  Necessarily,  in  defining  insurance  in  a  single  sen- 
tence, only  the  most  general  terms  can  be  used,  and  any  general  defi- 
nition must  be  extended  to  cover  the  ever-changing  phases  in  which 
the  subject  is  presented  to  the  public.  Fifty  years  ago  it  was  thought 
that  a  single  chapter  in  any  work  on  contracts  could  exhaust  the  law 
of  insurance.  Now  Mr.  Joyce  presents  the  subject  in  four  elaborate 
volumes,  showing  the  immense  development  of  that  branch  of  the 
law.  Mr.  Joyce  expressly  defines  one  line  of  insurance  as  guaranty 
insurance.  See  1  Joyce,  Ins.  §§  12,  13.  True,  guaranty  insurance, 
as  there  defined,  relates  more  particularly  to  guaranty  against  loss 
by  reason  of  breaches  of  contract,  such  as  "fidelity  guaranty"  and 
"credit  guaranty."  But  we  have  real-estate  title  guaranty  insurance; 
and,  while  perhaps  this  is  the  first  instance  where  an  attempt  has  been 
made  to  guaranty  a  realty  revenue,  yet  as  the  revenue  arising  from 
that  class  of  realty  here  involved,  i.  e.,  farming  lands,  is  affected  by  so 
many  contingencies,  such  as  winds,  hail,  frost,  drought,  ravages  of 
insects,  etc., — contingencies  which,  while  not  likely  to  happen,  yet 
such  as  may  occur, — it  would  seem  that  inherently  it  would  be  a 
proper  subject  for  insurance,  perhaps  even  an  inviting  field. 

In  this  record  we  find  a  copy  of  the  articles  of  incorporation  of  the 
Realty  Revenue  Guaranty  Company,  The  second  article  sets  forth 
the  general  business  of  the  corporation,  naming  a  number  of  things 
that  it  is  organized  for  the  purpose  of  doing,  and,  among  others,  "to 
guaranty  certain  rental  and  produce  income  from  lands  and  tene- 
ments." The  petitioner,  as  agent  for  said  company,  took  from  Peter 
Ferguson  an  application  for  a  contract.  *  *  *  Upon  this  ap- 
plication, Ferguson  received  a  contract,  which  we  copy  in  full : 

"This  agreement,  made  by  and  between  the  Realty  Revenue  Guar- 
anty Company,  of  Minneapolis,  Minnesota,  and  Peter  Ferguson,  of 
Carrington  P.  O.,  county  of  Foster,  and  state  of  North  Dakota, 
party  of  the  second  part,  witnesseth  that,  in  consideration  of  an  ap- 
plication for  this  contract,  which  is  hereby  referred  to  and  made  a 
part  hereof,  and  the  payment  of  the  sum  of  $55,  according  to  the 
conditions  of  a  certain  promissory  note  for   said  amount,  by  said 


Sec.  2)  NATURE    OF   THE    CONTRACT  9 

party  of  the  second  part,  the  above-named  Realty  Revenue  Guaranty 
Company  agrees  to  purchase  the  entire  crop  of  small  grain,  consist- 
ing of  wheat,  oats,  flax,  barley,  corn,  or  rye,  from  said  party  of  the 
second  part,  at  the  rate  of  $5.00  per  acre,  grown  during  the  season 
of  1899;  all  of  said  crops  being  on  the  following  described  lands,  to 
wit,  160  acres  southeast  quarter  Sec.  20,  T.  146,  R.  65 ;  60  acres 
northwest  quarter  Sec.  26,  T.  146,  R.  65.  It  is  further  agreed  that 
said  party  of  the  second  part  is  in  no  manner  bound  to  sell  said 
crops  to  the  said  Realty  Revenue  Guaranty  Company,  except  at  his 
own  option.  It  is  further  agreed  that  said  party  of  the  second  part 
shall  cultivate  said  crops  in  a  husbandlike  manner,  sow,  plant,  gar- 
ner, gather,  harvest,  thresh,  and  otherwise  care  for  said  crops  in  due 
season  and  in  an  economical  manner.  Said  party  of  the  second  part 
agrees  to  notify  said  Realty  Revenue  Guaranty  Company  in  case  of 
any  damage  to  said  crops  within  five  days  thereafter,  and  of  his  in- 
tention to  avail  himself  of  his  option  to  sell  before  said  crops  are  har- 
vested, and  shall,  within  five  days  after  threshing  the  same,  give 
notice  to  the  company  of  his  election  to  sell  under  this  contract. 
After  said  election  to  sell,  said  party  of  the  second  part  agrees  to 
deliver  said  crops  at  the  nearest  market,  if  directed  so  to  do  by 
said  Realty  Revenue  Guaranty  Company.  Should  the  party  of  the 
second  part  fail  to  perform  any  of  the  conditions  herein  by  him  to 
be  performed,  time  being  the  essence  hereof,  or  if  any  of  the  war- 
ranties or  statements  made  by  him  are  untrue,  the  said  option  shall 
terminate.  Nor  shall  said  guaranty  company  be  liable  under  this 
contract  should  any  damage  or  loss  accrue  to  said  crops  after  Sep- 
tember 15  of  this  year,  or  after  said  crops  are  harvested,  nor  in  any 
manner,  except  as  herein  stipulated.  This  contract  shall  terminate 
December  1st  following  date  hereof. 

"In  witness  whereof,  the  said  Realty  Revenue  Guaranty  Company 
has  caused  these  presents  to  be  executed  and  signed  by  its  president 
and  secretary,  and  caused  its  corporate  seal  to  be  hereto  attached, 
this  seventh  day  of  April,  1899.  Realty  Revenue  Guaranty  Co.,  by  L. 
E.  Utley,  President.     A.  L.  Brice,  Secretary.     [Corporate  Seal.]" 

What  was  the  object  of  this  contract  and  what  was  its  legal  ef- 
fect? The  petitioner  says  it  was  an  option  contract  of  sale  of  a  crop. 
We  cannot  conceive  that  the  farmer's  primary  object  was  to  sell  his 
crop.  Ordinarily  a  man  does  not  pay  a  premium  for  the  privilege 
of  selling  his  produce.  Nor  was  it  the  primary  purpose  of  the  com- 
pany to  purchase  the  crop.  From  the  very  terms  of  the  contract,  it 
is  certain  that  it  must  lose  money  upon  all  the  grain  it  buys  under 
the  contract.  Moreover,  grain  is  bought  and  sold  by  the  bushel,  and 
not  by  the  acre.  We  think  the  contract  was  the  identical  contract 
which  the  articles  of  incorporation  authorize  the  company  to  enter 
into.  It  was  a  contract  by  which  the  guarantor  undertook  to  guar- 
anty or  assure  to  the  farmer  a  certain  revenue  from  his  land.     How 


10  INTRODUCTORY  (Ch.  1 

(lid  the  parties  proceed  to  execute  such  a  contract?  It  was  well 
known  to  both  parties  that  an  acre  of  land  in  this  state,  farmed  as 
the  farmer  contracts  to  farm  it  in  this  case,  will  produce  a  crop  of  a 
value  far  in  excess  of  five  dollars,  and  the  value  can  be  reduced  to  or 
below  that  fij^ure  only  by  the  happening  of  one  or  more  of  the  con- 
tingencies hereinbefore  mentioned.  But  such  contingencies  may  hap- 
pen, and  to  be  absolutely  assured  that  his  land  will  yield  him  at  least 
five  dollars  per  acre  the  farmer  is  willing  to  pay  something;  and  the 
corporation,  expecting  to  do  business  over  a  wide  scope  of  country, 
believes  that  it  can  with  profit  to  itself  assure  the  farmer  a  crop  worth 
five  dollars  per  acre  for  the  compensation  which  the  farmer  is  willing 
to  pay  therefor.  But  what  is  this  in  substance  except  a  contract  to 
indemnify  the  farmer  against  loss  arising  from  the  happening  of  a 
contingent  event,  and  that  is  our  statutory  definition  of  insurance. 
The  farmer  was  seeking  and  paying  for  protection,  and  the  corpora- 
tion was  seeking  to  make  a  profit  by  extending  this  protection  for  the 
consideration  paid  by  the  farmer.  True,  it  is  not  all  loss  that  is 
insured  against.  The  contingencies  named  may  reduce  the  value  of 
a  crop  from  twenty  dollars  per  acre  until,  in  the  judgment  of  the 
owner,  it  barely  exceeds  five  dollars  per  acre,  and  there  is  no  liability 
under  the  contract.  It  is  the  loss  below  five  dollars  per  acre  that  is 
insured  against.  The  effect  of  the  contract  is  very  like  that  of  a 
valued  policy  of  insurance.  When  the  contingency  happens  that  cre- 
ates a  liability  under  the  policy,  then  the  full  amount  of  the  policy 
must  be  paid,  but  the  insured  is  entitled  to  all  the  salvage. 

In  Claflin  v.  System  Co.,  165  Mass.  501,  43  N.  E.  293,  52  Am.  St. 
Rep.  528,  the  defendant  was  held  to  be  an  insurance  company.  The 
contract  is  thus  stated  by  the  court:  "It  was  made  on  April  6,  1891, 
and  purports  to  bind  the  defendant,  in  consideration  of  a  sum  paid,  to 
purchase  at  a  fixed  price  the  accounts  which  during  one  year  a  cer- 
tain business  firm  should  have  against  ascertained  insolvent  debtors, 
or  judgment  debtors  against  whom  execution  should  be  returned  un- 
satisfied." A  contract  to  purchase  bad  accounts  and  judgments  at  a 
fixed  price,  irrespective  of  value,  cannot  be  distinguished  in  principle 
from  a  contract  to  purchase  damaged  crops  at  a  fixed  price,  irrespec- 
tive  of  value.  That  same  company  was  held  to  be  an  insurance  com- 
pany in  Shakman  v.  Same,  92  Wis.  366,  66  N.  W.  528,  Z2  L.  R.  A. 
383,  53  Am.  St.  Rep.  920,  and  the  reasoning  of  the  court  is  very  per- 
tinent to  this  case. 

It  is  doubtless  true  that  there  has  been  a  studied  effort  to  keep 
this  corporation  outside  the  operation  of  our  insurance  laws ;  but 
the  purpose  and  effects  of  its  contracts  are  too  clear  to  admit  of 
doubt.  They  exactly  meet  the  requirements  of  an  insurance  con- 
tract, and  the  corporation  for  which  petitioner  acted  as  agent  is  an 
insurance  company.  The  act  charged  in  the  complaint  is  a  crime 
under  our  statutes,  and  there  is  reasonable  and  probable   cause  to 


Sec.  2)  NATURE   OF   THE    CONTRACT  11 

believe  the  petitioner  guilty  of  committing  the  act.     He  is  therefore 
properly  held. 

The  writ  issued  in  this  case  is  discharged,  and  petitioner  remanded 
to  the  custody  of  the  sheriff  of  Foster  county.     All  concur."^ 

8  Contract  to  Defend  Physicians  against  Malpractice  Suits. — In  Physi- 
cians' Defense  Co.  v.  Cooper,  199  Fed.  576,  US  C.  C.  A.  50.  47  L.  R.  A.  (N.  S.) 
290  (1912),  and  I'hysicians'  Defense  Co.  v,  O'Brien,  100  Minn.  490,  111  N.  W. 
396  (1907),  it  was  lield  that  a  contract  whereby  for  a  stated  consideration  one 
of  the  parties  bound  itself  to  defend  at  its  own  cost  all  actions  for  malpractice 
as  a  physician  that  might  be  brought  against  the  other  during  an  agreed  period, 
but  not  to  satisfy  any  adverse  judgment  rendered,  was  a  contract  of  insurance, 
and  the  company  making  it  tliereupon  subject  to  tlie  regulations  of  the  in- 
surance department.  But  the  same  contract  was  held  to  be  one  of  personal 
service  only,  and  not  of  insurance,  in  Vredenburgh  v.  Pliysicians'  Defense 
Co.,  120  111.  App.  509  (1900),  and  Physicians'  Defense  Co.  v.  Laylin,  73  Ohio 
St.  90,  76  N.  E.  567  (190.j).     See  25  Harv.  Law  Rev.  390. 

Other  Indemnity  Contracts. — A  contract  to  repair  bicycles,  and  to  replace 
those  accidentally  lost  or  stolen,  for  an  annual  fee,  has  been  held  not  to  be 
one  of  insurance.  Com.  v.  Providence  Bicycle  Ass'n,  178  Pa.  636,  30  Atl.  197, 
36  L.  R.  A.  5S9  (1S97).  But  an  association  of  lumber  dealers  for  the  purpose 
of  "exchanging  insurance"  lias  been  lield  to  be  subject  to  the  insurance  laws 
of  Mississippi,  although  it  was  purely  mutual  and  its  operation  was  confined 
to  the  members  of  the  association.  State  v.  Alley,  96  Miss.  720,  51  South. 
467  (1910).  Contra :  Blanchard  Co.  v.  Hamblin,  162  Mo.  App.  242,  144  S.  W. 
880  (1912). 

Railway  relief  associations,  established  by  most  of  the  great  railway  cor- 
porations for  the  benefit  of  their  employes,  are  generally  held  not  to  be 
engaged  in  the  business  of  insurance.  See  Beck  v.  Pa.  Ry.  Co.,  63  N.  J.  Law, 
232,  43  Atl.  908,  76  Am.  St.  Rep.  214  (1S99) :  Colaizzi  v.  Pa.  Ry.  Co.,  208  N. 
Y.  275,  101  N.  E.  859  (1913)  ;  State  v.  Pittsburg,  etc.,  Ry.  Co.,  68  Ohio  St.  9, 
67  N.  E.  93,  64  L.  R.  A.  405,  96  Am.  St.  Rep.  6.35  (1903) ;  Johnson  v.  P.  &  R. 
Ry.  Co.,  163  Pa.  127,  29  Atl.  854  (1894).  See,  also,  Clements  v.  L.  &  N.  W. 
Ry.  Co.  [1894]  2  Q.  B.  482. 

The  provision  frequently  found  in  contracts  of  building  and  loan  associa- 
tions whereby,  in  case  of  death  or  disability  of  the  other  party  to  the  con- 
tract, any  existing  balance  of  debt  under  the  contract  shall  be  thereby  dis- 
charged, transforms  such  contracts  into  insurance  contracts,  and  renders  the 
companies  issuing  them  subject  to  the  insurance  laws  of  the  state  in  which 
the  contract  is  made.  State  v.  Beardsly,  88  Minn.  20,  92  N.  W.  472  (1902). 
So,  also,  many  "investment"  companies  are  really  carrying  on  the  business 
of  insurance  and  subject  to  the  laws  governing  that  business.  See  Joseph  v. 
Law  Integrity  Ins.  Co.,  [1912]  2  Ch.  581;  Prudential  Ins.  Co.  v.  Inland  Rev- 
enue Com'rs,  [19141  2  K.  B.  658.  But  see  State  v.  Federal  Investment  Co.,  48 
Minn.  110,  50  N.  W.  1028  (1892). 

Burglary  Insurance.— See  Saqui  v.  Stearns  (C.  A.),  [1911]  1  K.  B.  426, 
In  re  George  and  the  Goldsmiths  and  General  Burglary  Insurance  Association, 
Limited,  [1899]  1  Q.  B.  595;  Pearlman  v.  Metropolitan  Surety  Co.,  127  App. 
Div.  539,  111  N.  Y.  Supp.  882  (1908).  As  to  the  construction  of  burglary  and 
theft  insurance  policies,  see  Rosenthal  v.  American  Bonding  Co.  (1912)  207 
N  Y  162,  100  N.  E.  716,  46  L.  R.  A.  (N.  S.)  561  (extensive  note),  and  Axe  v. 
Fidelity  &  Casualty  Co.  (1913)  239  Pa.  569,  86  Atl.  1095,  46  L.  R.  A.  (N.  S.) 
574. 


12  INTRODUCTORY  (Ch.  1 

PATERSON  V.  POWELL. 

(Court  of  Common  Pleas,  1832.     9  Biiig.  320.) t 

Assumpsit.  Plaintiff  declared  upon  a  contract  whcrel)y  the  de- 
fendant in  consideration  of  a  premium  paid  at  the  rate  of  forty 
guineas  for  £100.,  promised  to  pay  the  plaintiff  £100.  "in  case  the 
Imperial  Brazilian  Mining  shares  be  done  at  or  above  £100.  per 
share  on  or  before  the  thirty-first  day  of  December,  1829."  Plea, 
general  issue.  A  verdict  was  found  for  the  plaintiff  with  £  100. 
damages,  and  a  rule  nisi  to  enter  a  nonsuit  was  obtained  by  the 
defendant. 

During  the  argument  upon  this  rule  the  court  suggested  that 
the  contract  was  a  policy  of  insurance,  and  void  under  14  Geo.  3, 
c.  48,  and  directed  argument  on  this  question.  Following  is  the  ar- 
gument in  part  of 

Coleridge,  Serjt.,  for  the  plaintiff.  The  plaintiff  is  entitled  to 
recover  his  whole  demand ;  for  the  contract  on  which  he  sues 
constitutes,  in  effect,  a  wager  on  an  innocent  topic,  and  not  a  policy 
of  insurance  prohibited  by  14  Geo.  3,  c.  48.  That  an  action  will  lie 
for  the  recovery  of  a  sum  depending  on  an  innocent  wager  can- 
not now  be  disputed.  Cousins  v.  Nantes,  3  Taunt.  513.  The  pres- 
ent contract  falls  within  the  definition  of  a  wager,  and  not  within 
any  of  the  definitions  of  a  policy  of  insurance.  Johnson  defines  a 
wager,  "Anything  pledged  upon  a  chance  of  performance;"  and 
cites,  "Love  and  mischief  made  a  wager  which  should  have  most 
power  in  me."  A  bet  he  defines,  "Something  laid  to  be  won  on 
certain  conditions."  A  wager,  therefore,  is  a  contract  for  the  pay- 
ment of  an  absolute  value.  But  a  policy  of  insurance  is  essential- 
ly a  contract  of  indemnity;  for  every  policy  of  insurance  must 
insure  some  thing  or  person  from  some  risk  to  which  that  thing 
or  person  is  liable ;  i.  e.,  must  indemnify  the  assured  from  the 
consequences  attendant  on  the  happening  of  that  risk,  and  the 
risk  insured  against  ought  to  be  one  in  which  the  party  insured 
has  an  interest.  In  Lucena  v.  Crawford,  2  N.  R.  270,  among  the 
reasons  advanced  for  reversing  the  judgment  below,  it  is  said, 
"There  is  a  material  distinction  between  a  contract  of  wager  and 
a  contract  of  insurance;  the  first  may  have  for  its  subject  any 
speculative  chance  or  expectation,  however  vague  or  uncertain, 
and  may  be  claimed  without  proof  of  loss  or  damage  having  ac- 
crued to  the  party  for  whose  benefit  it  is  demanded ;  but  a  con- 
tract of  insurance  cannot  have  such  chance  or  expectation  for  its 
object,  because  bare  chance  or  expectation,  though  liable  to  fail- 
ure and  disappointment,  are  not  susceptible  of  loss  or  damnifica- 
tion,  and   therefore   cannot  be   made    the   objects    of   an   indem- 

7  The  statement  of  facts  is  much  abbreviated,  and  the  arguments  of  counsel 
omitted  for  the  most  part. 


Sec.  2)  NATURE    OF   THE   CONTRACT  13 

nity,  which  presupposes  the  loss  of  some  right  of  property  either 
in  possession  or  in  action." 

TiNDAL,  C.  J.  In  the  view  which  the  court  takes  of  this  case, 
it  becomes  necessary  to  recur  to  the  grounds  on  which  the  rule  for 
a  new  trial  was  obtained,  because  we  are  all  of  opinion,  that  the  in- 
strument on  which  the  plaintiff  has  sued  is  a  policy  of  insurance 
within  the  statute  14  Geo.  3,  c.  48,  the  plaintifif  having  no  interest  in 
the  subject-matter  of  the  insurance,  and  no  disclosure  being  made 
of  any  party  who  has  such  interest :  the  policy  in  that  respect  pre- 
sents only  a  blank.  First,  what  was  the  object  of  the  statute  14 
Geo.  3?  To  prevent  gambling  under  the  form  and  pretext  of  a 
policy  of  insurance  by  parties  who  have  no  interest  in  the  subject- 
matter  of  such  assurance.  There  is  a  statute  of  the  former  reign, 
19  Geo.  2,  c.  Z7 ,  confined  indeed  to  marine  insurances,  but  the 
preamble  of  which  is  not  immaterial  in  considering  the  intention 
of  the  Legislature  in  passing  the  statute  14  Geo.  3.  After  recit- 
ing, that  "it  had  been  found  by  experience,  that  the  making  assur- 
ances, interest  or  no  interest,  or  without  further  proof  of  inter- 
est than  the  policy,  had  been  productive  of  many  pernicious  prac- 
tices, whereby  great  numbers  of  ships,  with  their  cargoes,  had 
either  been  fraudulently  lost  and  destroyed,  or  taken  by  the  enemy 
in  time  of  war :  and  by  introducing  a  mischievous  kind  of  gam- 
ing or  wagering,  under  the  pretence  of  assuring  the  risk  on  ship- 
ping and  fair  trade,  the  institution  and  laudable  design  of  mak- 
ing assurance  had  been  perverted,"  it  goes  on  to  prohibit  insur- 
ances on  ships  or  their  cargoes,  interest  or  no  interest,  or  without 
further  proof  of  interest  than  the  policy,  or  hy  way  of  gaming  or 
wagering.  The  object,  therefore,  was  to  prevent  gambling  insur- 
ances :  but,  in  the  next  reign,  it  was  found  that  the  legislature  had 
not  gone  far  enough,  and  then  came  the  act  of  14  Geo.  3,  entitled 
"An  act  fof  regulating  insurances  upon  lives,  and  for  prohibiting 
all  such  insurances,  except  in  cases  where  the  person  insuring  shall 
have  an  interest  in  the  life  or  death  of  the  person  insured."  It  is  a 
well-established  rule  of  construction,  that  the  title  of  an  act  will 
not  extend  its  effect  beyond  the  meaning  of  the  operative  words ; 
but  neither  will  it  confine  the  effect;  and  the  operative  words 
here  are  larger  than  the  title.  "No  insurance  shall  be  made  by 
any  person  or  persons,  bodies  politic  or  corporate,  on  the  life 
or  lives  of  any  person  or  persons,  or  on  any  other  event  or  events 
whatsoever,  wherein  the  person  or  persons  for  whose  use,  bene- 
fit, or  on  whose  account  such  policy  or  policies  shall  be  made,  shall 
have  no  interest,  or  by  zvay  of  gaming  or  wagering."  Nothing 
can  be  more  clear  than  that  these  operative  words  were  inserted 
in  furtherance  of  the  principle  of  the  former  act.  It  has  been  ar- 
gued, that  the  provisions  of  the  act  are  confined  to  cases  where 
there  is  a  subject-matter  of  insurance  exposed  to  peril.  If  so, 
what  construction  are  we  to  put  upon  those  more  general  words. 


14  INTRODUCTORY  (Cll.  1 

"or  on  any  event  or  events  tvhatsoever,"  which  appear  to  have 
been  inserted,  as  it  were,  in  anticipation  of  such  an  argument? 
Then,  the  only  two  cases  on  the  statute  are  insurances  on  events 
in  which  tlie  parties  were  not  interested.  In  Roebuck  v.  Hamer- 
ton  [Cowper,  737J,  a  policy  upon  the  sex  of  the  Chevalier  D'Eon 
was  holden  to  be  a  policy  within  the  statute  14  Geo.  3,  c.  48 ;  and 
in  Mollison  v.  Staples,  Park,  Ins.  640  n.,  where  a  policy  was  made 
on  the  event  of  there  being  an  open  trade  between  Great  Britain 
and  the  province  of  Maryland  on  or  before  the  6th  July,  1778, 
Lord  Mansfield  said  "that  it  was  as  clear  the  plaintiff  could  not  re- 
cover." In  both  cases,  therefore,  the  decision  turns  not  on  the 
statute's  applying  to  insurances  where  the  subject-matter  of  in- 
surance is  legitimate,  but  to  events  in  which  the  parties  insuring 
have  no  interest. 

Our  decision,  therefore,  in  this  case,  must  turn  on  the  provi- 
sions of  the  14  Geo.  3,  if  this  instrument  can  be  deemed  a  policy. 
Upon  that  point  we  entertain  no  doubt.  Here  is  a  premium  paid, 
in  consideration  of  the  insurers  incurring  the  risk  of  paying  a 
larger  sum  upon  a  given  contingency.  The  instrument  is  open  to 
all  who  may  choose  to  subscribe,  that  is,  without  restriction  of 
persons  or  numbers.  It  then  proceeds,  in  the  usual  language  of 
policies  of  insurance,  "We  respectively  will  pay  or  cause  to  be 
paid  to  the  sum  and  sums  of  money  which  we  have  here- 
unto respectively  subscribed,  without  any  abatement  whatever, 
in  case,"  &c.  If  the  instrument  in  Roebuck  v.  Hamerton  was 
rightly  held  to  be  policy,  I  can  make  no  just  discrimination  be- 
tween that  instrument  and  the  present.  It  is  true,  that  the  policy 
contains  no  clause  about  average,  because  the  circumstances  of 
the  risk  do  not  require  it.  But  if  the  instrument  can  be  deemed  a 
policy  without  that  clause,  we  should  impair  the  efficacy  of  the 
act  of  parliament  if  we  were  to  consider  it  as  an  ordinary  contract. 
I  cannot  consider  it  as  other  than  a  policy,  and  if  so,  the  plaintiff's 
claim  must  receive  the  same  answer  as  was  given  by  Lord  Mans- 
field, in  Roebuck  v.  Hamerton ;  first,  that  this  is  an  insurance  on 
an  event  in  which  the  party  had  no  interest ;  or,  if  he  had,  the 
policy  does  not  disclose  the  name  of  any  party  interested. 

As  to  the  claim  for  a  return  of  premium,  the  concurrent  effect 
of  the  decisions  is,  that  if  money  be  paid  on  an  illegal  contract 
to  receive  a  larger  sum  upon  a  certain  event,  the  contract  is  ex- 
ecuted when  the  event  takes  place,  and  the  money  paid  cannot  be 
reclaimed. 

[The  concurring  opinions  of  Gaselee,  Bosanquet  and  AldER- 
SON,  J  J.,  are  omitted.] 

Rule  absolute.^ 

8  See,  in  accord,  Wharton  v.  De  La  Rive,  Park,  Ins.  (6th  Ed.)  573.  Here 
the  policy  rested  upon  the  contingency  that  the  American  colonies  should 
achieve  their  independence.  Lord  Mansfield  thought  the  case  too  clear  to  ad- 
mit of  argument. 


Sec.  2)  JTATUKE    OF   THE    CONTRACT  15 

STATE  V.  TOWLE. 

(Supreme  Judicial  Court  of  Maine,  1888.    80  Me.  287.  14  Atl.  195.) » 

Peters,  C.  J.  The  state  sues  to  recover  a  penalty  of  the  defend- 
ant for  acting  as  a  soliciting  agent  for  the  Single  Men's  Endow- 
ment Association,  a  company  having  its  home  in  the  state  of 
Minnesota,  and  doing  business  in  this  state  without  a  license  from 
the  insurance  commissioner.  The  question  is  whether  or  not  this 
association  is  an  insurance  company,  under  the  provisions  of  Rev. 
St.  c.  49,  §  7Z.  The  contract  between  the  company  and  its  patrons 
declares  the  duties  which  must  be  assumed  by  the  single  man 
who  becomes  privileged  to  an  endowment  in  the  association.  He 
pays  $10  as  an  initiation  fee;  $2  as  annual  dues  each  year  for  nine 
years,  and  as  much  longer  as  he  remains  single;  $1.25  on  the 
marriage  of  any  associate;  and  he  promises,  on  the  pain  of  for- 
feiture of  all  rights  accruing  to  him,  that  he  will  not  himself  marry 
within  two  years  from  the  date  of  his  admission  to  the  associa- 
tion. For  the  performance  by  him  of  these  undertakings,  the 
company  promises  to  pay  to  his  wife,  if  married  to  him  after  the 
expiration  of  the  two  years,  the  sum  of  as  many  dollars  as  there 
are  associates  in  the  order,  not  exceeding  $1,000,  provided  that 
there  be  that  amount  of  money  in  the  treasury  at  the  time,  or  it 
can  be  collected  by  an  assessment  upon  the  associates. 

No  word  is  spoken  of  insurance.  That  it  is  a  wagering  or  gam- 
bling contract,  and  void  upon  grounds  of  public  policy,  because 
in  restraint  of  marriage,  there  is  no  room  for  doubt.  The  same  or 
similar  contract  has  been  held  to  be  void  in  White  v.  Benefit 
Union,  76  Ala.  251,  52  Am.  Rep.  325,  and  in  Chalfant  v.  Payton, 
91  Ind.  202,  46  Am.  Rep.  586.  The  counsel  for  both  parties  agree 
that  the  contract,  for  one  reason  or  another,  is  illegal,  but  the  coun- 
sel for  the  state  contends  that,  whether  the  contract  be  legal  or 
illegal,  it  is  a  contract  of  insurance,  and  that,  as  such,  it  falls  im- 
der  the  supervision  of  the  commissioner.  It  is  not  to  be  conceded, 
we  think,  that  this  contract,  in  the  sense  of  any  modern  use  of  the 
term,  is  an  insurance  policy.  No  loss  or  casualty  or  peril  is  named 
for  which  any  indemnity  is  promised.  It  is  more  of  a  betting  con- 
tract on  a  future  event.  It  is  true  that  there  was  formerly  a  class 
of  betting  contracts  styled  "insurances,"  and  that  a  narrow  line 
once  existed  between  gambling  and  betting  contracts  and  those 
then  denominated  contracts  of  insurance ;  and  the  case  of  Pater- 
son  V.  Powell,  9  Bing.  320,  relied  on  by  the  state,  shows  how  far 
a  court  was  induced  to  go  to  determine  that  a  contract  similar  in 
principle  to  the  present  was  an  insurance  policy,  in  order  to  de- 
clare it  void.  The  statute  (4  Geo.  III.  c.  48)  rendered  specula- 
tive insurance  contracts  void,  and,  strange  to  say,  allowed  all  con- 

9  The  statement  of  facts  is  omitted. 


16  INTRODUCTORY  (Ch.  1 

tracts  founded  on  mere  bettings  and  gaml)ling  to  be  valid.  At 
this  day,  the  contract  in  that  case,  with  all  its  imitations  of  the 
thing,  would  hardly  receive  the  appellation  of  an  insurance  policy. 
It  does  not  seem  probable  that  the  legislature  intended  to  com- 
mit to  the  care  of  the  commissioner  the  business  of  illegal  or  ille- 
gitimate insurance  companies.  It  would  be  tolerating,  instead  of 
condemning,  them.  He  has  the  power  to  issue  and  suspend  licens- 
es. But  there  must  be  cause  for  either  act.  Rev.  St.  c.  49,  §§  73, 
75.  His  business  is  to  deal  with  such  companies  as  can,  when 
licensed,  issue  legal  policies.  His  act  cannot  confer  legality  upon 
companies  doing  illegal  business.  The  state  seeks  to  recover  a 
penalty  of  $50,  because  the  defendant  acted  without  an  official 
license,  while  the  policy,  if  to  be  called  such,  issued  by  him,  would 
be  unlawful  and  void,  whether  he  was  acting  with  or  without  a 
license.  It  would  be  inconsistent  to  collect  a  penalty  of  an  agent 
for  not  doing  business  under  a  void  license.     Plaintiff  nonsuit. 

Virgin,   Danforth,   Libbdy,   Foster,   and   HaskeIvL,  JJ.,  con- 
curred. 


PEOPLE  ex  rel.  KASSON  v.  ROSE,  Secretary  of  State. 
(Supreme  Court  of  Illinois,  1898.    174  111.  310,  51  N.  E.  246,  44  L.  R.  A.  124.) 

Petition  by  the  people,  on  the  relation  of  C.  Vallete  Kasson, 
for  a  writ  of  mandamus  against  James  A.  Rose,  secretary  of  state. 
Writ  denied. 

Wilkin,  J.  This  is  an  original  petition  for  mandamus  against 
James  A.  Rose,  as  secretary  of  state.  The  petition  sets  forth  that 
on  January  27,  1898,  petitioners  made  application  to  the  respond- 
ent for  a  license  authorizing  them  to  open  subscription  books 
to  the  capital  stock  of  a  proposed  corporation.  The  application 
was  made  in  due  form,  and  accompanied  by  the  requisite  fee.  The 
object  of  the  corporation,  as  contained  in  the  statement,  is  as 
follows :  "To  transact  in  the  state  of  Illinois  and  elsewhere  the 
business  of  guarantying  the  fidelity  of  persons  holding  public  or 
private  places  of  trust,  and  the  performance  by  persons,  firms,  and 
corporations  of  contracts,  bonds,  recognizances,  and  undertakings 
of  every  kind,  and  of  becoming  surety  on  bonds  required  by  law, 
and  on  every  kind  of  contract,  obligation,  and  undertaking  of  per- 
sons, firms,  and  corporations."  The  secretary  refused  to  issue 
the  license,  upon  the  ground  that  the  statute  under  which  the  ap- 
plication is  made  does  not  authorize  the  organization  of  corpora- 
tions for  the  objects  stated  in  the  application. 

Section  1  of  the  statute  entitled  "An  act  concerning  corpora- 
tions," approved  April  18,  1872,  provides  "that  corporations  may- 
be formed  in  the  manner  provided  by  this  act,  for  any  lawful  pur- 
pose, except  banking,  insurance,  real  estate  brokerage,  the  opera- 


Sec.  2)  NATURE    OF   THE    CONTRACT  17 

tion  of  railroads,  and  the  business  of  loaning  money,  provided," 
etc.  The  only  question  here  raised  is  whether  or  not  the  objects, 
or  any  of  them,  of  the  proposed  corporation,  fall  within  the  ex- 
ception "insurance." 

The  following  definitions  of  the  term  "insurance"  are  cited  from 
standard  authorities  by  the  attorney  general  on  behalf  of  the  re- 
spondent : 

"Guaranty  insurance  is  a  contract  whereby  one,  for  a  considera- 
tion, agrees  to  indemnify  another  against  loss  arising  from  the 
want  of  integrity,  fidelity,  or  insolvency  of  employes  and  persons 
holding  positions  of  trust,  against  insolvency  of  debtors,  losses 
in  trade,  losses  from  nonpayment  of  notes  and  other  evidences  of 
indebtedness,  or  against  breach  of  contract.  It  includes  other 
forms  of  insurance,  which  are  specifically  classified  as  'fidelity 
guaranty,'  'credit  guaranty,'  etc."     1  Joyce,  Ins.  §  12. 

"Insurance  is  a  contract  by  which  the  one  party,  in  considera- 
tion of  a  price  paid  to  him  adequate  to  the  risk,  becomes  security 
to  the  other  that  he  shall  not  sufifer  loss,  prejudice,  or  damage  by 
the  happening  of  the  perils  specified,  to  certain  things  which  may 
be  exposed  to  them."     Lucena  v.  Craufurd,  2  Bos.  &  P.  300. 

"Insurance,  in  its  most  general  sense,  is  a  contract  whereby  one 
party  agrees  to  indemnify  another  in  case  he  shall  sufifer  loss  in 
respect  of  a  specified  subject  by  a  specified  peril."  11  Am.  &  Eng. 
Enc.  Law,  280. 

"Insurance  is  a  contract  whereby  one,  for  a  consideration,  un- 
dertakes to  compensate  another  if  he  shall  suffer  loss.  Such,  in 
its  most  general  terms,  is  the  definition  of  the  contract  which  is 
to  constitute  the  subject  of  the  following  chapters.  It  is  substan- 
tially the  definition  given  long  ago  by  Roccus,  and  is  recommended 
alike  by  its  brevity  and  its  comprehensiveness, — qualities  upon 
which  subsequent  writers  have  scarcely  been  able  to  improve. 
*  *  *  It  had  its  origin  in  the  necessities  of  commerce.  It  has 
kept  pace  with  its  progress,  expanded  to  meet  its  rising  wants  and 
to  cover  its  ever-widening  fields,  and,  under  the  guidance  of  the 
spirit  of  modern  enterprise  tempered  by  a  prudent  forecast,  it  has, 
from  time  to  time,  with  wonderful  facility,  adapted  itself  to  the 
new  interests  of  an  advancing  civilization.  It  is  applicable  to  ev- 
ery form  of  possible  loss.  Wherever  danger  is  apprehended  or 
protection  required,  it  holds  out  its  fostering  hand,  and  promises 
indemnity."    1  May,  Ins.  §§  1,  2. 

"A  contract  whereby,  for  a  stipulated  consideration,  one  party 
undertakes  to  indemnify  the  other  against  certain  risks."  1  Phil. 
Ins.  §  1. 

"A  contract  by  which  a  person,  in  consideration  of  a  gross  sum 
or  a  periodical  payment,  undertakes  to  pay  a  larger  sum  on  the 
happening  of  a  particular  event."    Smith,  Com.  Law,  299. 
Vance  Tns. — 2 


18  INTRODUCTORY  (Ch.  1 

"In  law,  a  contract  by  wliich  one  party,  for  an  agreed  considera- 
tion, which  is  proportioned  to  the  risk  involved,  undertakes  to  com- 
pensate the  other  for  loss  on  a  specified  thing  from  specified  caus- 
es."   Cent.  Diet.  "Insurance." 

"An  act  or  system  of  insuring  or  assuring  against  loss ;  specif- 
ically, the  system  by  or  under  which  indemnity  or  pecuniary  pay- 
ment is  guarantied  by  one  party  or  several  ])arties  to  another  party, 
in  certain  contingencies,  upon  specified  terms."  Stand.  Diet.  "In- 
surance." 

"The  act  of  insuring  against  loss  or  damage  by  a  contingent 
event;  a  contract  whereby  one  party  undertakes  to  indemnify  or 
guaranty  the  other  against  loss  by  certain  specified  risks."  Webst. 
Diet.  "Insurance." 

It  is  said  in  9  Am.  &  Eng.  Enc.  Law,  65  (cited  in  People  v.  Fi- 
delity &  Casualty  Co.,  153.  111.  32,  38  N.  E.  752,  26  L.  R.  A.  295)  : 
"Guaranty  insurance  is,  in  its  practical  sense,  a  guaranty  or  in- 
surance against  loss  in  case  a  person  named  shall  make  a  designat- 
ed default,  or  be  guilty  of  specified  conduct.  It  is  usually  against 
the  misconduct  or  dishonesty  of  an  employe  or  officer,  though 
sometimes  against  the  breach  of  a  contract.  This  branch  of  in- 
surance is  so  much  more  modern  in  origin  and  development  than 
fire,  marine,  life  and  accident  insurance  that  there  are  few  deci- 
sions upon  the  subject;  but  the  business  is  gradually  increasing, 
and  is  doubtless  destined  to  take  an  important  place  in  the  com- 
mercial world.  It  may  be  confidently  stated,  notwithstanding  the 
comparative  absence  of  specific  decisions,  that  the  general  prin- 
ciples applicable  to  other  classes  of  insurance  are  applicable  here 
as  well.  Thus,  the  general  doctrine  of  warranty,  representation, 
and  concealment,  as  applied  to  fire,  life,  and  marine  insurance,  is 
applicable  also  to  the  subject  of  guaranty  insurance.  It  was  held 
in  a  Canadian  case  that  a  company  was  liable  on  a  policy  guaran- 
tying the  faithful  and  diligent  performance  of  the  duty  of  a  clerk, 
where  such  clerk  went  to  lunch,  leaving  a  large  sum  of  money  in 
open  bags  in  his  room,  which  money  disappeared  while  he  was 
gone.  Overdrafts  allowed  without  security,  by  collusion  with  the 
party  making  the  overdrafts,  is  within  a  policy  which  insures 
against  loss  'by  the  want  of  integrity,  honesty,  and  fidelity,  or  by 
the  negligence,  default,  or  irregularities,  of  the  manager.'  " 

In  Shakman  v.  Credit-System  Co.,  92  Wis.  366,  66  N.  W.  528, 
32  L.  R.  A.  383,  53  Am.  St.  Rep.  920,  it  was  held  that  a  contract  to 
indemnify  a  merchant  against  loss  from  msolvency  of  customers 
was  a  contract  of  insurance,,  and  it  was  said:  "We  regard  the 
contract  before  us  as  unquestionably  a  contract  of  insurance.  An 
insurance  contract  is  a'contract  whereby  one  party  agrees  to  wholly 
or  partially  indemnify  another  for  loss  or  damage  which  he  may 
suffer  from  a  specified  peril.  The  peril  of  loss  by  the  insolvency 
of  customers  is  just  as  definite  and  real  a  peril  to  a  merchant  or 


Sec.  2)  NATURE   OP  THE   CONTRACT  19 

manufacturer  as  the  peril  of  loss  by  accident,  fire,  lightning",  or 
tornado,  and  is  in  fact  much  more  frequent.  No  reason  is  perceived 
why  a  contract  of  indemnification  against  this  ever-present  peril 
is  not  just  as  legitimately  a  contract  of  insurance  as  a  contract 
which  indemniiies  against  the  more  familiar,  but  less  frequent, 
peril  by  fire.  This  very  contract  has  been  (sub  silentio)  construed 
as  a  policy  of  insurance  by  the  supreme  court  of  New  Jersey. 
Robertson  v.  Credit-System  Co.,  57  N.  J.  Law,  12,  29  Atl.  421. 
The  contract  being,  then,  a  contract  of  insurance,  and  the  defend- 
ant's business  being  the  making  of  such  contracts,  it  follows  that 
the  defendant  is  an  insurance  corporation,  within  the  meanings 
of  sections  1977  and  1978,  Rev.  St." 

In  Tebbets  v.  Guaranty  Co.,  19  C.  C.  A.  281,  7Z  Fed.  95,  the  ac- 
tion was  upon  a  policy  of  insurance  against  business  losses  or 
"uncollectible  debts"  issued  by  the  defendant  to  the  plaintiff,  and 
it  was  said :  "Insurance  against  mercantile  losses  is  a  new  branch 
of  the  business  of  underwriting,  and  but  few  cases  dealing  with 
policies  of  that  character  have  as  yet  found  their  way  into  the 
courts.  The  necessarily  nice  adjustments  of  the  respective  propor- 
tions of  loss  to  be  borne  by  insurer  and  insured,  the  somewhat 
intricate  provisions  which  are  required  in  order  to  make  such 
business  successful,  and  the  lack  of  experience  in  formulating  the 
stipulations  to  be  entered  into  by  both  the  parties  to  such  a  con- 
tract, have  naturally  tended  to  make  the  forms  of  policy  crude 
and  difficult  of  interpretation." 

We  do  not  understand  counsel  for  petitioners  to  deny  that  un- 
der these  authorities  and  definitions  one  or  more  of  the  objects 
stated  in  its  application  fall  within  the  term  "insurance."  But 
it  is  insisted  that  inasmuch  as  the  time  of  the  passage  of  the  gen- 
eral incorporation  law  of  1872,  under  which  they  seek  to  organize, 
there  were  already  in  existence  statutory  provisions  for  the  incor- 
poration of  companies  known  as  "insurance  companies," — that  is 
to  say,  fire,  inland  navigation,  and  marine  insurance  companies, 
also  life  insurance  companies, — and  that  provisions  like  those  of 
the  charter  here  sought  by  petitioners  were  practically  unknown  at 
that  time,  therefore  the  legislature  did  not  intend,  by  the  use  of 
the  word  "insurance,"  other  kinds  of  insurance  than  existed  at  that 
time,  and  named  in  the  prior  enactments.  The  proposition  is  un- 
tenable. While  corporations  of  this  character  have  not  until  re- 
cently been  organized,  they  must,  mider  the  foregoing  authorities, 
be  treated  as  a  form  of  insurance  companies,  and  as  such  they  fall 
within  the  express  limitation  named  in  the  statute. 

The  language  of  the  exception,  in  common  acceptation,  includes 
all  insurance  companies,  and  it  is  not  for  the  court  to  say  that  only 
certain  classes  were  intended.  "Courts  cannot,  as  a  general  rule, 
disregard  the  plain  language  of  a  statute.  It  is  their  duty  to  ac- 
cept it  as  they  find  it,  and  enforce  it  as  plainly  written."     Coke  Co. 


20  INTRODUCTORY  (Ch.  1 

V.  Downey,  127  111.  201,  20  N.  E.  20,  and  authorities  cited.  "It 
is  not  the  province  of  the  judiciary  to  make  laws,  but  to  construe 
and  interpret  them,  and  pass  upon  their  validity."  Referring  to 
authorities  cited,  it  is  further  said :  "A  careful  examination  of  all 
these  cases  will  show  that  where  the  construction  given  to  the 
words  of  a  statute  is  variant  from  their  strict  and  literal  meaning, 
such  construction  is  only  justified  upon  the  ground  that  it  effec- 
tuates the  intention  of  the  legislature  as  manifestly  disclosed  by  a 
consideration  of  the  whole  context."  Wunderle  v.  Wunderle,  144 
111.  62,  33  N.  E.  195,  19  L.  R.  A.  84. 

The  manifest  purpose  of  the  legislature  in  excepting  banking, 
insurance,  real-estate  brokerage,  and  other  corporations  from  the 
provisions  of  the  act  authorizing  the  incorporation  of  companies 
for  other  lawful  purposes,  was  that  these  excepted  corporations 
should  be  restrained  by  more  strict  requirements,  securing  the  safe 
conduct  and  correct  administration  of  their  affairs.  The  object 
stated  in  the  petitioner's  application — especially  that  of  guaranty- 
ing the  performance  by  persons,  firms,  and  corporations  of  con- 
tracts, bonds,  recognizances,  and  undertakings  of  every  kind — is 
not  only  to  enter  into  contracts  of  insurance,  within  the  meaning 
of  the  authorities  cited,  but  within  the  spirit  and  reason  of  the 
exception. 

We  think  the  application  of  the  petitioner  was  properly  refused, 
and  the  petition  for  a  writ  of  mandamus  will  be  denied.  Writ 
denied. 

MagrudEr,  J.,  dissents. 

Carter,  C.  J.  I  do  not  agree  to  the  conclusions  reached  in  this 
case. 


TRENTON  PASS.  R.  CO.  v.  GUARANTORS'  LIABILITY  IN- 
DEMNITY CO. 

(Supreme  Court  of  New  Jersey,  1897.    60  N.  J.  Law,  246,  37  Atl.  609,  44  L.  R. 

A.  213.) 

Action  by  the  Trenton  Passenger  Railroad  Company  against  the 
Guarantors'  Liability  Indemnity  Company.  Case  reserved.  Judg- 
ment for  plaintiff. 

The  declaration  in  this  case  is  founded  upon  a  written  contract, 
whereby  the  Guarantors'  Liability  Indemnity  Company  indemni- 
fies the  Trenton  Passenger  Railroad  Company  against  legal  lia- 
bility for  injury  to  or  death  of  persons  arising  by  reason  of  cas- 
ualty occurring  in,  upon,  about,  or  by  reason  of  the  street  railroad 
of  the  Trenton  Passenger  Railroad  Company  or  its  equipment,  to 
an  amount  not  exceeding  $5,000,  for  the  injury  to  or  death  of  any 
one  employe,  not  to  exceed  $5,000  for  the  injury  to  or  death  of  any 
person  other  than  an  employe,  and  not  to  exceed  $20,000  in  respect 


Sec.  2)  NATURE    OF   THE   CONTRACT  21 

to  any  one  casualty  whereby  several  may  be  injured  or  killed.  It 
further  sets  out  various  actions  against  the  Trenton  Passenger 
Railroad  Company  for  injuries  which  it  claims  fell  within  the  con- 
tract of  indemnity  of  the  Guarantors'  Liability  Indemnity  Com- 
pany, and  that  those  actions  had  been  prosecuted  to  judgment,  but 
that  the  Guarantors'  Liability  Indemnity  Company,  although  re- 
quested, had  not  paid  them  in  accordance  with  the  terms  of  their 
contract.    The  plea  was  the  general  issue. 

The  issue  joined  was  tried  by  the  court,  a  jury  being  waived.  The 
trial  judge  found  that  the  Guarantors'  Liability  Indemnity  Com- 
pany had  made  the  contract  declared  upon,  and  that,  while  such  con- 
tract was  in  force,  two  judgments  were  obtained  against  the  Tren- 
ton Passenger  Railroad  Company  for  casualties  and  injuries  fall- 
ing within  the  terms  of  that  contract,  which  judgments  the  latter 
company  had  paid.  Thereupon  the  trial  judge  reserved  for  the 
determination  of  the  supreme  court  the  following  question  of 
law,  namely:  Whether  the  said  contract  of  indemnity  is  a  valid 
contract,  or  is  void  as  against  public  policy,  as  being  a  contract 
to  indemnify  the  said  the  Trenton  Passenger  Railroad  Company, 
Consolidated,  against  losses  resulting  from  its  negligence,  or  from 
the  negligence  of  its  agents  and  employes. 

Argued  February  term,  1897,  before  MagiE,  C.  J.,  and  DepuE, 
Van  Sycke)!,,  and  Lippincott,  JJ. 

MagiE,  C.  J.  (after  stating  the  facts).  The  question  reserved 
in  this  case  is  one  of  great  interest,  and  is  presented  for  determina- 
tion for  the  first  time  in  this  court.  The  proof  of  the  execution  by 
the  defendant  company  of  the  instrument  on  which  the  action  is 
brought,  which  instrument  contains  plain  stipulations  for  indemni- 
fying the  plaintiff  company  for  losses  arising  from  injuries  done 
by  it  to  its  employes  or  the  passengers  carried  by  it,  and  the  proof 
that  such  losses  had  occurred  as  were  thus  intended  to  be  indemni- 
fied against,  sufficiently  established  plaintiff's  right  to  recover  the 
stipulated  indemnity,  unless  the  instrument  is  not,  in  the  eye  of 
the  law,  a  valid  contract.  It  is  obvious  that  the  trial  judge  enter- 
tained doubts  of  the  validity  of  the  instrument  in  question,  for, 
although  no  objection  appears  to  have  been  made  on  the  part  of 
the  defendant  upon  that  point,  he  has  deemed  it  necessary  to  sub- 
mit it  for  determination  to  the  full  bench.  The  attitude  of  the  de- 
fendant at  the  trial  has  been  maintained  in  this  court,  for  its  coun- 
sel has  presented  no  argument  and  made  no  claim  that  the  instru- 
ment is  not  a  binding  and  enforceable  contract.  The  result  is 
that  our  examination  of  the  question  has  not  been  aided  by  the  re- 
searches of  counsel  maintaining  its  negative,  but  only  of  counsel 
supporting  its  affirmative.  For  this  reason,  I  have  given  the 
question  as  close  an  examination  as  time  would  permit,  lest  some- 
thing bearing  thereon  might  be  overlooked. 

The  proposition  which  one  would  assert  who  contested  the  validi- 


22  INTRODUCTORY  (Ch.  1 

ty  of  such  a  contract  would  obviously  be  this,  namely:  that  a  con- 
tract whereby  a  common  carrier  of  passengers  is  to  be  indemnified 
against  damages  which  he  was  required  to  pay  for  personal  injuries 
occasioned  by  his  negligence,  or  by  the  negligence  of  his  agent, 
is  contrary  to  public  policy,  and  therefore  unenforceable.  It  is 
admittedly  difficult,  if  not  impossible,  to  formulate  a  satisfactory 
statement  of  what  is  meant  by  the  words  "public  policy."  Mr. 
Justice  Kekewich  declared  that  it  does  not  admit  of  definition,  and 
cannot  be  easily  explained.     Davies  v.  Davies,  36  Ch.   Div.  359. 

That  the  law  has  recognized  one  sort  of  public  policy  as  a  foun- 
dation for  its  judgment  at  one  period,  and  another  sort  at  another 
period,  is  undoubted.  It  is  amusingly  shown  by  Lord  St.  Leonards 
in  Egerton  v.  Brownlow,  4  H.  L.  Cas.  1.  Speaking  of  a  case  from 
the  Year  Books,  he  says  (on  page  238)  :  "It  was  on  an  obligation 
with  a  condition  that,  if  a  man  did  not  exercise  his  craft  of  a  dyer 
within  a  certain  town — that  is,  where  he  carried  on  his  business — 
for  six  months,  then  the  obligation  was  to  be  void,  and  it  was 
averred  that  he  had  used  his  art  there  within  the  time  limited, 
upon  which  Mr.  Justice  Hull,  being  uncommonly  angry  at  such 
a  violation  of  all  law  said,  according  to  the  book :  'Per  Dieu,  if  he 
were  here,  to  prison  he  should  go  until  he  made  fine  to  the  king, 
because  he  had  dared  to  restrain  the  liberty  of  a  subject.'  Angry 
as  the  learned  judge  was  at  that  infraction  of  the  law,  what  has 
been  the  result  of  that  very  rule  without  any  statute  intervening? 
That  the  'common  law,'  as  it  is  called,  has  adapted  itself  upon 
grounds  of  public  policy  to  a  totally  different  and  limited  rule  that 
would  guide  us  at  this  day,  and  the  condition  that  was  then  so 
strongly  denounced  is  just  as  good  a  condition  now  as  any  that 
was  ever  inserted  in  a  contract,  because  a  partial  restraint  created 
in  that  way  with  a  particular  object  is  now  perfectly  legal." 

Another  illustration  occurs  with  respect  to  the  obligations  im- 
posed by  law  founded  on  public  policy,  on  common  carriers  of 
goods.  Originally,  they  were  insurers  of  the  safety  of  the  goods 
against  every  loss,  except  such  as  occurred  by  the  act  of  God  or 
the  public  enemy,  and  any  contract  relieving  them  of  any  part  of 
that  obligation  was  held  to  be  void.  Gradually  they  have  been  per- 
mitted to  contract  for  exemption  from  some  of  their  liability,  and 
public  policy  seems  now  effective  only  to  the  extent  of  prohibit- 
ing their  exemption  by  contract  from  any  losses  occurring  by  rea- 
son of  their  negligence  and  the  negligence  of  their  servants.  For 
such  losses  the  law  founded  on  public  policy  still  holds  them  bound. 
Railroad  Co.  v.  Lockwood,  17  Wall.  357,  21  L.  Ed.  627;  Liver- 
pool &  G.  W.  Steam  Co.  v.  Phenix  Ins.  Co.,  129  U.  S.  397,  9  Sup.  Ct. 
469,  32  L.  Ed.  788. 

From  these  varying  applications  of  the  principle  called  "public 
policy,"  I  think  it  obvious  that  no  accurate  definition  of  that 
phrase  can  be  devised  in  respect  to  any  particular  matter.     In  my 


Sec.  2)  NATURE    OF   THE    CONTRACT  23 

judg-ment,  the  best  that  can  be  clone  is  to  say  that,  since  the  law 
abhors  conduct  injurious  to  the  public  interest  or  antagonistic  to 
the  public  good,  the  courts  will  decline  to  enforce  contracts  which, 
at  the  time  they  are  presented  for  consideration,  require  or  involve 
conduct  against  public  interest  and  public  good.  Such  is  the  re- 
sult of  my  consideration  of  the  matter  after  examining  many  cases 
which  exhibit  the  variant  views  taken  by  courts  upon  this  subject, 
which  variance  is  no  more  strikingly  indicated  than  in  the  case  of 
Egerton  v.  Brownlow,  before  cited. 

My  researches  have  not  been  rewarded  with  the  discovery  of 
many  expressions  of  judicial  opinion  or  by  many  adjudications 
on  the  question  reserved  in  this  case.  Obvious  reasons  exist  why 
the  judicial  consideration  of  such  a  question  would  be  infrequent. 
In  actions  upon  contracts  of  indemnity,  such  as  that  on  which  this 
action  is  founded,  the  insured  raises  no  question  as  to  the  validity 
of  the  contract.  The  insurer,  if,  as  usually  it  is,  a  company  engaged 
in  seeking  profit  by  making-  such  contracts  of  insurance,  is  equally 
adverse  to  setting  up  or  maintaining  that  the  contracts  by  which 
its  profits  are  made  are,  in  the  eye  of  the  law,  void. 

Adjudications  and  judicial  opinions  upon  a  class  of  contracts 
which  seem  to  me  to  bear  a  strict  analogy  to  those  contracts,  one 
of  which  is  before  us,  are  not  infrequent.  As  before  stated,  com- 
mon carriers  of  goods  may,  by  contract  with  their  employers,  limit 
their  liability  for  losses  from  all  peril  except  those  arising  from 
their  negligence  or  the  negligence  of  their  servants.  When  the 
liability  is  so  limited,  the  common  carrier  of  goods  stands  answer- 
able only  for  his  negligence,  and  that  of  his  servants.  The  common 
carrier  of  passengers  has  never  been  deemed  an  insurer  of  their 
safety  during  carriage,  but  the  law  has  imposed  upon  him  a  duty  to 
take  the  highest  care  for  the  safety  of  the  passengers.  He  is  there- 
fore liable  for  injuries  done  to  the  passengers  only  where  they  result 
from  his  negligence ;  that  is,  the  failure  to  take  the  care  for  the  safe- 
ty of  the  passengers  which  the  law  enjoins.  Both  classes  of  carriers 
are  therefore  liable  under  such  circumstances  upon  precisely  the 
same  grounds.  Their  liability  arises  from  negligence  which  is  a 
failure  to  bestow  the  care  and  skill  which  the  situation  of  the  par- 
ties and  the  subject-matter  require.  The  negligence  which  will  ren- 
der them  respectively  liable  may  possibly  differ  in  degree,  although 
the  distinction  between  what  has  been  called  gross  negligence  and 
ordinary  negligence  is  now  generally  and  with  great  reason  repudi- 
ated.    Railroad  Co.  v.  Lockwood,  supra.     It  is  identical  in  kind. 

The  only  reason  which  I  find  possible  to  conceive  to  be  capable 
of  being  urged  in  support  of  the  proposition  that  the  contract  be- 
fore us  in  this  cause  is  contrary  to  public  policy  is  that  the  indemni- 
ty thereby  provided  for  a  common  carrier  of  passengers  may  tend 
to  render  him  less  careful  in  the  performance  of  his  duty  to  his 
passengers  than  he  otherwise  would  be.     It  is  obvious  that  such 


24  INTRODUCTORY  (Ch.  1 

is  not  the  purpose  of  the  contract  for  indemnity.  The  insurer  does 
not  contemplate  the  relaxation  of  the  carrier's  vigilance,  which 
would  tend  to  throw  additional  liability  upon  him.  The  insured  is 
held  to  the  performance  of  his  duty  of  vigilance  both  by  his  lia- 
bility notwithstanding  the  indemnity,  and  by  the  fact  that  the 
vigilant  carrier  would  obtain  better  terms  in  making  the  contracts 
of  insurance.  It  is  further  obvious  that,  if  a  contract  indemnify- 
ing the  common  carrier  of  passengers  against  liability  arising  from 
his  negligence  tends  to  a  relaxation  of  vigilance  inimical  to  the  pub- 
lic interest,  so  a  contract  indemnifying  a  common  carrier  of  goods 
against  the  consequences  of  his  negligence  must  have  the  same 
effect,  and  be  obnoxious  to  the  rule  avoiding  contracts  contrary 
to  public  policy.  Yet  it  now  seems  well  settled  that  a  common  car- 
rier of  goods  may  enforce  contracts  of  insurance  on  goods  carried 
against  all  losses  other  than  those  occasioned  by  his  negligence 
or  the  negligence  of  his  servants. 

In  an  action  upon  such  a  contract  of  insurance  which  came  before 
the  supreme  court  of  the  United  States,  Mr.  Justice  Gray  thus 
dealt  with  the  claim  that  such  contracts  were  void.  He  said:  "No 
rule  of  law  or  of  public  policy  is  violated  by  allowing  the  common 
carrier,  like  any  other  person  having  either  the  general  property 
or  a  peculiar  interest  in  goods,  to  have  them  insured  against  the 
usual  perils,  and  to  recover  for  any  loss  from  such  perils,  though 
occasioned  by  the  negligence  of  his  own  servants.  By  obtaining 
insurance,  he  does  not  diminish  his  own  responsibility  to  the  own- 
ers of  the  goods,  but  rather  increases  his  means  of  meeting  that 
responsibility.  If  it  were  true  that  a  shipowner,  obtaining  insur- 
ance by  general  description  upon  his  ship  and  the  goods  carried 
by  her,  could,  in  case  of  the  loss  of  both  ship  and  goods  by  perils 
insured  against,  and  through  the  negligence  of  the  master  and 
crew,  recover  of  the  insurers  for  the  loss  of  the  ship  only,  and  not 
for  the  loss  of  the  goods,  some  trace  of  the  distinction  would  be 
found  in  the  books ;  but  the  learning  and  research  of  counsel 
have  failed  to  furnish  any  such  precedent."  Phoenix  Ins.  Co.  v. 
Erie  &  W.  Transp.  Co.,  117  U.  S.  312,  6  Sup.  Ct.  1176,  29  L.  Ed. 
873. 

The  doctrine  in  that  case  was  referred  to  with  approval  in  Insur- 
ance Co.  V.  Adams,  123  U.  S.  67,  8  Sup.  Ct.  68,  31  L.  Ed.  63,  and 
Liverpool  &  G.  W.  Steam  Co.  v.  Phenix  Ins.  Co.,  129  U.  S.  397, 
9  Sup.  Ct.  469,  32  L.  Ed.  788.  Afterwards  the  court  was  urged  to 
review  the  doctrine  of  Mr.  Justice  Gray,  and  to  declare  that  the 
insurance  was  an  insurance  against  negligence,  and  contrary  to 
public  policy,  and  void ;  but  the  court,  speaking  by  Mr.  Justice 
Blatchford,  reaffirmed  the  doctrine,  on  the  grounds  stated  in  the 
opinion  of  Mr.  Justice  Gray.  California  Ins.  Co.  v.  Union  Com- 
press Co.,  133  U.  S.  387,  10  Sup.  Ct.  365,  33  L.  Ed.  730. 

Various  kinds  of  insurance  against  loss  by  fire  or  loss  by  perils 


Sec.  2)  NATURE    OF   THE    CONTRACT  25 

of  the  sea  would  seem  to  be  open  to  a  like  charg^e  of  a  tendency 
to  encourage  negligence,  which,  at  least  when  the  policies  are  held 
(as  they  so  frequently  are)  as  collateral  security  for  obligations  of 
the  insured,  may  be  well  argued  to  be  against  the  public  interest, 
and  therefore  void  as  against  public  policy.  But  no  trace  of  any 
such  claim  can  be  found  in  text-books  or  adjudications.  With 
respect  to  such  contracts  of  insurance  as  that  with  which  we  are 
dealing,  I  have  found  but  two  expressions  of  judicial  opinion  in 
the  books  and  reports.  In  the  case  of  Delancy  v.  Robson,  5  Taunt. 
605,  upon  a  motion  to  settle  the  venue,  it  incidentally  appeared  that 
the  action  as  upon  a  contract  of  somewhat  such  character,  and  the 
reporter  states  a  qu?ere  as  to  whether  an  insurance  against  damages 
that  a  shipowner  might  be  liable  to  pay  in  consequence  of  his  ship 
running  down  another  be  not  illegal ;  and  it  is  said  per  curiam : 
"It  would  be  an  illegal  insurance  to  insure  against  what  might  be 
the  consequence  of  the  wrongful  acts  of  the  accused."  This  case 
affords  no  aid  in  the  solution  of  the  question,  both  because  the 
question  was  not  directly  presented,  but  only  incidentally  con- 
sidered, and  because  what  the  court  said  may  well  be  deemed  lim- 
ited to  acts  of  the  insured  which  were  actively  wrongful  in  dis- 
tinction from  being  merely  negligent. 

There  is,  however,  an  adjudication  precisely  in  point  in  which  the 
question  thus  arose:  An  incorporated  company,  authorized,  among 
other  things,  to  issue  contracts  of  indemnity  of  the  same  charac- 
ter as  that  before  us,  became  insolvent.  Its  business  had  not  been 
confined  to  making  such  contracts,  but  had  extended  to  other 
contracts  of  indemnity;  and  the  court,  in  distributing  the  assets, 
had  before  it  creditors  whose  claims  arose  from  other  forms  of 
contracts  than  those  arising  upon  such  contracts  of  insurance.  In 
behalf  of  the  other  creditors,  the  court  was  urged  to  declare  that 
the  creditors  who  claimed  upon  such  contracts  of  insurance  should 
not  be  admitted  to  partake  in  the  distribution  of  the  assets,  upon 
the  ground  that  such  contracts  of  insurance  were  obnoxious  to  pub- 
lic policy,  and  unenforceable  and  void.  The  opinion  of  the  court 
was  written  by  Chief  Justice  McSherry,  and  contains  an  admirable 
discussion  of  the  question,  reaching  the  conclusion  that  public 
policy  does  not  avoid  these  contracts.  In  respect  to  the  claim  that 
the  possession  of  such  indemnity  tends  to  beget  negligence,  he 
says:  "Nor  can  we  assume  as  an  unvarying  rule,  of  which  judicial 
notice  will  be  taken,  that  a  carrier  of  passengers,  who  has  secured 
an  indemnity  to  reimburse  himself  for  losses  which  his  own  negli- 
gence may. produce,  will,  merely  because  and  solely  in  consequence 
of  having  such  indemnity  (which,  at  best,  is  but  limited  and  par- 
tial), necessarily  disregard  the  duty  to  exercise  the  highest  degree 
of  care.  And,  unless  it  be  assumed  as  a  postulate  that  the  mere  pos- 
session of  an  indemnity  will  of  itself  necessarily  and  invariably 
produce  negligence,  it  does  not  logically  follow  that  such  a  policy 


26  INTRODUCTORY  (Ch.  1 

or  indemnity  is  even  incidentally  or  indirectly  repugnant  to  public 
policy.  The  indemnity  in  no  way  affects  the  lial^ility  of  the  car- 
rier to  the  person  injured.  The  utmost  that  it  does,  precisely  as 
in  the  case  of  a  carrier  of  goods,  is  to  afford  him  a  fund  out  of 
which  he  may  be  reimbursed,  and  that,  too,  perhaps,  but  partially; 
f(ir  in  all  these  policies  the  liability  of  the  insured  is  always  limited 
and  confined  to  a  specifically  designated  sum."  Boston  &  A.  R. 
Co.  V.  Mercantile  Trust  &  Deposit  Co.,  82  Md.  535,  34  Atl.  778,  38 
L.  R.  A.  97. 

The  result  is  that  the  reserved  question  must  be  answered  in 
favor  of  the  validity  of  the  contract  upon  which  this  action  is 
founded,  and,  as  the  special  finding  of  the  trial  judge  shows  that 
he  had  assessed  the  damages  of  the  plaintiff  at  the  sum  of  $978.36, 
judgment  should  be  ordered  for  the  plaintiff  for  that  sum.  It  is 
proper  to  observe  that  the  decisions  of  this  court  in  Kinney  v. 
Railroad  Co.,  32  N.  J.  Law,  407,  90  Am.  Dec.  675,  and  of  the  court 
of  errors  in  the  same  case  (34  N.  J.  Law,  513,  3  Am.  Rep.  265),  are 
not  at  all  antagonistic  to  the  views  above  expressed.  It  was  held 
in  both  courts  that,  when  a  common  carrier  of  passengers  agreed 
to  carry  a  passenger  gratuitously,  a  valid  contract  might  be  made 
between  the  carrier  and  such  a  passenger,  exempting  the  carrier 
from  all  liability  even  for  injuries  resulting  from  its  negligence 
or  the  negligence  of  its  servants.  But  this  was  distinctly  put  upon 
the  ground  that  in  such  case  the  ordinary  relation  of  a  passenger 
and  common  carrier  did  not  arise,  but  rather  a  relation  (as  the 
learned  chief  justice  pointed  out)  analogous  to  that  of  a  bailor  and 
a  gratuitous  bailee.  Assuming  that  it  may  be  inferred  from  those 
decisions  that,  when  the  ordinary  relation  of  common  carrier  and 
passenger  has  arisen,  a  contract  exempting  the  former  from  lia- 
bility to  the  latter  for  injuries  resulting  from  its  negligence  or 
the  negligence  of  its  servants  would  be  invalid,  it  only  results  that 
the  common  carrier  of  passengers  is  left  invariably  liable  for  the 
consequences  of  its  negligence,  precisely  as  is  above  shown  the 
common  carrier  of  goods  is  liable.^** 

10  See,  in  accord,  Casualty  Ins.  Company's  Case,  82  Md.  535,  574,  34  Atl.  778, 
38  L.  R.  A.  97  (1S96).  But  statutes  declaring  that  no  contract  of  insurance 
or  indemnity  made  between  a  railway  and  its  employes  shall  constitute  a  de- 
fense in  an  action  by  an  employe  for  personal  injury  have  been  held  constitu- 
tional. See  McGuire  v.  C.  B.  &  Q.  Ry.  Co.,  131  Iowa,  340,  108  N.  W.  902,  33 
L.  R.  A.  (N.  S.)  706  (1906),  affirmed  219  U.  S.  549,  31  Sup.  Ct.  259,  55  L.  Ed. 
328  (1911). 


Sec.  2)  NATURE   OF  THE   CONTRACT  27 

COMMONWEALTH  v.  WETHERBEE. 

(Supreme  Judicial  Court  of  Massachusetts,  1870.    105  Mass.  140.)  n 

Indictment  on  the  St.  of  1867,  c.  267,  §  5,  for  acting  in  the  trans- 
action of  the  business  of  insurance  as  agent  of  an  insurance  com- 
pany not  incorporated  in  this  commonwealth,  without  first  procur- 
ing from  the  insurance  commissioner  a  certificate  of  authority  so 
to  do. 

The  defendant  admitted  in  the  trial  in  the  superior  court,  be- 
fore Dewey,  J.,  that  he  had  solicited  persons  in  Massachusetts  to 
become  members  of  the  Connecticut  Mutual  Benefit  Company, 
without  having  obtained  authority  from  the  insurance  commis- 
sioner to  do  so;  but  he  claimed  that  it  was  not  an  insurance  com- 
pany under  the  statutes  of  Massachusetts,  but  rather  an  organiza- 
tion for  the  mutual  benefit  of  its  members,  not  conducted  for 
profit,  but  only  for  benevolent  purposes.  But  the  court  ruled  that 
the  association  was  an  insurance  company  under  the  statute  of 
Massachusetts,  and  the  jury  returned  a  verdict  of  guilty.  The  de- 
fendant alleged  exceptions. 

Gray,  J.  A  contract  of  insurance  is  an  agreement,  by  which 
one  party,  for  a  consideration,  (which  is  usually  paid  in  money, 
either  in  one  sum,  or  at  different  times  during  the  continuance  of 
the  risk,)  promises  to  make  a  certain  payment  of  money  upon 
the  destruction  or  injury  of  something  in  which  the  other  party 
has  an  interest.  In  fire  insurance  and  marine  insurance,  the  thing 
insured  is  property;  in  life  or  accident  insurance,  it  is  the  life  or 
health  of  a  person.  In  either  case,  neither  the  times  and  amounts 
of  payments  by  the  assured,  nor  the  modes  of  estimating  or  se- 
curing the  payment  of  the  sum  to  be  paid  by  the  insurer,  affect 
the  question  whether  the  agreement  between  them  is  a  contract 
of  insurance.  All  that  is  requisite  to  constitute  such  a  contract 
is  the  payment  of  the  consideration  by  the  one,  and  the  promise 
of  the  other  to  pay  the  amount  of  the  insurance  upon  the  happen- 
ing of  injury  to  the  subject  by  a  contingency  contemplated  in  the 
contract. 

The  contract  made  between  the  Connecticut  Mutual  Benefit 
Company  and  each  of  its  members,  by  the  certificates  of  member- 
ship issued  according  to  its  charter,  does  not  differ  in  any  essen- 
tial particular  of  form  or  substance  from  an  ordinary  policy  of 
mutual  life  insurance.  The  subject  insured  is  the  life  of  the  mem- 
ber. The  risk  insured  is  death  from  any  cause  not  excepted  in  the 
terms  of  the  contract.  The  assured  pays  a  sum  fixed  by  the  di- 
rectors and  not  exceeding  ten  dollars,  at  the  inception  of  the  con- 

11  The  statement  of  facts  is  much  abbreviated.  The  constitution  and  by- 
laws of  the  Connecticut  Mutual  Benefit  Company  are  set  forth  in  the  original 
report. 


28  INTRODUCTORY  (Ch.  1 

tract,  and  assessments  of  two  dollars  each  annually,  and  of  one 
dollar  each  upon  the  death  of  any  member  of  the  division  to  which 
he  belongs,  during  the  continuance  of  the  risk.  In  case  of  the 
death  of  the  assured  by  a  peril  insured  against,  the  company  ab- 
solutely promises  to  pay  to  his  representatives,  in  sixty  days  after 
receiving  satisfactory  notice  and  proof  of  his  death,  "as  many 
dollars  as  there  are  members  in"  the  same  division,  the  number 
of  which  is  limited  to  five  thousand.  The  payment  of  this  sum  is 
subject  to  no  contingency  but  the  insolvency  of  the  corporation. 
The  means  of  paying  it  are  derived  from  the  assessments  collected 
upon  his  death  from  other  members ;  from  the  money  received 
upon  issuing  other  certificates  of  membership,  which  the  by-laws 
declare  may,  after  payment  of  expenses,  be  "used  to  cover  losses 
caused  by  the  delinquencies  of  members" ;  and  from  the  guaranty 
fund  of  a  hundred  thousand  dollars,  established  by  the  corporation 
under  its  charter. 

This  is  not  the  less  a  contract  of  mutual  insurance  upon  the  life 
of  the  assured,  because  the  amount  to  be  paid  by  the  corporation 
is  not  a  gross  sum,  but  a  sum  graduated  by  the  number  of  members 
holding  similar  contracts;  nor  because  a  portion  of  the  premiums 
is  to  be  paid  upon  the  uncertain  periods  of  the  deaths  of  such  mem- 
bers;  nor  because,  in  case  of  nonpayment  of  assessments  by  any 
member,  the  contract  provides  no  means  of  enforcing  payment 
thereof,  but  merely  declares  the  contract  to  be  at  an  end,  and  all 
moneys  previously  paid  by  the  assured,  and  all  dividends  and 
credits  accrued  to  him,  to  be  forfeited  to  the  company. 

The  fact,  offered  to  be  proved  by  the  defendant,  that  the  ob- 
ject of  the  organization  was  benevolent  and  not  speculative,  has  no 
bearing  upon  the  nature  and  effect  of  the  business  conducted  and 
the  contracts  made  by  the  corporation. 

The  ruling  that  this  association  was  an  insurance  company,  with- 
in the  meaning  of  the  statute  upon  which  the  defendant  was  in- 
dicted, was  therefore  correct,  and  his 

Exceptions  must  be  overruled.^^ 

.  12  While  mutual,  benevolent,  and  fraternal  associations  are  almost  univer- 
sally held  to  be  insurance  companies,  yet  as  a  rule  they  are  excepted  from 
the  general  statutory  regulations  governing  the  operation  of  general  insurance 
companies,  and  made  subject  to  statutory  provisions  especially  adapted  to 
their  peculiar  character.  See,  for  example,  Gen.  St.  Minn.  1913,  §§  .3.537- 
3590;  Brown  v.  Balfour,  46  Minn.  68,  48  N.  W.  604,  12  L.  R.  A.  373  (1891); 
A.  L.  of  H.  V.  Larmour,  81  Tex.  71,  16  S.  W.  633  (1891) ;  State  v.  Benton,  35 
Neb.  463,  53  N.  W.  567  (1892). 

It  has  been  held  that  insurance  applied  for  or  obtained  from  a  mutual, 
benevolent,  or  fraternal  association  is  not  "other  insurance"  within  the  terms 
of  the  ordinary  life  policv.  See  Penn  Mutual  Life  Ins.  Co.  v.  Mechanics'  Sav- 
ings Bank  &  Trust  Co.,  37  U.  S.  App.  692,  72  Fed.  413,  19  C.  C.  A.  286,  38  L. 
K.  A.  33  (1896) ;  Equitable  Life  Ins.  Co.  v.  Hazelwood,  75  Tex.  338,  12  S.  W. 
621,  7  L.  R.  A.  217,  16  Am.  St.  Rep.  893  (1889).  See  contra,  Clapp  v.  Mass. 
Ben.  Ass'n,  146  Mass.  519,  16  N.  E.  433  (1888);  McCoUum  v.  Mutual  Life 
Ins.  Co.,  55  Hun,  103,  8  N.  Y.  Supp.  249  (1889).  Numerous  authorities  are 
collected  in  the  note  found  In  38  L.  R.  A.  33. 


Sec.  2)  NATURE   OF   THE   CONTRACT  29 


DANE  V.  MORTGAGE  INSURANCE  CORPORATION, 

LIMITED. 

(Court  of  Appeal.     [1894]  1  Q.  B.  Div.  154.)i« 

Appeal  from  an  order  of  the  Divisional  Court  directing  judgment 
to  be  rendered  for  the  plaintiff. 

The  plaintiff,  having  deposited  ilOOO.  for  a  period  of  three  years 
at  four  and  a  quarter  per  cent,  per  annum  interest  with  the  Bank 
of  Australia,  secured  from  the  defendant  corporation  a  contract 
whereby  the  plaintiff  was  "guaranteed"  the  payment  of  the  princi- 
pal sum  and  interest  by  the  corporation  in  case  of  default  by  the 
bank,  subject  to  certain  conditions  that  need  not  be  here  set  forth. 

The  principal  sum  became  due  on  April  19,  1893,  and  the  bank 
made  default  in  payment  thereof.  Subsequently  to  the  date  of 
such  default,  the  bank  suspended  payment,  and  an  order  to  wind 
up  the  bank  was  made  in  Victoria,  by  the  Supreme  Court  of  that 
colony. 

By  a  scheme  of  compromise  or  arrangement  between  the  bank 
and  its  creditors,  which  was  sanctioned  by  the  colonial  court,  the 
old  company  was  to  be  wound  up,  and  a  new  company  formed.  By 
the  terms  of  this  sanctioned  arrangement,  deposit  receipts  and 
shares  of  the  new  company  were  to  be  received  in  full  discharge 
of  the  old  company's  similar  obligations,  which  were  to  be  sur- 
rendered and  cancelled. 

The  plaintiff  gave  the  defendants  notice  of  the  default  in  pay- 
ment of  the  principal  sum,  and  then  brought  the  present  action  to 
recover  that  sum  and  £18.  interest. 

Moulton,  Q.  C,  and  Danckwerts,  for  the  defendants.  The  con- 
tract here  was  one  of  guarantee  and  not  of  indemnity.  The  con- 
tract itself  uses  the  expression  "guarantee  to  the  assured  pay- 
ment," and  such  a  guarantee  does  not  amount  to  an  insurance 
against  risk ;  it  is  a  guarantee  of  a  debt  of  a  third  person  within 
the  Statute  of  Frauds.  If  this  is  a  contract  of  guarantee,  the  law 
applicable  to  sureties  being  discharged,  by  reason  of  the  position 
of  the  parties  being  altered,  becomes  applicable.  Here  the  defend- 
ants were  discharged  from  liability  under  their  contract  by  reason 
of  the  plaintiff  having  accepted  the  provisions  of  the  scheme  of 
arrangement  in  the  winding-up  proceedings.  The  acceptance  by 
the  plaintiff  of  the  provisions  in  the  scheme  amounted  to  an  accord 
and  satisfaction  of  the  original  debt  of  the  bank.  Megrath  v.  Gray, 
L.  R.  9  C.  P.  216;  Slater  v.  Jones,  L.  R.  8  Ex.  136.  By  the  scheme 
the  new  company  was  to  take  over  all  the  assets  and  liabilities 
of    the    old    company,    and    the    original    debt    was    extinguished. 

13  The  abbreviated  statement  of  facts  and  of  the  argument  of  counsel  is 
taken  from  the  report  in  63  L.  J.  Q.  B.  144.  The  concurring  opinion  of  Kay, 
L.  J.,  is  omitted. 


30  INTRODUCTORY  (Ch.  1 

Channell,  Q.  C.  (with  him  A.  J.  Walter),  for  the  plaintiff. 

Lord  JEsiiRR,  M.  R.  In  my  opinion  the  questions  into  which 
the  counsel  for  the  defendants  have  endeavored  to  lead  us  with 
regard  to  the  law  of  bankruptcy  and  the  law  of  guarantees  have 
nothing  to  do  with  this  case,  and  I  decline  to  go  into  them.  I  do 
not  think  this  contract  is  to  be  looked  at  as  one  of  a  guarantee  in 
the  usual  sense  of  the  term,  but  as  a  contract  of  insurance.  The 
defendants  are  incorporated  as  the  Mortgage  Insurance  Corpora- 
tion, Limited,  for  the  express  purpose  of  insuring  mortgages  and 
other  securities,  and  they  issue  policies.  The  contract  now  in  ques- 
tion begins  with  the  words,  "This  policy  of  insurance."  It  seems 
to  me  clear  that  the  intention  was  that  this  contract  should  be  one 
of  insurance,  and  that  those  who  entered  into  it  with  the  plaintiff 
should  be  in  the  position  of  underwriters.  An  underwriter  is  not 
a  surety.  He  is  a  person  who  undertakes  to  pay  money  in  a 
certain  event.  The  form  of  a  policy  is  not  that  of  a  guarantee. 
A  policy  on  a  ship,  for  instance,  is  not  an  undertaking  to  pay  the 
amount  insured,  if  somebody  else,  e.  g.,  the  owner  of  another 
ship  that  has  caused  the  loss,  does  not,  but  to  pay  such  amount 
on  the  loss  of  the  ship.  Here  the  policy  recites  that  the  plaintiff 
is  the  holder  of  a  deposit  receipt  for  £1000.  of  the  Commercial 
Bank  of  Australia,  and  is  desirous  of  being  "insured"  as  therein- 
after appearing,  and  the  defendants  thereby  in  effect  promise  to 
pay  the  "assured"  the  principal  sum,  if  the  debtors  have  made 
default  in  so  doing. 

What  the  defendants  have  done,  as  it  appears  to  me,  is  to  insure 
payment  of  the  deposit  receipt  according  to  the  contract  made 
between  the  depositor  and  the  bank,  i.  e.,  that  the  bank  will  pay 
the  amount  at  the  date  fixed  by  that  contract  for  payment.  The 
policy  is  not  a  guarantee  that  the  bank  will  be  able  to  pay;  it 
is  a  positive  direct  contract  that,  if  the  bank  does  not  pay  a  certain 
amount  on  a  fixed  day,  the  insurance  company  will  pay  that 
amount.  By  the  law  of  insurance,  though  the  underwriter  directly 
promises  to  pay  on  a  certain  event,  the  contract  is  treated  as  one 
of  indemnity ;  and  it  follows  that,  if  the  assured,  who  has  been 
indemnified  by  the  underwriters  as  on  a  total  loss,  saves  anything" 
upon  the  loss,  that  salvage  must  go  to  the  underwriter;  otherwise 
the  assured  would  be  more  than  indemnified.  That  is  an  incident 
of  every  kind  of  insurance  which  is  held  by  law  to  be  a  contract 
of  indemnity.  Therefore,  in  such  a  case,  if  the  assured  does  obtain 
anything  by  way  of  salvage  out  of  the  subject-matter  insured,  he 
must  account  for  that  to  the  underwriter;  and,  further  than  that, 
if  anything  is  obtainable  by  way  of  salvage,  he  has  no  right  to 
say  to  the  underwriter  that  he  will  not  take  any  step  in  order  to 
obtain  such  salvage;  he  is  bound  to  assist  the  underwriter  in 
obtaining  it. 


Sec.  2)  NATURE   OF   THE   CONTRACT  31 

For  instance,  in  the  present  case,  if  the  bank  had  not  failed,  but 
had  remained  in  perfect  credit,  and  it  had  on  some  untenable 
ground  refused  to  pay  the  plaintiff  at  the  time  when,  according  to 
the  deposit  note,  payment  was  due,  the  plaintiff  would  not  be 
bound  first  to  sue  the  bank ;  the  policy  is  made  for  the  very  pur- 
pose among  others  of  preserving  her  from  that  necessity ;  she 
would  be  entitled  to  receive  payment  from  the  defendants,  the 
insurers ;  but  then,  if,  after  they  had  paid  her,  the  bank,  discov- 
ering their  mistake,  were  to  pay  her  the  amount  of  the  deposit, 
she  would  be  bound  to  account  for  it  to  the  defendants ;  or,  on 
the  other  hand,  if  the  bank  still  refused  to  pay,  she  would  be 
bound  to  allow  the  defendants  to  sue  in  her  name.  All  that  is 
well-understood  law  with  regard  to  insurance.  I  think  that  it  is 
only  bewildering  to  look  away  from  the  plain  terms  of  this  con- 
tract and  add  to  it,  as  suggested  by  the  counsel  for  the  defendants, 
other  words  qualifying  the  words  actually  used  by  reference  to 
the  alleged  law  of  the  colony  as  to  schemes  of  arrangement  by 
companies  with  their  creditors. 

It  is  quite  immaterial  to  the  plaintiff  whether  there  was  any 
scheme  of  arrangement  or  not.  Nothing  is  material,  so  far  as  she 
is  concerned,  after  the  fact  that,  the  day  of  payment  according 
to  the  contract  between  her  and  the  bank  having  arrived,  she  was 
not  paid.  If  after  that  by  any  law  anything  can  be  got  from  the 
bank,  it  is  for  the  insurers  to  get  it,  the  plaintiff  being  bound  to 
put  no  difficulties  in  their  way.  It  seems  to  me  that  this  is  a 
simple  case  of  insurance,  and  that  no  plausible  suggestion  of  any 
defence  to  this  action  has  been  made  out.  If  the  conclusion  to 
which  I  have  come  wanted  any  confirmation,  I  think  it  would  be 
found  on  reference  being  made  to  condition  No.  2  indorsed  on  the 
policy ;  but  I  should  come  to  precisely  the  same  conclusion  in  the 
absence  of  that  condition. 

For  these  reasons  I  think  that  this  appeal  must  be  dismissed. 
Appeal  dismissed,^* 

14  Insurance  Contracts  in  the  Form  of  Surety  Bonds. — By  the  great 
weight  of  authority  it  is  held  that  contracts  wherein  the  parties  Intend  to  in- 
sure against  loss  by  reason  of  default  of  employes,  debtors,  or  other  persons 
shall  be  construed  as  insurance  contracts,  even  though  they  may  be  in  the 
form  of  surety  bonds.  As  said  by  Start,  G.  J.,  in  Ilorniel  v.  American  Bond- 
ing Co.,  112  Minn.  288,  128  N.  W.  12,  33  L.  R.  A.  (N.  S.)  513  (1910):  "In  con- 
sidering the  question  whether  the  surety  company  was  entitled  to  a  directed 
verdict  for  any  of  the  reasons  here  urged,  we  must  keep  in  view  the  char- 
acter of  contracts  of  suretyship  of  corporations  organized  for  the  purpose  of 
engaging,  for  profit,  in  the  business  of  guaranteeing  the  fidelity  or  contracts 
of  a  third  party,  and  the  rules  of  construction  applicable  to  their  contracts. 
"While  such  contracts  in  form  resemble  those  of  suretyship,  they  are  in  effect 
contracts  of  insurance,  to  which  the  rules  of  construction  peculiar  to  contracts 
of  suretyship  proper  do  not  apply,  but  to  which  the  rules  governing  ordinary 
insurance  contracts  are  applicable.  32  Cyc.  307.  27  Am.  &  Eng.  Enc.  (2d. 
Ed.)   452,  §§  174,  179,  and  208;    Lakeside  Land  Co.  v.  Empire  State  Surety 


32  INTRODUCTORY  (Ch.  1 

GOULD  V.  BROCK  et  al. 

(Supronio  Court  of  Pennsylvania,  1908.     221  Pa.  38,  69  Atl.  1122.) 

Appeal  from  Court  of  Common  Pleas,  Philadelphia  County. 

Bill  by  Claude  C.  Gould  against  John  W.  Brock  and  the  Trav- 
elers' Insurance  Company  of  Hartford.  From  a  decree  sustaining 
a  demurrer  to  the  bill,  plaintifif  appeals.     Affirmed. 

The  bill  averred  as  follows:  One  of  defendants,  John  W.  Brock, 
is  executor  of  Robert  C.  H.  Brock.  The  other  defendant,  the  Trav- 
elers' Insurance  Company  of  Hartford,  is  a  Connecticut  corpora- 
tion. The  plaintiff,  Claude  C.  Gould,  sued  said  Brock,  executor,  at 
law  to  recover  damages  for  personal  injuries  negligently  and  un- 
lawfully inflicted  upon  plaintiff  by  the  deceased  Brock,  in  the  running 
of  an  automobile,  which  suit  is  pending.  Thereupon  the  said  foreign 
corporation,  not  being  of  kin  to  the  said  Brock,  and  not  sustaining 
any  relation  to  him  or  to  his  estate,  or  to  the  plaintiff  lawfully  enti- 
tling it  to  interfere  and  intermeddle  in  the  said  common-law  action, 
has  nevertheless,  for  hire  paid  to  it  by  said  Brock,  undertaken  to 
maintain  and  conduct  the  defense  against  the  said  action,  at  its  own 
cost,  and  according  to  its  sole  discretion,  and  without  any  expense 
for  costs  or  reference  whatsoever  to  the  said  Brock,  and  for  the 
purpose  of  obstructing,  preventing,  and  defeating  plaintiff  in  his 
effort  to  enforce  and  obtain  his  just  rights ;  and,  in  furtherance  of  its 
said  unlawful  undertaking,  has  caused  to  be  entered  in  said  common- 
law  action  an  appearance  and  plea  by  its  own  attorney,  ostensibly  for 
said  Brock,  but  in  truth  and  in  fact  for  itself,  and  proposes  to  main- 
tain and  conduct  the  defense  in  said  litigation  until  final  judgment, 
although  the  plaintiff  has  and  can  have  no  claim  or  recourse  against 
the  said  corporation  for  the  damages  suffered  and  claimed  by  him  in 
said  common-law  action  against  Brock.  By  means  of  the  said  unlaw- 
ful contrivance  between  said  Brock  and  said  corporation,  and  the  re- 
sulting interference,  intermeddling,  and  maintenance  by  said  corpora- 
tion, the  plaintiff  is  greatly  harassed,  hindered,  and  prejudiced  in 
his  effort  to  obtain  and  enforce  his  just  rights,  to  his  irreparable 
injury  and  contrary  to  law  and  equity. 

The  bill  prayed  for  an  injunction:  (1)  Restraining  said  corpora- 
tion from  intermeddling-  in  the  action  at  law  aforesaid.  (2)  Requiring 
it  to  withdraw  the  said  appearance  and  plea.  (3)  Restraining  Brock 
from  receiving  assistance  from  said  corporation.  (4)  General  relief. 
A  demurrer  to  the  bill  was  sustained  by  the  court. 

Co.,  105  Minn.  213,  117  N.  W.  431  (1908) ;    Brandup  v.  Same,  111  Minn.  376, 
127  N.  W.  424  (1910)."     See  note  in  24  Harv.  Law  Rev.  568. 

An  excellent  di.scussion  of  the  distinction  between  contracts  of  suretyship 
and  insurance  is  also  found  in  Cowles  v.  Fidelity  &  Guaranty  Co.,  32  Wash. 
120,  72  Pac.  1032,  98  Am.  St.  Rep.  838  (1903).  In  an  extensive  note  in  33  L. 
R.  A.  (N.  S.)  513,  will  be  found  a  full  collection  of  authorities  on  this  point. 
See,  also.  Parr's  Bank  v.  Albert  Mines  Syndicate,  5  Com.  Cas.  116  (1899). 


Sec.  2)  NATURE    OF   THE   CONTRACT  33 

Argued  before  MiTciiicivL,  C.  J.,  and  FiCLL,  Brown,  Mestrezat, 
PoTTKK,  E1.KIN,  and  Stewart,  JJ. 

PKr  Curiam.  No  cause  of  action  is  alleged  in  the  bill  which  in 
any  view  of  it  can  sustain  the  interference  of  a  court  of  equity.  If 
there  are  any  available  merits  in  complainant's  case,  they  are  main- 
tainable at  law.  But  there  is  no  ground  either  at  law  or  in  equity. 
The  right  of  a  party  sued  to  avail  himself  of  all  proper  means  of 
defense,  not  only  by  the  professional  assistance  of  counsel,  but  also 
by  expert  and  other  testimony,  the  experience  of  persons  familiar 
with  the  business,  etc.,  and  the  further  right  to  protect  himself  by 
insurance  from  an  adverse  result  of  uncertain  litigation,  are  beyond 
question.  There  was  a  time  when  all  insurance,  and  especially  of 
life,  was  looked  upon  with  suspicion  and  disfavor,  but  it  was  only 
becavtse  regarded  as  a  species  of  wagering  contract.  That  time  has 
long  gone  by.  And,  with  the  intelligent  study  of  political  economy 
bringing  the  recognition  of  the  fact  that  even  the  most  apparently 
disconnected  and  sporadic  occurrences  are  subject  to  at  least  an  ap- 
proximate law  of  averages,  the  insurance  against  loss  from  any  such 
occurrence  has  been  recognized  as  a  legitimate  subject  of  protec- 
tion to  the  individual  by  a  guaranty  of  indemnity  from  some  party 
undertaking  to  distribute  and  divide  the  loss  among  a  number  of  oth- 
ers for  a  premium  giving  them  a  prospect  of  profit. 

There  is  nothing  in  this  case  that  even  remotely  discloses  the  taint 
of  maintenance,  even  at  common  law,  much  less  of  the  principle  of 
maintenance  as  administered  at  the  present  day  with  a  clearly  defined 
limitation  to  cases  of  actually  malicious,  dangerous,  or  illegal  inter- 
meddling with  other  parties'  litigation.  Fenn  v.  McCarrell,  208  Pa. 
615,  57  Atl.  1108;  Frankfort  Marine,  etc.,  Ins.  Co.  v.  Witty,  208  Pa. 
569,  57  Atl.  990;  Dives  v.  Fidelity  &  Casualty  Co.,  206  Pa.  199,  55 
Atl.  950 ;  Phillipsburg  Horse  Car  Co.  v.  Fidelity  &  Casualty  Co.,  160 
Pa.  350,  28  Atl.  823. 

Decree  afiirmed. 


STATE  v.  WILLETT. 

(Supreme  Court  of  Indiana,  1908.    171  Ind.  296,  S6  N.  E.  68.  23  L.  R.  A.  [N.  S.] 

197.)  15 

Appeal  from  Circuit  Court,  Hancock  County ;  R.  L.  Mason,  Judge. 

Matt  Willett  was  charged  with  writing  a  policy  of  insurance  in 
violation  of  Burns'  Ann.  St.  1908,  §  4713.  A  motion  to  quash  the 
indictment  was  sustained,  and  the  State  appeals.  Reversed  and  re- 
manded, with  instructions  to  overrule  the  motion. 

HadIvEy,  J.     The  prosecuting  attorney  filed  an  affidavit  charging 

15  The  statement  of  facts  as  jriven  in  the  opinion  of  the  court  is  much  ab- 
breviated, and  a  part  of  the  opinion  dealing  with  insurable  interest  is  omitted. 
Vance  Ins. — 3 


34  INTRODUCTORY  (Ch.  1 

appellee  with  writing  a  policy  of  insurance  in  violation  of  section 
4713,  Burns'  Ann.  St.  1908  (section  4894ul,  Burns'  Ann.  St.  1901). 
Appellee's  motion  to  quash  the  affidavit  was  sustained,  and  the  state 
appeals. 

The  first  count  of  the  affidavit  stated,  in  substance,  that  the  appel- 
lee, on  the  10th  day  of  December,  1907,  knowingly  and  unlawfully 
wrote  a  policy  of  insurance  upon  the  life  of  one  Davis,  who  was  then 
and  there  an  individual  in  the  state  of  Indiana ;  the  policy  reading  as 
follows :  "No.  8539.  Greenfield,  Ind.,  Dec.  10,  1907.  This  is  to  cer- 
tify that  Charles  C.  Davis,  who  was  born  on  the  1st  day  of  July,  1867, 
is  entitled  to  membership  in  the  Greenfield  Mutual  Burial  Associa- 
tion, and  entitled  to  all  the  benefits  as  a  member  of  said  association, 
in  accordance  with  the  by-laws  thereof.  M.  T.  Smith,  President.  At- 
test :  Oak  S.  Morrison,  Secretary."  The  affidavit  then  sets  out  the 
by-laws  of  the  Greenfield  Mutual  Burial  Association,  which  state  [the 
rules  governing  admission  to  membership  in  the  society,  the  regula- 
tions for  the  payment  of  assessments,  and  defining  the  benefits  to  be 
derived  from  membership]. 

Articles  14  and  15  are  in  these  words:  "The  benefits  herein  pro- 
vided are  for  the  purpose  of  furnishing  respectable  funeral  and  burial 
services  for  deceased  members,  and  the  benefits  provided  are  to  be 
paid  to  the  undertaker  furnishing  such  services,  and  not  to  surviving 
relatives  and  friends  as  death  benefits.  It  is  agreed  that  the  goods 
for  said  funerals  shall  be  furnished  and  services  rendered  by  C.  W. 
Morrison  &  Son,  their  heirs  and  assigns,  and  they  are  hereby  desig- 
nated the  official  undertakers  of  this  association."     *     *     * 

The  affidavit  further  charged  that  neither  the  beneficiary  named  in 
said  policy  of  insurance,  nor  any  member  of  the  firm  of  C.  W.  Mor- 
rison &  Son,  had  any  bona  fide  insurable  interest,  in  whole  or  in  part, 
in  the  life  of  said  Charles  C.  Davis,  at  the  time  said  policy  was  is- 
sued, nor  at  said  time  was  the  beneficiary  of  such  policy,  nor  was  any 
member  of  the  firm  of  C.  W.  Morrison  &  Son,  related  to  said  Charles 
C.  Davis  in  any  degree  of  kinship  whatever. 

The  statute  referred  to  at  the  head  of  this  opinion  forbids  the  tak- 
ing, or  the  receiving,  of  any  application  for  any  insurance  upon  the 
life  of  any  person  in  the  state  of  Indiana,  in  favor  of  any  person  who 
has  not  a  bona  fide  insurable  interest  in  the  life  of  the  insured,  or  who 
is  not  related  to  him  within  a  degree  not  further  removed  than  first 
cousins.  It  also  forbids  the  issuance  of  a  policy  of  insurance  where 
the  insured  has  not  been  subjected  to,  and  satisfactorily  passed,  a 
medical  examination  by  a  duly  authorized  physician.  The  offenses 
created  by  this  statute  relate  to  the  character  of  the  interest,  or  re- 
lationship, of  beneficiaries  in  contracts  of  insurance,  and  the  state  of 
the  health  of  the  insured.  The  first  question  therefore  to  be  deter- 
mined is  whether  the  Greenfield  Mutual  Burial  Association,  as  shown 
by  its  by-laws  and  certificates  of  membership,  is  engaged  in  doing  a 
life  insurance  business;    or,  in  other  words,  whether  their  "certifi- 


Sec.  2)  NATURE   OF   THE   CONTRACT  35 

cates,"  such  as  was  issued  in  this  case,  are,  in  legal  contemplation,  in- 
surance contracts  upon  the  life  of  persons  named. 

There  are  three  kinds  of  insurance  companies — stock,  mutual,  and 
mixed.  A  "stock  company"  is  one  where  the  stockholders  contribute 
all  the  capital,  pay  all  the  losses,  and  take  all  the  profits.  A  "mutual 
company"  is  one  wherein  the  members  constitute  both  the  insurers 
and  the  insured,  where  the  meml)ers  all  contribute,  by  a  system  of  as- 
sessments, to  the  creation  of  a  fund  from  which  all  losses  and  liabil- 
ities are  paid,  and  wherein  the  profits  are  divided  among  themselves 
in  proportion  to  their  interests.  "Mixed  companies"  are  such  as  the 
term  implies.  They  embody  the  characteristics  of  both  the  others. 
The  subjects  of  insurance  are  numberless.  The  various  systems,  with 
their  ramifications,  ofifer  indemnity  for  almost  every  conceivable  loss, 
or  injury,  that  may  be  sustained,  and  which  depends  upon  future  pos- 
sibility, or  uncertainty,  in  point  of  time.  It  embraces  the  hazards  of 
navigation,  losses  by  fire,  lightning,  tornadoes,  accidents  of  almost 
every  character,  insolvency  of  debtors,  dishonesty  and  negligence  of 
employes,  failure  of  title  to  real  estate,  death  of  animals  and  of  human 
beings.  In  life  insurance,  the  event  insured  against  is  sure  to  happen, 
and  at  some  time  the  indemnity  promised  the  beneficiary  is  sure  to 
ever  phrased,  would  be  an  indemnity  contract. 

But  the  contracts  made  by  all  kinds  of  insurance  companies  are 
plain  indemnity  contracts ;  contracts  by  which  one  party  agrees,  for  a 
stipulated  sum,  to  assume  some  risk  borne  by  the  other  party,  and, 
if  the  apprehended  loss  occurs,  to  make  the  loser  whole  by  reimburs- 
ing him  fully,  or  to  the  extent  agreed  upon  in  the  contract.  There 
is  no  doubt  but  a  contract  founded  upon  a  legal  consideration,  where- 
by the  obligor  undertakes  to  furnish  the  obligee,  or  to  one  of  the  lat- 
ter's  near  relatives,  as  the  case  may  be,  at  death,  a  burial  reasonably 
worth  a  fixed  sum,  would  be  a  valid  contract.  If  the  citizen  of  small 
means,  or  for  any  other  reason,  desires  to  make  a  definite  arrange- 
ment for  the  expenses  of  his  funeral,  and  thus  make  certain  of  a  sufB- 
cient  amount  to  secure  a  respectable  burial,  the  law  will  sustain  him, 
if  he  will  keep  his  contract  within  certain  well-defined  limitations  de- 
manded by  both  the  statute  and  public  policy.  Such  a  contract,  how- 
ever phrased,  would  be  an  indemnity  contract. 

Bouvier  defines  an  "insurance  contract"  to  be  one  "whereby,  for  an 
agreed  premium,  one  party  undertakes  to  compensate  the  other  for 
loss  on  a  specified  subject,  by  specific  perils."  Bouvier's  L.  Die,  p. 
1008,  "Insurance."  In  State  v.  Railroad  Co.,  68  Ohio  St.  9,  67  N.  E. 
93,  64  L.  R.  A.  405,  96  Am.  St.  Rep.  635,  life  and  accident  insurance 
is  defined  to  be  "a  contract  whereby  one  party,  for  a  stipulated  con- 
sideration, agrees  to  indemnify  another  against  injuries  by  accident 
or  death."  In  Commonwealth  v.  Beneficial  Ass'n,  137  Pa.  412,  18 
Atl.  1112,  it  is  said:  "A  contract  of  insurance  is  purely  a  business 
adventure,  not  founded  on  any  philanthropy  or  charitable  privilege; 
and  the  design  and  purpose  of  an  insurance  company  and  the  domi- 


36  INTRODUCTORY  (Ch.  1 

nant  and  characteristic  feature  of  its  contract  is  the  grantin.f^  of  an 
indemnity,  or  security  against  loss,  for  a  stipulated  consideration. 
The  same  subject  is  stated  in  Cooley's  Briefs  on  L.  of  Ins.  vol.  1, 
p.  5,  thus :  "Perhaps  a  better  definition  is  that  a  contract  of  insur- 
ance is  an  agreement  by  which  one  party  for  a  consideration  promises 
to  pay  money,  or  its  equivalent,  or  do  some  act  of  value  to  the  as- 
sured, upon  the  destruction  or  injury  of  something,  in  which  the  other 
party  has  an  interest."  "To  render  a  contract  one  of  life  insurance 
the  payments  must  be  contingent  upon  the  duration  of  human  life." 
25  Cyc.  697.  See,  also.  May  on  Insurance,  §  112;  Standard  Diet. 
"Insurance";  People  v.  Rose,  174  111.  310,  51  N.  E.  246,  44  L.  R.  A. 
124;   Words  &  Phrases,  "Insurance";    15  Am.  &  Eng.  Ency.  p.  878. 

In  the  light  of  the  foregoing  definitions,  we  again  inquire :  Was 
the  contract  solicited  and  taken  of  Charles  C.  Davis,  by  appellee,  any 
kind  of  life  insurance,  within  the  meaning  of  the  statute?  The  con- 
tract was  issued  by  an  association  whose  declared  object  is  to  secure, 
or  make  certain,  by  a  system  of  mutual  contribution,  to  each  member 
of  the  association,  at  death,  the  specific  benefit  of  $75  for  application 
to  his  burial  service.  This  was  indemnity,  or  security,  that  at  the 
cessation  of  the  life  of  the  member  a  certain  sum  of  money  should  be 
payable  by  the  association  for  his  burial,  whether  the  deceased  had 
paid  one  assessment  or  a  thousand.  The  controlling  elements  of  the 
contract,  as  interpreted  by  the  by-laws,  are  in  all  material  respects 
similar  to  those  of  an  ordinary  mutual  life  insurance  company.  The 
members  of  the  association  are  both  the  indemnitors  and  the  indem- 
nitees. It  pays  its  losses  from  a  mutually  contributed  fund,  and  di- 
vides its  profits  among  the  members.  Death  assessments  must  be 
paid  by  the  contract  holder  during  the  life  of  the  insured,  and  the 
promised  indemnity  is  payable  in  a  lump  sum,  and  in  a  definite  amount. 
The  association  needs  and  employs  agents  to  represent  it.  It  solicits 
from  the  general  public.  It  is  founded  on  no  principle  of  philan- 
thropy, benevolence,  or  charity.  It  is  not  a  benefit  and  protective  so- 
ciety, designed  to  furnish  relief  to  its  sick  and  disabled  members  out 
of  funds  mutually  contributed  for  that  purpose.  It  is  simply  a  busi- 
ness enterprise  in  which  the  contract  holder  is  promised  a  definite 
thing,  in  consideration  of  his  performance  of  a  definite  undertaking 
on  his  part. 

The  contract  is  determinable  by  the  cessation  of  a  human  life,  and 
belongs  to  that  extended  class  of  agreements  dependent  upon  such 
contingency,  and  commonly  known  as  "life  insurance."  It  is  there- 
fore life  insurance  within  the  meaning  of  section  4713,  supra,  and 
subject  to  the  wholesome  provisions  of  our  insurance  laws.  State  v. 
Wichita  Mutual  Burial  Association,  73  Kan.  179,  84  Pac.  757;  Fikes 
V.  State,  87  Miss.  251,  39  South.  783;  State  v.  Beardsley,  88  Minn. 
20,  92  N.  W.  472;  In  re  Solebury  Mutual  Protective  Society,  4  Com. 
PI.  R.  (Pa.)  11.  The  Kansas  Case,  supra,  involved  an  association  that 
had  by-laws,  and  issued  certificates  of  membership  substantially  iden- 


Sec.  2)  NATURE    OF   THE    CONTRACT  37 

tical  with  those  under  consideration ;  and,  concerning  the  purposes  of 
the  association,  that  court  said :  "The  business  designed  to  be  trans- 
acted under  the  plan  of  the  Wichita  Mutual  Burial  Association  is  plain 
ordinary  insurance."  In  the  case  before  us,  some  of  the  details  of 
the  plan,  as  outlined  by  the  by-laws,  are  veiled,  and  give  evidence  of 
an  effort  to  avoid  the  classification  just  made.  Some  of  the  provisions 
are  unreasonable,  some  unguarded,  and  others  indefinite,  and  tend  to 
expose  the  concern  to  the  suspicion  that  the  whole  system  is,  in  real 
design,  but  the  scheme  of  an  undertaker  to  promote  his  private  busi- 
ness, largely  at  the  expense  of  persons  of  small  means.  A  wise  public 
policy  demands  that  the  laws  be  liberally  construed  to  circumvent  any 
attempt,  by  such  liodies,  to  evade  the  reasonable  and  beneficent  re- 
straints of  the  statute. 

This  leads  us  to  the  important  inquiry:  Does  it  appear  that  the 
beneficiary  of  the  contract  has  an  insurable  interest  in  the  life  of  the 
insured,  Charles  C.  Davis  ?^°     *     *     * 

The  second  count  alleged  substantially  the  same  facts  as  did  the 
first,  and  set  out  a  copy  of  the  by-laws,  and  then  charged  that,  at  the 
time  said  policy  was  written  and  issued,  said  Charles  C.  Davis,  the 
person  whose  life  was  thereby  insured  and  to  whom  the  policy  was 
iss'aed,  had  not  first  passed  a  satisfactory  medical  examination  by  a 
physician  duly  authorized  to  practice  medicine  in  the  state  of  Indiana. 
This  count  also  stated  a  suflficient  charge  under  said  section. 

The  judgment  is  reversed,  and  the  cause  remanded,  with  instructions 
to  overrule  the  motion  to  quash  the  af^davit. 

ic  Tbe  court  proceeded  to  find  that  the  firm  of  undertakers  was  the  real  ben- 
eficiary under  the  contract,  and  that  such  beneficiary  had  no  insurable  in- 
terest in  the  life  of  the  insured. 

Insurance  is  Not  Commerce. — In  a  long  series  of  cases,  beginning  with 
Paul  V.  Virginia,  8  Wall.  (U.  S.)  168,  19  L.  Ed.  357  (1868),  and  culminating  in 
New  York  Life  Ins.  Co.  v.  Deer  Lodge  County,  231  U.  S.  495,  34  Sup.  Ct.  167, 

58  L.  Ed.  (1913),  it  has  been  held  that  the  business  of  insurance  is  not 

commerce,  and  therefore  not  within  the  protection  of  the  interstate  commerce 
clause  of  the  federal  constitution.  Hence  any  state  has  the  power  wholly  to 
exclude  any  foreign  insurance  corporation  from  doing  business  within  its 
borders,  or  to  admit  it  upon  such  conditions  as  it  sees  fit  to  impose.  Security 
Mut.  Life  Ins.  Co.  v.  Prewitt,  202  U.  S.  246,  26  Sup.  Ct.  619,  50  L.  Ed.  1013. 
6  Ann.  Cas.  317  (1905). 

State  Regulation  of  Insurance  Rates. — That  the  insurance  business  Is 
so  affected  with  a  public  interest  that  it  is  a  proper  subject  of  state  regula- 
tion has  long  been  settled.  See  State  v.  Howard  (Neb.)  147  N.  W.  689  (1914). 
It  has  recently  been  held  by  the  Supreme  Court  of  the  United  States  that 
the  state  may  regulate  the  rates  of  fire  insurance.  German  Alliance  Insur- 
ance Co.  V.  Kansas,  233  U.  S.  389,  34  Sup.  Ct.  612,  58  L.  Ed. (1914).     See 

note,  25  Harvard  Law  Rev.  372. 


38  SUBJECT-MATTEE   OF    THE  CONTRACT  (Ch.  2 


CHAPTER  II 

THE  SUBJECT-MATTER  OF  THE  CONTRACT— INSURABLE 

INTEREST 


SECTION  1.— NECESSITY  FOR  THE  EXISTENCE  OF 
INSURABLE  INTEREST 


GODDART  V.  GARRETT. 
(Chancery,  1692.     2  Vern.  269.) 

The  defendant  had  lent  money  on  a  bottom-rhea  bond,  but  had  no 
interest  in  the  ship  or  carg^o,  the  money  let  was  £300.  and  he  insured 
£450.  on  the  ship ;  the  plaintiff's  bill  was  to  have  the  policy  delivered 
up,  by  reason  the  defendant  was  not  concerned  in  point  of  interest, 
as  to  the  ship  or  cargo. 

Cur.  Take  it  that  the  law  is  settled,  that  if  a  man  has  no  inter- 
est, and  insures,  the  insurance  is  void,  although  it  be  expressed  in  the 
policy  interested  or  not  interested,  and  the  reason  the  law  goes  upon, 
is  that  these  insurances  are  made  for  the  encouragement  of  trade,  and 
not  that  persons  unconcerned  in  trade,  nor  interested  in  the  ship, 
should  profit  by  it ;  and  where  one  would  have  benefit  of  the  insur- 
ance, he  must  renounce  all  interest  in  the  ship.  And  the  reason  why 
the  law  allows  that  a  man  having  some  interest  in  the  ship  or  cargo, 
may  insure  more,  or  five  times  as  much,  is  that  a  merchant  cannot 
tell  how  much,  or  how  little,  his  factor  may  have  in  readiness  to  lade 
on  board  his  ship.  And  it  was  said,  that  the  usual  interest  allowed 
on  bottom-rhea,  was  £3.  per  cent,  per  mensem,  and  you  may  insure 
at  6  or  7  per  cent,  for  the  voyage:  So  if  this  practice  might  be  al- 
lowed, a  man  might  be  sure  to  gain  £30.  or  more  per  cent. 

PKr  Cur.  Decree  the  policy  of  insurance  to  be  delivered  up  to 
be  cancelled. 

Note,  that  in  this  case,  notice  was  taken  in  the  policy,  that  it  was 
to  insure  money  on  bottom-rhea.^ 

Note,  also,  that  in  this  case,  the  ship  survived  the  time  limited  in 
the  bottom-rhea  bond,  and  was  lost  within  the  time  limited  in  the  pol- 
icy. So  if  insurance  good,  defendant  might  be  intitled  to  the  money 
on  the  bond,  and  also  on  the  policy. 

1  See  Harman  v.  Van  Hatton,  2  Vern.  717  (1716).  In  Glover  v.  Black,  3 
Burr.  1394  (1763),  it  was  held  that  insurance  upon  goods  laden  upon  a  vessel 
taken  out  by  a  lender  in  respondentia  was  void  under  St.  19  Geo.  II,  c.  37, 
but  it  would  have  been  otherwise  if  the  insurance  had  been  expressly  upon 
such  bottomry  or  resjwndentia  interest. 


Sec.  1)       NECESSITY    FOR   EXISTENCE    OF    INSURABLE   INTEREST  39 

ASSIEVEDO  V.  CAMBRIDGE. 
(Court  of  Queen's  Bench,  1712.     10  Mod.  77.)  2 

Upon  a  special  verdict  the  case  in  substance  appeared  to  be  this : 

Assievedo  had  insured  so  much  money  upon  a  ship  called  The 
Ruth,  for  such  a  voyage,  in  which  ship  Assievedo  is  found  by  the  ver- 
dict not  to  be  at  all  concerned,  in  point  of  interest.  It  happened  that 
this  ship  was  taken  by  the  enemy,  and  kept  in  their  possession  for 
nine  days,  and  then,  before  it  was  carried  infra  praesidia,  viz.  a  place 
of  safety,  it  was  retaken  by  an  English  man  of  war.^ 

The  question  was,  Whether  or  no  this  was  such  a  taking  as  should 
enable  the  plaintiff  to  recover  the  sum  insured  against  Cambridge  ? 

Dr.  Floyer,  for  the  plaintiff,  argued  that  this  was  rather  to  be  es- 
teemed a  wager  than  an  insurance ;  a  spei  emptio  et  venditio,  and  not 
a  versio  penculi,  which  in  the  books  of  the  civil  law  is  looked  upon 
as  a  proper  definition  of  an  insurance ;  that  therefore  whatever  acts 
of  Parliament  are  made  about  insurances  must  be  understood  of  prop- 
er insurances,  and  not  insurances  of  the  goods  of  strangers ;  that 
whether  or  no  this  is  such  a  taking  as  will  devest  the  property  out  of 
the  owners,  is  a  question  properly  between  them  and  the  retakers ; 
but  that  the  question  between  Assievedo  and  Cambridge  is  only, 
Whether  the  ship  be  taken? 

This  case  was  compared  to  a  man  laying  a  wager  that  he  should 
not  be  robbed  in  going  to  such  a  place ;  he  is  robbed,  but  taking  some 
along  with  him  pursues  the  robber,  and  recovers  what  he  lost :  here, 
though  the  money  is  recovered,  yet  the  wager  is  lost.  So  if  the  wager 
had  been,  that  such  persons  should  not  be  married  together;  they 
are  married,  and  afterwards  divorced,  praecontractus  causa,  yet  the 
wager  is  lost.  It  was  said  further,  that  without  this  exposition  Cam- 
bridge would  have  two  chances,  viz.  that  it  is  not  taken,  or  that  it  is 
retaken ;   but  Assievedo  would  have  but  one,  viz.  the  taking. 

Grotius  *  lays  this  down  as  a  rule,  "Placuit  gentibus,  ut  is  cepisse 
rem  intelligatur,  qui  ita  detinet,  ut  recuperandi  spem  probabilem  alter 
amiserit."  Now  in  our  case  the  ship  was  for  nine  days  together  in  the 
possession  of  the  .enemy.  By  the  laws  of  Spain  and  France,  a  con- 
tinuance in  the  possession  of  the  enemy  for  twenty-four  hours  is  an 
alteration  of  the  property ;   and  Albericus  Gentilis  tells  us,  that  a  per- 

2  The  argument  of  Dr.  Henchman,  for  the  defendant,  is  omitted. 

3  It  appears  upon  the  special  verdict  in  this  case  that  "the  man  of  war 
which  retook  tlie  ship  brought  her  into  the  port  of  London,  and  restored  her 
to  the  owner  upon  reasonable  redemption";  and  therefore  it  is  said  that  the 
question  in  this  case  could  not  have  arisen  upon  the  change  of  property,  be- 
cause the  owner,  not  abandoning  the  ship,  could  only  have  come  upon  the 
insurers  for  the  redemption ;  but  that,  the  policy  being  "interest  or  no  inter- 
est without  benefit  of  salvage,"  the  question  was  upon  the  terms  and  meaning 
of  the  wager.  Per  Lord  Mansfield,  in  the  case  of  Goss  v.  Withers,  2  Burr.  695 
(175S). — [Rep. 

*  Grotius,  De  Jure  Belli  et  Pacis,  lib.  3,  cap.  6,  sect.  3. — [Rep. 


40  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

noctation  with  the  enemy  would,  by  our  old  English  law,  alter  the 
property.  And  Grotius,  immediately  after  the  place  before  mentioned, 
5ays,  that  "recentiori  jure  gentium  inter  Europseos  populos  intro- 
ductum  vidcmus,  ut  talia  capta  censcantur  ubi  per  horas  viginti  qua- 
tuor  in  potestate  hostium  fuerint." 

Tiiiv  Court  seemed  to  be  of  opinion  for  the  defendant.  They 
thought,  that  the  plaintiff's  being  found  by  the  verdict  to  have  no  in- 
terest in  the  ship  which  he  insured  should  make  no  difference.  First. 
Because  they  never  would  be  more  favourable  to  an  insurer  non  bona 
fide,  or  wagerer,  than  to  one  that  insured  bona  fide.  Secondly,  lie- 
cause  to  make  a  different  interpretation  of  this  deed  from  what  is 
commonly  put  upon  policies  of  insurance,  would  be  to  run  counter 
to  the  designs  of  the  parties,  who  have  made  use  of  the  very  same 
words  that  are  used  in  such  policies ;  nay,  who  have  expressly  pro- 
vided for  this  very  case,  by  these  words,  "interest  or  no  interest;" 
which  words  signify  nothing  at  all,  unless  the  same  loss  intitles  to  a 
recovery  where  the  insurer  has  no  interest,  and  where  he  has.  And 
that  the  property  is  not  altered  by  the  taking,  they  held  to  be  very 
plain. 

To  be  areued  next  term  by  common  lawyers.^ 


SADLERS'  CO.  v.  BADCOCK. 

(High  Court  of  Chancery,  1743.     2  Atk.  554,  2G  Eng.  Reprint,  733.)  e 

Ann  Strode,  having  six  years  and  a  half  to  come  in  the  lease 
of  a  house  from  the  plaintiffs,  on  the  27th  of  April  1734  became 
a  proprietor  of  the  Hand-in-hand  office,  by  insuring  the  sum  .of 
i400.  on  the  house,  for  seven  years,  and  on  paying  twelve  shillings 
down,  and  three  pounds  some  time  after,  the  company  agreed 
"to  raise  and  pay  out  of  the  effects  of  the  contribution  stock,  the 
said  sum  of  £400.  to  her  and  her  executors,  administrators,  and 
assigns,  so  often  as  the  house  shall  be  burnt  down  within  the  said 
term,  unless  the  directors  shall  build  the  said  house,  and  put  it 
in  as  good  plight  as  before  the  fire:  and  on  the  "back  of  the  policy 
it  was  indorsed,  that  if  this  policy  should  be  assigned,  the  assign- 
ment must  be  entered  within  twenty-one  days  after  the  making 
thereof." 

Mrs.  Strode's  lease  expired  at  Midsummer  1740,  the  house  was 
not  burnt  down  till  the  January  after  1740,  and  she  made  an 
assignment  of  the  policy  to  the  plaintiff's  the  23d  of  February 
after,  1740. 

0  It  does  not  appear  from  any  report  that  a  second  argument  was  ever 
heard  in  this  case.     Park,  Ins.  73. — [Rep. 
6  S.  C.  1  Wils.  10. 


Sec.  1)       NECESSITY    FOR    EXISTIOXCK    OP    INSURABLE   INTEREST 


41 


The  question  is,  Whether  the  plaintiffs,  the  assignees  of  Mrs. 
Strode,  are  intitled  to  the  £400.  insurance  money,  or  to  have  the 
house  built  again ;  or  whether  the  house  being  burnt  down  after 
Mrs.  Strode's  property  ceased  in  it,  the  company  are  obliged  to 
make  good  the  loss,  to  her  assignee,  of  the  policy. 

The  company  made  an  order,  subsequent  in  time  to  Mrs.  Strode's 
policy  in  1738:  "That  whereas  policies  expire  upon  the  property 
of  the  insured's  ceasing,  if  there  is  no  application  of  the  insured 
to  assign,  or  to  have  the  loss  made  up,  then  the  person  having  the 
property  may  insure  the  said  house  in  the  said  office,  notwithstand- 
ing the  term  for  which  the  house  was  originally  insured  is  expired." 

There  was  evidence  read  for  the  plaintiffs,  to  shew  that  they 
tendered  the  assignment  to  the  defendants,  to  enter  in  their  books, 
but  they  refused  to  accept  of  it. 

Lord  Chancellor  [Hardvvicki;].  During  the  progress  of  this 
cause,  while  the  defendants  seemed  to  depend  chiefly  upon  the 
subsequent  order,  I  was  of  opinion  against  them. 

But,  upon  hearing  what  was  further  offered,  I  think  the  plain- 
tiffs are  not  intitled  to  be  relieved. 

There  may  be  three  questions  made  in  this  cause. 

First,  Whether  this  accident  which  has  happened  is  such  a  loss, 
as  obliges  the  defendants  to  make  satisfaction  to  the  plaintiffs? 

Secondly,  Whether,  upon  the  terms  of  the  original  policy,  the 
office  is  obliged  to  do  it? 

Thirdly,  Which  is  rather  consequential  of  the  former,  whether 
the  plaintiffs  are  properly  assignees  of  Mrs.  Strode  under  this 
policy? 

If  this  matter  rested  singly  upon  the  policy  itself,  I  should  not 
think  it  such  a  loss,  as  would  oblige  the  defendants  to  make  sat- 
isfaction. 

Under  this  policy,  the  state  of  the  case  is,  Mrs.  Strode  was  only 
a  lessee,  her  time  expired  at  Midsummer  1740,  the  house  was 
burnt  down  the  January  after,  within  the  seven  years;  the  plain- 
tiffs, the  Sadlers  company,  were  ground  landlords,  and  intitled  to 
the  reversion  of  the  term :  Upon  the  23d  of  February  1740,  seven 
months  after  the  expiration  of  the  term,  and  one  month  after  the 
fire,  the  assignment  was  made,  and  in  consideration  of  five  shillings 
only,  so  that  it  must  be  taken  as  a  voluntary  assignment  as  it 
stands  before  me. 

It  has  been  insisted,  on  the  part  of  the  defendants,  that  the 
plaintiffs  are  not  intitled  to  recover  as  standing  in  the  place  of 
Mrs.  Strode,  because  she  had  no  loss  or  damage,  her  interest  ceas- 
ing before  the  fire  happened. 

And  this  introduces  the  second  and  third  questions. 

I  am  of  opinion,  it  is  necessary  the  party  insured,  should  have 
an  interest  or  property  at  the  time  of  the  insuring,  and  at  the  time 
the  fire  happens. 


42  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

It  has  been  said  for  the  plaintiffs,  that  it  is  in  nature  of  a  wager 
laid  by  the  insurance  company,  and  that  it  does  not  signify  to 
whom  they  pay,  if  lost. 

Now  these  insurances  from  fire  have  been  introduced  in  later 
times,  and  therefore  differ  from  insurance  of  ships,  because  there 
interest  or  no  interest  is  almost  constantly  inserted,  and  if  not 
inserted,  you  cannot  recover  unless  you  prove  a  property. 

The  insuring  of  ships  is  as  old  as  the  laws  of  Oleron  and  Rhodes 
whose  inhabitants  were  the  great  traders  of  the  world;  look  into 
the  books  that  treat  of  insuring,  and  you  will  find  the  term  is, 
aversio  periculi,  the  intention  of  all  insurances  being  to  avert  any 
damages  or  loss  the  insured  might  sustain :  Upon  this  principle, 
in  all  modern  insurances  of  ships  interest  or  no  interest  is  intro- 
duced, and,  between  the  subjects  of  different  nations,  for  this  rea- 
son, because  a  great  deal  of  contraband  trade  is  carried  on,  and  I 
believe  began  in  the  Spanish  trade  first. 

The  common  law  leant  strongly  against  these  policies  for  some 
time,  but  being  found  beneficial  to  merchants,  they  winked  at  it. 

New  laws  have  been  enacted,  which  make  it  felony  to  destroy 
ships,  and  the  temptation  to  it  has  arisen  from  interest  and  no 
interest  inserted  in  policies. 

No  longer  ago,  than  when  I  first  sat  in  the  Court  of  King's 
Bench,  I  have  heard  these  insurances  called  fraudulent,  but  though 
inconveniences  may  have  arisen  from  these  words  to  the  insur- 
ance companies,  yet  some  inconvenience  too  may  arise  on  the  other 
side,  because,  if  any  person  may  insure,  whether  he  has  property 
or  not,  it  may  be  a  temptation  to  burn  houses,  to  receive  the  ben- 
efit of  the  policy :  By  the  first  clause  in  the  deed  of  contribution 
in  1696,  the  year  this  society,  called  the  Hand-in-hand  office,  incor- 
porated themselves,  the  society  are  to  make  satisfaction  in  case  of 
any  loss  by  fire. 

To  whom,  or  for  what  loss,  are  they  to  make  satisfaction? 

Why,  to  the  person  insured,  and  for  the  loss  he  may  have  sus- 
tained ;  for  it  cannot  properly  be  called  insuring  the  thing,  for 
there  is  no  possibility  of  doing  it,  and  therefore  must  mean  insur- 
ing the  person  from  damage. 

By  the  terms  of  the  policy,  the  defendants  might  begin  to  build 
and  repair  within  six  days  after  the  fire  happens. 

It  has  been  truly  said,  this  gives  the  society  an  option  to  pay 
or  rebuild,  and  shews  most  manifestly  they  meant  to  insure  upon 
the  property  of  the  insured,  because  nobody  else  can  give  them 
leave  to  lay  even  a  brick,  for  another  person  might  fancy  a  house 
of  a  different  kind. 

Thus  it  stands  upon  the  original  agreement;  the  next  question 
will  be,  Whether  the  subsequent  order,  made  by  the  defendants 
in  1738,  has  made  any  alteration? 

I  am  of  opinion  it  has  not;    for  it  was  made  only  to  explain  a 


Sec.  1)       NECESSITY    FOR    EXISTENCE    OF    INSURABLE   INTEREST  43 

particular  case  in  the  policy;  for  it  might  have  been  a  question, 
whether  Mrs.  Strode  could  have  come  before  the  expiration  of 
the  term,  to  have  examined  the  books  of  the  office,  and  therefore 
this  order  was  made  to  give  her  such  a  power. 

It  has  been  strongly  objected,  that  the  society  could  not  make 
such  an  order. 

I  am  very  tender  of  saying,  whether  they  can  or  not. 

Because  on  one  hand,  it  might  be  hard  to  say,  that,  as  a  society, 
they  cannot  make  any  by  order  for  the  good  of  the  society. 

And,  on  the  other  hand,  it  would  be  a  dangerous  thing  to  give 
them  a  power  to  make  an  alteration  that  may  materially  vary  the 
interest  of  the  insured. 

The  assignment  is  not  at  all  within  the  terms  of  this  order, 
because  it  is  plain,  it  meant  an  assignment  before  the  loss  hap- 
pened. 

Now,  with  regard  to  the  loss  happening  before  the  assignment 
made,  Mrs.  Strode  was  intitled  to  nothing  but  what  was  to  be 
paid  back  upon  the  deposit. 

It  is  plain  she  thought  so,  for  if  she  had  imagined  she  had  been 
intitled  to  £400.  would  any  friend  have  advised  her  to  make  a 
present  of  it  to  the  plaintififs? 

The  case  of  Lynch  v.  Dalzell,  in  the  House  of  Lords,  the  13th 
of  March  1729  (4  Bro.  Par.  Ca.  431.  S.  C),  shews  how  strict  this 
court  and  the  House  of  Lords  are  in  the  construction  of  poli- 
cies to  avoid  frauds :  Lord  Chancellor  King  was  of  opinion  there, 
the  plaintiff  had  no  right  to  the  money  under  the  policy,  because 
no  loss  had  happened  to  him,  he  having  no  interest  in  the  thing 
insured  at  the  time  of  the  fire,  and  that  policies  are  not  in  the 
nature  of  them  assignable,  nor  intended  to  be  assigned  from  one 
person  to  another,  without  the  consent  of  the  office. 

The  bill  here  must  be  dismissed. 


DEAN  V.  DICKER. 

(C!ourt  of  King's  Bench,  1746.     2  Strange,  1250.) 

This  was  an  insurance  upon  goods  by  the  Dursley  galley,  inter- 
est or  no  interest,  at  and  from  Jamaica  to  Bristol.  In  her  passage 
she  was  taken  by  a  Spanish  privateer,  and  carried  into  Mores,  a 
port  in  Spain,  kept  eight  days,  and  then  cut  out  by  an  English 
ship.  And  the  plaintiff,  insisting  that  this,  though  on  goods,  was 
to  be  considered  a  wager  on  the  bottom  of  the  ship,  brought  his 
action  as  upon  a  total  loss.  The  defendant  insisted  that,  by  the 
statutes  of  13  George  II,  c.  4,  and  17  George  II,  c.  34,  this  ship  is 
to  be  restored  to  the  owners  upon  paying  salvage,  and  conse- 
quently this  is  only  an   average  loss;    and  the  plaintiff  can  only 


44  SUBJECT-MATTi:U    OP    THE   CONTRACT  (Ch.  2 

recover  upon  a  total  one.  But  the  Chii^f  Justice  [Sir  William 
Lee]  held,  that  in  this  case  the  plaintiff  ought  to  recover;  for 
his  is  a  wager  upon  a  total  loss  on  the  voyage,  and  here  has  hap- 
pened one;  for  the  being  carried  into  port  and  detained  eight 
days  make  one.  And  when  policy  is  interest  or  no  interest,  the 
provision  of  the  Acts  in  the  case  of  valued  policies  cannot  take 
place.  The  act  does  not  declare  the  property  is  not  gone  by  such 
capture,  but  only  provides  for  restoring  the  ship  to  whom  it  did, 
and  shall  be  proved  to  have  belonged.  He  said  it  might  be 
otherwise  when  the  re-capture  was  before  the  ship  was  carried 
intra  praesidia,  or  in  the  case  of  goods  actually  on  board,  and 
upon  a  valued  policy.^ 


STATUTES  PROHIBITING  WAGER  POLICIES 

St.  19  Geo.  II,  c.  37,  §§  1,  2  {11  ^6)^ 

An  act  to  regulate  insurance  on  ships  belonging  to  the  subjects  of 
Great  Britain,  and  on  merchandise  or  effects  laden  thereon. 
Whereas,  it  hath  been  found  by  experience,  that  the  making  assur- 
ances, interest  or  no  interest,  or  without  proof  of  interest  than  the 

7  To  the  same  effect  is  Depaba  v.  Ludlow,  1  Comyns,  360  (1720). 

"It  has  been  made  a  subject  of  very  learned  inquiry  whether  such  (wager) 
policies  were  legal  at  common  law.  It  will  at  present  be  suflicient  to  give 
what  is  now  established  as  the  true  result  of  the  authorities,  viz.: 

"1.  That  by  the  law  of  England,  as  it  stood  at  the  time  of  passing  the  Act 
of  19  George  II,  c.  37,  a  wager  policy  properly  so  called,  i.  e.,  one  in  which 
the  parties,  by  express  terms,  such  as  the  words  'interest  or  no  interest,'  or 
'without  proof  of  interest,'  disclaimed  making  a  contract  of  indenniity,  was 
then  (contrary  to  older  determinations)  deemed  a  valid  contract  of  insurance. 

"2.  That  a  policy,  containing  no  such  clause  disclaiming  or  dispensing  with 
the  proof  of  interest,  but  effected  in  the  common  form,  was  at  common  law 
considered  to  be  a  contract  of  indemnity  only,  upon  which  the  assured  could 
never  recover  without  proof  of  interest."     Arnould,  Marine  Ins.  (7th  Ed.)  375. 

8  Reinsurance.— Section  4  of  this  act  (prohibiting  reinsurance)  was  repeal- 
ed by  St.  27  &  28  Vict.  (1S64)  c.  56,  §  1.  The  supposed  policy  that  induced 
Parliament  to  forbid  reinsurance  is  explained  by  BuUer,  J.,  in  Andree  v. 
Fletcher,  2  Term  Rep.  161  (1787).  See,  also,  Thellusson  v.  Fletcher,  1  Doug. 
315  (1780). 

"In  the  absence  of  any  such  usage,  and  of  any  specific  stipulation  in  the 
policy,  there  can  be  no  doubt  that  the  original  insurer  may  protect  himself 
to  the  whole  extent  of  his  liability.  In  the  words  of  Roccus,  quoted  and  ap- 
proved by  Emerigon,  by  Mr.  Justice  Park  and  by  Mr.  Justice  Livingston, 
'Secundus  assecurator  tenetur  ad  solvendum  omne  totum  quod  primus  as- 
securator  solvent.'  Roccus,  n.  30 ;  Emerigon,  c.  8,  §  14 ;  Park,  Ins.  (8th  Ed.) 
595;  Hastie  v.  De  Peyster,  3  Caines  (N.  Y.)  190,  196  (1805).  So  Chancellor 
Kent  says:  'After  an  insurance  has  been  made,  the  insurer  may  have  the 
entire  sum  he  hath  insured,  reassured  to  him  by  some  other  insurer.  The  ob- 
ject of  this  is  indemnity  against  his  own  act'  3  Kent,  Com.  278.  See,  also, 
Phoenix  Ins.  Co.  v  Erie  &  W.  Transp.  Co.,  117  U.  S.  312,  323  [6  Sup.  Ct.  1176, 
29  L.  Ed.  873  (1886)];  Bradford  v.  Symondson,  L.  R.  7,  Q.  B.  Div  4.56(1881)." 
Insurance  Co.  of  North  America  v  Hiberuia  Ins.  Co.,  140  U.  S.  565,  573,  11 
Sup.  Ct.  909,  911,  35  L.  Ed.  517  (1890). 

The  cases  on  reinsurance  are  collected  in  notes  in  44  L.  R.  A.  (N.  S.)  317, 
and  8  L.  R.  A.  (N.  S.)  844. 


Sec.  1)       NECESSITY    FOR   EXISTENCE    OF    INSURABLE  INTEREST  45 

policy,  hath  been  productive  of  many  pernicious  practices,  whereby 
great  numbers  of  ships,  with  their  cargoes,  have  either  been  fraudu- 
lently lost  and  destroyed,  or  taken  by  the  enemy  in  time  of  war ;  and 
such  assurances  have  encouraged  the  exportation  of  wooll,  and  the 
carrying  on  of  many  other  prohibited  and  clandestine  trades,  which 
by  means  of  such  assurances  have  been  concealed,  and  the  parties 
concerned  secured  from  loss,  as  well  to  the  diminuation  of  the  pub- 
lick  revenue,  as  to  the  great  detriment  of  fair  traders :  and  by  in- 
troducing a  mischievous  kind  of  gaming  or  wagering,  under  the  pre- 
tence of  assuring  the  risque  on  shipping,  and  fair  trade,  the  institu- 
tion and  laudable  design  of  making  assurances,  hath  been  perverted; 
and  that  which  was  intended  for  the  encouragement  of  trade,  and  nav- 
igation, has  in  many  instances  been  hurtful  of,  and  destructive  to  the 
same:  for  remedy  whereof,  be  it  enacted  by  the  King's  most  excel- 
lent majesty,  by  and  with  the  advice  and  consent  of  the  lords  spiritual 
and  temporal,  and  commons,  in  this  parliament  assembled,  and  by  the 
authority  of  the  same,  That  from  and  after  the  first  day  of  August, 
one  thousand  seven  hundred  and  forty-six,  no  assurance  or  assurances 
shall  be  made  by  any  person  or  persons,  bodies  politick  or  corporate, 
on  any  ship  or  ships,  goods,  merchandizes,  or  elTects,  laden  or  to  be 
laden  on  board  of  any  such  ship  or  ships,  interest  or  no  interest,  or 
without  further  proof  of  interest  than  the -policy,  or  by  way  of  gaming 
or  wagering,  or  without  benefit  of  salvage  to  the  assurer;  and  that 
every  such  assurance  shall  be  null  and  void  to  all  intents  and  pur- 
poses.^ 

II.  Provided  always,  and  be  it  further  enacte'd  by  the  authority 
aforesaid.  That  assurance  on  private  ships  of  war,  fitted  out  by  any  of 
his  Majesty's  subjects,  solely  to  cruize  against  his  Majesty's  enemies, 
may  be  made  by  or  for  the  owners  thereof,  interest  or  no  interest,  free 
of  average,  and  without  benefit  of  salvage  to  the  assurer ;  anything 
herein  contained  to  the  contrary  thereof  in  any  wise  notwithstanding. 


St.  U  Geo.  Ill,  c.  48  (1774) 

An  act  for  regulating  insurance  upon  lives,  and   for  prohibiting  all 
such  insurances,  except  in  cases  where  the  persons  insuring  shall 
have  an  interest  in  the  life  or  death  of  the  persons  insured. 
Whereas  it  hath  been  found  by  experience,  that  the  making  insur- 
ances on  lives,  or  other  events,  wherein  the  assured  shall  have  no  in- 
terest, hath  introduced  a  mischievous  kind  of  gaming:     For  remedy 
whereof,  be  it  enacted  by  the  King's  most  excellent  majesty,  by  and 
with  the  advice  and  consent  of  the  lords,  spiritual  and  temporal,  and 
commons,  in  this  present  parliament  assembled,  and  by  the  authority 
of  the  same.  That  from  and  after  the  passing  of  this  act,  no  insurance 

9  Wager  policies  are  lil^ewise  prohibited  on  tlie  Continent.     See  1  Ptiillips, 
Ins.  (.3d  Ed.)  4  (note),  where  the  continental  authorities  are  giv^en. 


46  SUBJECT-MATTER   OP   THE  CONTRACT  (Ch,  2 

shall  be  made  by  any  person  or  persons,  bodies  politick  or  corporate, 
on  the  life  or  lives  of  any  person  or  persons,  or  on  any  other  event 
or  events  whatsoever,  wherein  the  person  or  persons  for  whose  use, 
benefit,  or  on  whose  account  such  policy  or  policies  shall  be  made, 
shall  have  no  interest,  or  by  way  of  gamini^  or  wagering;  and  that 
every  assurance  made,  contrary  to  the  true  intent  and  meaning  here- 
of, shall  be  null  and  void,  to  all  intents  and  purposes  whatsoever. 

II.  And  be  it  further  enacted.  That  it  shall  not  be  lawful  to  make 
any  policy  or  policies  on  the  life  or  lives  of  any  person  or  persons,  or 
other  event  or  events,  without  inserting  in  such  policy  or  policies  the 
person  or  persons,  name  or  names  interested  therein,  or  for  whose  use, 
benefit  or  on  whose  account,  such  policy  is  so  made  or  underwrote. 

III.  And  be  it  further  enacted,  That  in  all  cases  where  the  insured 
hath  interest  in  such  life  or  lives,  event  or  events,  no  greater  sum  shall 
be  recovered  or  received  from  the  insurer  or  insurers  than  the  amount 
or  value  of  the  interest  of  the  insured  in  such  life  or  lives,  or  other 
event  or  events. 

IV.  Provided  always.  That  nothing  herein  contained  shall  extend, 
or  be  construed  to  extend,  to  insurances  bona  fide  made  by  any  per- 
son or  persons,  on  ships,  goods  or  merchandizes ;  but  every  such  in- 
surance shall  be  valid  and  effectual  in  the  law,  as  if  this  act  had  not 
been  made. 


St.  6  Edtmrd  VII,  c.  U,  §  ^ 

Marine  Insurance  Act,  1906 

4.  (1)  Every  contract  of  marine  insurance  by  way  of  gaming  or 
wagering  is  void. 

(2)  A  contract  of  marine  insurance  is  deemed  to  be  a  gaming  or 
wagering  contract — 

(a)  Where  the  assured  has  not  an  insurable  interest  as  defined  by 
this  Act,  and  the  contract  is  entered  into  with  no  expectation  of  ac- 
quiring such  an  interest ;  or 

\b)  Where  the  policy  is  made  "Interest  or  no  interest,"  or  "With- 
out further  proof  of  interest  than  the  policy  itself,"  or  "Without  bene- 
fit of  salvage  to  the  insurer,"  or  subject  to  any  other  like  term : 

Provided  that,  where  there  is  no  possibility  of  salvage,  a  policy  may 
be  effected  without  benefit  of  salvage  to  the  insurer. 

9  Bdzi'ard  VII,  c.  12,  §  1  (1)  and  (5)  (1909) 

Marine  Insurance;  (Gambling  PouciDs)  Act,  1909 

1.  (1)  If- 

(a)  Any  person  effects  a  contract  of  marine  insurance  without  hav- 
ing any  bona  fide  interest,  direct  or  indirect,  either  in  the  safe  arrival 
of  the  ship  in  relation  to  which  the  contract  is  made  or  in. the  safety 


Sec.  1)       NECESSITY    FOR   EXISTENCE    OF    INSURABLE   INTEREST  47 

or  preservation  of  the  subject-matter  insured,  or  a  bona  fide  expec- 
tation of  acquiring  such  an  interest ;   or 

(b)  Any  person  in  the  employment  of  the  owner  of  a  ship,  not  l^eing 
a  part  owner  of  the  ship,  effects  a  contract  of  marine  insurance  in  re- 
lation to  the  ship,  and  the  contract  is  made  "interest  or  no  interest," 
or  "without  further  proof  of  interest  than  the  policy  itself,"  or  "with- 
out benefit  of  salvage  to  the  insurer,"  or  subject  to  any  other  like 
term, 

The  contract  shall  be  deemed  to  be  a  contract  by  way  of  gambling 
on  loss  by  maritime  perils,  and  the  person  effecting  it  shall  be  guilty 
of  an  offence,  and  shall  be  liable,  on  summary  conviction,  to  impris- 
onment, with  or  without  hard  labour,  for  a  term  not  exceeding  six 
months  or  to  a  fine  not  exceeding  one  hundred  pounds,  and  in  either 
case  to  forfeit  to  the  Crown  any  money  he  may  receive  under  the  con- 
tract. 

******** 

(5)  If  proceedings  under  this  Act  are  taken  against  any  person  (oth- 
er than  a  person  in  the  employment  of  the  owner  of  the  ship  in  re- 
lation to  which  the  contract  was  made)  for  effecting  such  a  contract, 
and  the  contract  was  made  "interest  or  no  interest,"  or  "without  fur- 
ther proof  of  interest  than  the  policy  itself,"  or  "without  benefit  of 
salvage  to  the  insurer,"  or  subject  to  any  other  like  term,  the  con- 
tract shall  be  deemed  to  be  a  contract  by  way  of  gambling  on  loss  by 
maritime  perils  unless  the  contrary  is  proved. 

Civil  Code  of  California 

Sec.  2551.  Insurance  without  interest,  illegal.  The  sole  object  of 
insurance  is  the  indemnity  of  the  insured,  and  if  he  has  no  insurable 
interest  the  contract  is  void. 


GRANT  V.  PARKINSON. 

(Court  of  King's  Bench,  1781.     3  Doug.  16.)io 

This  was  an  action  on  a  policy  of  insurance  at  and  from  Surinam 
to  Quebec,  upon  any  kind  of  goods  and  merchandizes,  and  also  upon 
the  body  of  the  ship  Providence.  The  said  goods  and  merchandizes, 
&c.  for  so  much  as  concerns  the  assured,  by  agreement,  are  valued 
at  ilOOO.,  being  on  profits  expected  to  arise  on  the  cargo  of  the  above 
ship  in  the  event  of  her  safe  arrival  at  Quebec;  and  in  case  of  loss, 
the  insurers  agree  to  pay  the  same  without  any  other  voucher  than, 
this  policy. 

The  cause  was  tried  before  Lord  Mansfield  at  Guildhall,  when  the 
evidence  was,  that  this  ship  was  laden  with  molasses;    and  the  plain- 

10  S.  C,  Park,  Ins.  (6th  Ed.)  354 ;   Marsh.  Ins.  (2d  Ed.)  97. 
Arguments  of  counsel   and  concurring  opinions   of   Willes,   Ashhui-st,   and 
Buller,  JJ.,  are  omitted. 


48  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

tiff,  havinc^  a  contract  to  supply  the  army  with  spruce  beer,  would, 
if  the  ship  had  arrived,  have  made  a  profit  of  ilOOO.  more  than  the 
sum  insured,  and  that  it  was  common  to  insure  profits.  A  verdict 
was  found  for  the  plaintiff,  with  liberty  for  the  defendant  to  move  for 
a  new  trial.  A  rule  having  been  obtained  to  show  cause  why  the  ver- 
dict for  the  plaintiff'  should  not  be  set  aside  and  a  new  trial  granted. 

Lord  ]\Iaxsfil;i<d.  On  argument,  and  after  consideration,  I 
have  changed  the  opinion  which  I  held  at  the  trial,  that  this  policy 
is  void.  Before  the  statute,  nothing  was  so  common  as  a  valued  pol- 
icy ;  and  then,  at  the  trial,  there  was  no  necessity  to  prove  either 
value  or  interest,  whether  the  words  "without  further  proof  than  the 
policy"  were,  or  were  not  added. ^^  Then  this  statute  was  made;  and 
in  the  construction  of  it,  it  has  been  held,  whether  right  or  wrong  it 
is  now  immaterial  to  inquire,  that  a  valued  policy  is  not  void,  but  it 
is  suf^cient  if  the  party  proves  some  interest.  The  other  side  may 
show  that  this  is  a  mere  evasion  of  the  act;  but  in  general  nothing 
is  necessary  on  a  valued  policy  but  to  prove  some  actual  interest.  In 
the  present  case  the  insurance  is  made  by  a  contractor  for  spruce  beer 
on  the  profits  to  arise  from  a  cargo  of  molasses.  If  the  ship  arrives 
the  profit  is  certain.  The  policy  is  not  meant  to  conceal  the  interest, 
but  to  get  rid  of  the  proof  of  the  quantum.  I  cannot  distinguish  this 
from  the  common  case  of  a  valued  policy.  The  words  of  the  statute 
are  very  strong,  and  so  they  struck  me  at  Guildhall;  and  if  it  had 
been  a  new  question  on  the  validity  of  a  valued  policy,  doubts  might 
have  been  entertained ;   but  it  is  not  a  new  question.     *     *     * 

Rule  discharged.^^ 


GEDGE  v.  ROYAL  EXCHANGE  ASSUR.  CORPORATION.^^ 

(Commercial  Court,  1900.     2  Q.  B.  214.) 

Kennedy,  J.  This  action  is  brought  by  the  plaintiffs,  who  are 
insurance  brokers,  suing  really  on  behalf  and  for  the  benefit  of  a  Mr. 
Rouse  and  certain  other  gentlemen  associated  with  him,  against  the 
defendants,  on  an  alleged  policy  of  marine  insurance,  dated  Novem- 
ber 14,  1898,  upon  the  British  steamer  Radnorshire,  belonging  to  the 
"Shire"  line.     The  policy,  as  pleaded  by  the  plaintiffs,  is  a  policy  for 

11  See  Craufurd  v.  Hunter,  8  T.  R.  23  (1798) ;  Lucena  v.  Craufurd,  2  Bos. 
&  Put.  N.  R.  321  (1806) ;    Cousins  v.  Nantes,  3  Taunt.  523  (1811).— [Rep. 

12  As  to  tlie  insurance  of  profits,  see  Le  Cras  v.  Hughes,  3  Doug.  81  (1782) ; 
■  Henrickson  v.   Margetson,  ,  2   East,   550,   note   (1776);    Barclay   v.   Cousins,   2 

East,  544  (1802) ;  Hodgson  v.  Glover,  6  East,  316  (1805) ;  Lucena  v.  Craufurd, 
3  Bos.  &  Pul.  75  (1802) ;  Id.,  2  Bos.  &  Pul.  N.  R.  2G9  (1806) ;  King  v.  Glover, 
2  Bos.  &  Pul.  N.  R.  206  (1806) ;  Eyre  v.  Glover,  16  East,  218  (1812) ;  Id.,  3 
Campb.  276  (1812).  Where  not  only  the  profits  are  an  expectation,  but  the  ob- 
taining a  cargo,  out  of  which  the  commission  constituting  the  profits  is  to 
arise,  is  also  an  expectation,  the  interest  is  not  an  insurable  interest  within  19 
Geo.  II,  c.  37;  Knox  v.  Wood,  Park,  Ins.  (6th  Ed.)  356.— [Rep. 

13  The  statement  of  facts  and  arguments  of  counsel  are  omitted. 


Sec.  1)       NECESSITY    FOR    EXISTENCE    OF   INSURABLE  INTEREST  49 

£400.  on  the  said  steamship  at  and  from  London  to  Yokohama,  to 
pay  a  total  loss  in  the  event  of  the  vessel  not  arriving  at  Yokohama 
on  or  before  midnight  on  December  31,  1898.  It  is  pleaded  by  the 
plaintiffs  that  the  vessel  did  not  arrive  at  Yokohama  on  or  before  mid- 
night on  that  day,  and  the  amount  insured  is  claimed  by  the  plain- 
tiflfs.  In  fact,  as  appeared  when  the  document  was  produced  by  the 
plaintiffs  in  evidence,  the  alleged  policy  is  what  is  known  as  a  "p.  p. 
i."  or  "honour"  policy,  one  of  its  terms  being  that,  in  the  event  of 
loss,  "it  is  hereby  agreed  that  this  policy  shall  be  deemed  a  full  and 
sufficient  proof  of  interest."  The  defendants,  in  the  points  of  defence, 
do  not  plead  the  invalidity  of  the  alleged  policy  under  the  provisions 
of  19  Geo.  II,  c.  37,  s.  1.  Their  pleaded  defences,  in  addition  to  a  re- 
fusal to  admit  the  correctness  of  the  statement  of  the  plaintiffs  as  to 
the  terms  of  the  alleged  policy,  are — (1)  concealment  of  material 
facts,  and  (2)  that  the  persons  on  whose  behalf  the  plaintiffs  effected 
the  alleged  policy  had  no  insurable  interest  in  the  subject-matter  in- 
sured. 

The  alleged  policy  was  in  truth,  so  far  as  regards  the  purpose  of 
Mr.  Rouse  and  certain  other  gentlemen  for  whom  it  was  effected,  a 
mere  wager  or  wagering  speculation.  It  appears  that  some  time  be- 
fore November  14,  1898,  the  Government  of  Japan  had  made  an  ordi- 
nance whereby  goods  imported  into  Japan  after  December  31,  1898, 
should  be  liable  to  a  higher  duty  than  had  previously  been  levied. 
This  was  known  to  Mr.  Rouse,  who  was  employed  in  the  London  of- 
fice of  a  Japanese  insurance  company,  called  the  Nippon,  and  he  had 
a  conversation  with  a  Mr.  Pound,  who  was  an  insurance  clerk  in  the 
plaintiffs'  office,  upon  the  subject  of  insurances  being,  in  consequence 
of  the  ordinance,  effected  in  regard  to  the  arrival  in  Japan  of  vessels 
carrying  goods  to  that  country.  It  occurred  to  Mr.  Rouse  that  there 
was  an  opportunity  of  having  what  he  called  a  "spec."  He  asked 
Mr.  Pound  if  he  thought  he  would  be  able  to  do  a  "spec."  for  him ; 
Pound  said  he  thought  he  might  be  able.  They  then  parted.  Mr. 
Rouse  returned  to  his  office,  and  read  in  Lloyd's  Shipping  Gazette 
that  the  Radnorshire  was  the  vessel  of  the  line  of  steamships  running 
between  London  and  Japan  under  the  management  of  Messrs.  Jenkins 
&  Co.  which  had  last  sailed  for  Japan,  and  that  she  was  reported  to 
have  passed  the  Downs  on  October  30.  Believing  that  a  vessel  of 
that  type  might  be  expected  to  take,  roughly,  about  two  months  on 
the  voyage,  he  saw  from  her  reported  position  that,  to  use  his  own 
words,  her  arrival  before  January  1,  1899,  was  obviously  a  close  thing 
and  what  be  wanted  for  a  "spec."  He  mentioned  his  project  to  cer- 
tain other  gentlemen  in  the  Nippon  office,  and  they  agreed  to  share 
with  him  in  the  speculation.  In  the  result,  through  Mr.  Pound 
(acting  as  the  agent  to  propose  an  insurance),  Mr.  Rouse  and  his  fel- 
low-speculators carried  out  their  project  by  obtaining  from  the  de- 
fendants the  policy  in  question,  the  slip  for  which  was  initialled  by 
Vance  Ins. — 4 


50  SUBJECT-MATTER    OF   THE  CONTRACT  (Cll.  2 

Mr.  Toiilmin  on  behalf  of  the  defendant  company.  Had  Mr.  Toul- 
min  known  the  real  nature  of  the  transaction — namely,  that  it  was  a 
mere  bet  or  speculation  without  any  interest  on  the  part  of  those  for 
whom  in  reality  the  insurance  was  effected — he  would  have  declined 
the  risk  altogether.  It  is  at  the  same  time  only  just  to  Mr.  Rouse  and 
his  friends  to  add  that  they  appear  to  have  desired  throughout  the 
transaction  to  act  in  a  candid  and  straightforward  manner.  It  was 
not  through  any  fault  of  theirs  that  the  purely  speculative  nature  of 
the  transaction  was  not  disclosed  to  Mr.  Toulmin. 

It  appears  to  me  that  when  upon  the  trial  of  an  action  the  plaintiffs' 
case,  as  happens  here,  discloses  that  the  transaction  which  is  the  basis 
of  the  plaintiffs'  claim  is  illegal,  the  Court  cannot  properly  ignore  the 
illegality  and  give  effect  to  the  claim.  Here  the  insertion  of  the  p.  p. 
i.  clause  taints  the  whole  of  the  plaintiffs'  case.  The  statute  19  Geo. 
II,  c.  37,  s.  1,  expressly  forbids  the  making  of  an  assurance  upon  a 
British  ship  without  further  proof  of  interest  than  the  policy,  and 
goes  on  to  declare  that  every  such  assurance  shall  be  null  and  void 
to  all  intents  and  purposes.  It  has  been  suggested  by  the  plaintiffs 
that  the  present  policy  is  not  a  policy  on  a  ship  within  the  meaning  of 
this  section.  I  am  clearly  of  opinion  that  it  is.  An  assurance  where- 
by the  assured  is  entitled  to  be  indemnified  against  loss  in  respect  of 
the  non-arrival  of  the  ship  at  a  certain  port  by  a  certain  date  may, 
I  think,  be  correctly  described  as  an  assurance  on  the  ship.  If  au- 
thority is  wanted,  I  think  that  it  appears  in  the  case — very  similar  in- 
deed in  its  circumstances — of  Kent  v.  Bird  (1777)  Cowp.  583,  which 
was  decided  upon  the  same  statute.  There  the  defendant  undertook 
that  a  vessel  should  save  her  passage  to  China  that  season,  and,  in 
the  action  brought  upon  the  document  of  insurance,  judgment  was 
given  for  the  defendant  on  the  ground  that  the  transaction  was  the 
making  of  a  gaming  or  wagering  policy  on  a  ship  within  the  meaning 
of  the  statute. 

Attempts  to  narrow  the  section  when  it  speaks  of  an  assurance  on 
goods,  merchandise,  and  effects,  similar  to  the  attempt  of  the  plain- 
tiffs in  this  case  in  regard  to  an  assurance  upon  "ship,"  were  unsuc- 
cessfully made  in  Smith  v.  Reynolds  (1856)  1  H.  &  N.  221 ;  De  Mat- 
tos  V.  North  (1868)  L.  R.  3  Ex.  185 ;  Allkins  v.  Jupe  (1877)  2  C.  P. 
D.  375;  Berridge  v.  Man  On  Insurance  Co.  (1887)  18  Q.  B.  D.  346. 
These  cases  shew  that  assurances  on  profits,  commission,  and  ad- 
vances are  covered  by  the  section,  when  it  speaks  of  assurances  on 
"goods,  merchandise  or  effects." 

This  policy,  then,  being  an  illegal  instrument — an  assurance  which, 
in  the  language  of  Grove  J.  in  Allkins  v.  Jupe,  2  C.  P.  D.  375,  is  con- 
trary to  the  direction  of  the  statute,  and  so  unlawful  in  all  its  incidents 
that  the  law  will  not  countenance  any  part  of  it — ^I  cannot  give  judg- 
ment upon  it  in  favour  of  the  plaintiffs.  Their  counsel  argued  that 
the  illegality  was  not  pleaded  by  the  defendants ;  in  my  opinion  that 
makes  no  difference.     "Ex  turpi  causa   non  oritur  actio.     This  old 


Sec.  1)       NECESSITY    FOR    EXISTENCE    OF    INSURABLE   INTEREST  51 

and  well-known  legal  maxim  is  founded  in  good  sense  and  expresses 
a  clear  and  well-recognized  legal  principle,  which  is  not  confined  to 
indictable  offences.  No  court  ought  to  enforce  an  illegal  contract  or 
allow  itself  to  be  made  the  instrument  of  enforcing  obligations  al- 
leged to  arise  out  of  a  contract  or  transaction  which  is  illegal,  if  the 
illegality  is  duly  brought  to  the  notice  of  the  Court,  and  if  the  per- 
son invoking  the  aid  of  the  Court  is  himself  implicated  in  the  illegality. 
It  matters  not  whether  the  defendant  has  pleaded  the  illegality  or 
whether  he  has  not.  If  the  evidence  adduced  by  the  plaintiff  proves 
the  illegality,  the  Court  ought  not  to  assist  him":    per  Lindley  L.  J. 

in  Scotl  V.'  Brown,  Doering,   McNab  &  Co.  (1892)  2  Q.  B.  724.^* 

*     *     * 

Judgment  for  the  defendants. 


JUHEL  V.  CHURCH. 
(Supreme  Court  of  New  York,  1801.     2  Johns.  Cas.  333.) 

This  action  was  brought  for  a  return  of  premium.  At  the  trial, 
a  verdict  was  found  for  the  plaintiffs,  subject  to  the  opinion  of  the 
court,  on  a  case;  and  if  the  court  should  be  of  opinion  against 
the  plaintiffs,  a  judgment  of  nonsuit  was  to  be  entered. 

The  plaintiffs  chartered  the  ship  Three  Sisters,  to  bring  a  cargo 
of  wines,  from  the  Spanish  Main  to  New  York ;  and  had  insured, 
by  a  valued  policy,  $12,000,  on  goods,  for  the  voyage.  But  al- 
though, in  the  printed  part  of  the  policy,  the  same  was  stated  to 
be  on  goods,  yet  by  a  memorandum,  in  writing,  at  the  bottom  of 
the  policy,  it  was  declared  to  be  on  profits,  and  that  no  other  proof 
of  interest  was  to  be  required  than  the  policy,  and  that  if  the 
goods  did  not  arrive,  the  assured  was  to  recover  for  a  total  loss  ; 
and  the  same  was  warranted  free  from  average,  and  without  bene- 
fit of  salvage  to  the  insurer.  The  ship  found  no  cargo  at  the  Span- 
ish Main,  and  returned  to  New  York  in  ballast,  without  any  goods 
whatever. 

Kent,  J.  I  consider  this  as  a  wager  policy.  It  has  the  indicia 
of  a  wager  policy,  as  they  are  pointed  out  by  the  cases  on  the  sub- 
ject. Doug.  468;  Park,  259.  Here  was  to  be  no  other  proof  of  in- 
terest required,  than  the  policy  itself;  and  if  the  goods  did  not 
arrive,  the  insurer  was  to  pay.  It  was,  in  fact,  betting  on  the 
return  of  the  ship ;  and  if  she  had  not  returned,  in  consequence  of 
any  peril  enumerated  in  the  policy,  the  plaintiff  would,  on  its 
production,  have  been  entitled  to  the  sum  insured. 

As  the  plaintiffs  claim  a  return  of  premium,  it  has  been  made 
a  question  whether  this  be  a  valid  policy.     If  it  be  unlawful  and 

14  The  remainder  of  the  opinion,  dealing  with  a  rule  of  court,  and  further 
holding  that  the  failure  to  disclose  the  speculative  character  of  the  insurance 
constituted  a  fatal  concealment,  is  omitted. 


52  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

consequently  void,  on  the  ground  of  its  being  a  wager  policy,  the 
assured  is  not  entitled,  at  any  rate,  to  a  return  of  premium,  for 
"in  pari  delicto  potior  est  conditio  possidentis."  It  was  so  decided 
in  the  cases  of  Lowry  v.  Bourdieu,  Doug.  468,  and  Andre  v. 
Fletcher,  3-  Term  Rep.  266.  But  supposing  the  policy  to  be  good, 
(and  I  wish  not  to  be  understood  as  intimating  any  opinion  to 
the  contrary,)  I  am  equally  of  the  opinion,  that  the  plaintififs  are 
not  entitled  to  recover;  because  the  defendant  has  run  a  risk, 
which  is  the  consideration  for  the  premium.  I  consider  this  policy 
as  amounting  to  a  bet  on  the  return  of  the  ship.  If  she  had  not 
returned,  and  the  plaintiffs  could  have  shown  it  was  in  consequence 
of  some  peril  within  the  purview  of  the  policy,  they  must  have  been 
entitled,  as  a  matter  of  course,  to  the  sum  insured,  without  proving 
any  interest  or  goods  on  board.  The  defendant  must,  therefore, 
be  considered  as  having  run  the  risk  of  the  ship,  during  the  voy- 
age. But  as  the  ship  returned  in  safety,  I  do  not  consider  him 
responsible  because  the  goods  did  not  arrive.  It  could  never  have 
been  the  meaning  of  the  parties  that,  whether  the  ship  did  or  did 
not  arrive,  the  defendant  was,  at  all  events,  to  pay  the  $12,000. 
This  would  be  a  contract  without  any  reciprocity,  and  altogether 
absurd.  The  plaintiffs,  by  the  form  of  this  action,  have  given  a 
different  interpretation  to  it.  The  policy  enumerates  a  variety  of 
perils  or  risks,  which  the  defendant  assumed  to  run ;  and  there 
must  have  been  some  subject  to  which  they  could  be  applied,  and 
this,  in  the  present  case,  could  be  no  other  than  the  ship.  When, 
therefore,  the  policy  says,  that  no  other  proof  of  interest  was  to 
be  required  than  the  policy,  and  that,  if  the  goods,  did  not  arrive, 
the  assured  was  to  recover,  its  meaning  was,  that  if  the  ship  did 
not  arrive  in  consequence  of  any  peril  mentioned,  the  assured  was 
to  recover  the  value  of  his  profits,  without  proving  any  goods 
on  board,  from  which  the  profits  were  to  arise. 

As  the  defendant  has,  therefore,  run  the  risk  intended  by  the 
policy,  I  see  no  pretence  for  a  return  of  premium,  and  judgment  of 
nonsuit  ought  to  be  entered. 

RadcliFF  and  Lewis,  JJ.,  were  of  the  same  opinion.  Lansing, 
C.  J.,  dissented. 

Judgment  of  nonsuit. 


PRITCHET  V.  INSURANCE.  CO.  OE  NORTH  AMERICA. 

(Supreme  Court  of  Pennsylvania,  1803.     3  Yeates,  458.) 

Action  on  a  policy  of  insurance,  on  goods  on  board  the  brig  Neu- 
trality, WiUiam  Clark,  master,  at  and  from  Philadelphia,  to  one  port 
in  Martinico,  and  at  and  from  thence  to  St.  Thomas's,  subscribed  2d 
March  1798.  The  goods  were  valued  at  $15,000,  and  insured  at  a 
premium  of  l/i/o.  per  cent.;  and  the  policy  was  assigned  over  by  the 
insured  to  Sparks  and  Lloyd  on  the  29th  March  following. 


Sec.  1)       NECESSITY    FOR    EXISTENCE    OP    INSURABLE  INTEREST  53 

The  brig  sailed  from  the  capes  of  Delaware  on  the  16th  March,  and 
was  captured  in  her  voyage  to  Martinico  on  the  19th  April,  by  the 
French  privateer  Jealous,  Captain  Kauticr,  who  put  a  French  crew 
on  board.  On  the  21st  April  she  arrived  at  Point  Petre,  in  Guada- 
loupe,  and  on  the  next  day  the  captain  made  his  protest.  On  the  1st 
May  the  brig  and  cargo  were  condemned  in  the  French  Court  of  Ad- 
miralty, on  the  ground  of  being  bound  to  an  enemy's  port  in  rebel- 
lion against  the  French  Republic. 

The  defendants  had  likewise  underwrote  a  valued  policy  on  the  body 
of  the  vessel  for  $5,000,  and  admitting  that  there  had  been  a  total 
loss,  had  paid  on  account  of  both  policies,  at  different  times,  $15,- 
858.91,  and  about  three  weeks  before  the  trial,  had  tendered  to  Sparks 
$829.31,  the  return  premium  and  interest  thereon,  but  had  neither  paid 
ofif  the  costs  nor  brought  the  money  into  court.  They  resisted  the 
plaintiff's  claim  of  $4,812.09,  on  the  ground  of  an  over  insurance. 

The  plaintiffs  owned  the  vessel  and  cargo  when  the  policies  were 
under  written,  but  effected  no  insurance  on  the  freight  of  the  goods, 
which  at  the  usual  freight  of  $2  per  barrel,  amounted  to.  .   $  3,814  16 

And  it  appeared,  that  the  prime  cost  of  the  cargo,  and 
the  premium  of  insurance  thereon,  were 11,182  56 

So  that  if  it  was  intended  to  insure  the  freight,  there 
was  only  over  insured,  the  sum  of 3  28 


$15,000  00 

A  respectable  merchant  was  called  on  after  the  trial  had  proceeded 
a  considerable  length,  who  gave  evidence,  that  the  premium  on  freight 
insvtred  in  this  port  was  usually  the  same  as  on  vessels  and  cargoes, 
though  it  was  otherwise  in  the  port  of  New  York;  and  that  the  prof- 
its on  goods  were  frequently  insured  as  goods  merely,  and  it  was  so 
understood  generally  by  the  contracting  parties.  Coffee  known  to 
have  been  laid  in  at  16  cents  per  pound,  had  often  been  insured  in 
valued  policies  at  22  cents  per  pound,  the  difference  of  6  cents  being 
contemplated  on  both  sides  as  profits,  and  so  of  other  articles. ^° 

Yeates,  J.,  gave  the  charge  of  the  court,  in  the  absence  of  the 
Chief  Justice,  who  was  indisposed. 

The  verdict  must  necessarily  be  for  the  plaintiff.  But  whether  it 
should  be  for  the  $829.31  which  the  defendants  have  admitted  to  be 
due  by  their  late  tender,  and  yet  have  not  brought  the  same  into  court 
and  paid  off  the  costs,  or  for  the  $4,812.09,  the  balance  claimed  by 
the  plaintiff  is  the  only  question. 

The  British  statute  of  19  Geo.  2,  c.  37,  passed  in  1746,  and  was  in- 
tended to  put  an  end  to  insurances  without  real  interest,  which  in 
process  of  time  had  become  a  cover  for  mere  gaming  contracts. 
(Vide  history  of  wager  policies  since  the  Revolution,  in  1  Marsh.  99.) 

16  The  arguments  of  counsel  are  omitted. 


54  SUBJECT-MATTER    OF   THE  CONTRACT  (Ch.  2 

There  is  a  seeming  contrariety  between  the  opinions  of  Park  and 
Marshall,  whether  under  the  statute  the  valuation  specified  in  a  valued 
policy  is  to  be  the  measure  of  damages  in  case  of  a  total  loss.  They 
however  agreed  in  this,  that  where  valued  policies  are  used  merely 
as  a  cover  to  a  wager,  they  would  be  considered  as  an  evasion  of  the 
statute,  as  in  the  instance  put  by  Lord  Mansfield,  of  one  insuring 
i2000.  and  having  interest  on  board  to  the  value  of  a  cable  only.  2 
Burr.  1171.  If  the  property  be  much  over-valued,  it  must  be  done 
with  a  bad  view,  either  to  gain,  contrary  to  the  words  of  the  act,  or 
with  some  view  to  a  fraudulent  loss.    Ibid.,  Park,  122;    1  Marsh.  110. 

Serjeant  Marshall,  in  his  useful  treatise,  professes  in  his  preface  to 
point  out  any  decision,  or  any  doctrine  advanced,  which  militated 
against  any  acknowledged  principle  of  law,  and  to  treat  them  with  a 
proper  freedom  but  with  decency  and  respect.  Hence,  he  has  been 
led  to  consider  the  usage,  though  sanctioned  by  the  approbation  of 
great  and  eminent  judges,  that  in  cases  where  the  interest  of  the  in- 
sured is  less  than  the  sum  insured  in  a  valued  policy,  to  pay  the  whole 
sum  insured,  upon  a  total  loss,  as  irreconcilable  with  the  provisions 
of  the  Stat,  of  19  Geo.  2,  c.  37,  and  tending  to  convert  every  loss  into 
a  total  one.  1  Marsh.  111.  And  he  expressly  asserts,  that  the  value 
in  the  policy,  ought  only  to  be  considered  as  prima  facie  evidence  of 
the  amount  of  the  interest  of  the  insured ;  which  being  admitted,  on 
his  mere  representation,  the  insurer  is  not  thereby  concluded,  but  may 
dispute  the  amount  of  the  interest  if  it  be  over-valued,  as  well  in  an 
action  upon  a  valued  policy,  as  upon  an  open  one.  But  he  neverthe- 
less agrees  in  the  passage  already  cited,  that  the  usage  which  he  con- 
demns, is  uniform  and  constant,  and  approved  of  by  authority,  and 
that  courts  of  justice  will  not  scrupulously  examine  the  valuations 
in  valued  policies,  where  an  indemnity  was  honestly  intended.  1 
Marsh.  202. 

We  shall  confine  ourselves  to  the  case  immediately  before  us.  We 
mean  to  give  no  opinion,  whether  the  apprehensions  of  Marshall,  as 
to  the  true  intention  of  the  English  statute,  are  well  or  ill  founded. 

The  Chief  Justice,  during  the  argument,  conveyed  the  sentiments  of 
the  whole  court.  We  have  adopted  the  policy  and  principles  which 
gave  rise  to  the  act  of  Parliament,  both  in  courts  of  justice  and  by 
commercial  usage ;  but  we  are  not  prepared  to  say,  that  every  par- 
ticular provision  or  resolution  under  it,  has  been  engrafted  into  our 
system  of  law.  An  insurance  amongst  us,  is  a  contract  of  indemnity. 
Its  object  is,  not  to  make  a  positive  gain,  but  to  avert  a  possible  loss. 
A  man  can  never  be  said  to  be  indemnified  against  a  loss  which  can 
never  happen  to  him.  There  cannot  be  an  indemnity  without  a  loss, 
nor  a  loss  without  an  interest.  A  policy,  therefore  made  without  in- 
terest, is  a  wager  policy,  and  has  nothing  in  common  with  insurance, 
but  name  and  form.  1  Marsh.  30,  97.  It  is  not  subservient  to  the 
true  interests  of  fair  trade  and  commerce;  but  is  pregnant  with  as 
much  mischief,  both  public  and  private,  as  can  proceed  from  any  spe- 


Sec.  1)       NECESSITY    FOR    EXISTENCE    OF   INSURABLE  INTEREST  55 

cies  of  gaming,  which  the  legislature  has  hitherto  found  it  necessary 
to  repress.  lb.  98.  Every  species  of  gaming  contracts,  wherein  the 
insured  having  no  interest,  or  a  colourable  one  merely,  or  having  a 
small  interest,  much  over-values  it  in  a  valued  policy,  under  the 
cloke  of  insurances,  are  reprobated  both  by  our  law  and  usage. 

It  is  obvious,  that  if  the  mercantile  practice  of  this  port  has  been 
sufftciently  established,  that  profits  are  understood  to  be  insured  under 
the  character  of  goods  merely,  an  end  is  at  once  put  to  the  present 
question.  Because  $3,817.44  could  not  be  deemed  an  extravagant 
profit  on  the  cargo,  at  a  West  India  market.  But  independent  of  this 
usage,  does  not  the  case  itself  present  such  outlines  as  to  evince,  that 
the  cargo  has  been  but  little  over-valued?  Two  voyages  were  medi- 
tated by  the  insured,  "at  and  from  Philadelphia,  to  one  port  in  Mar- 
tinico,"  and  at  and  "from  thence  to  St.  Thomas's"  and  the  defend- 
ants subscribed  the  policies  on  the  brig  and  cargo  for  both  voyages, 
and  received  a  premium  proportioned  to  the  risk.  Admit  the  freight 
of  the  vessel  was  not  insured,  still  the  aggregate  amount  of  the 
prime  cost  of  the  goods,  premium,  and  of  the  expences  necessarily  at- 
tendant on  the  transportation  of  the  goods  to  Martinico,  formed  a 
fair  object  of  insurance. 

The  plaintiffs  do  not  seek  an  indemnification  in  the  light  of  ship- 
holders  for  the  loss  of  their  freight,  but  as  owners  of  the  cargo,  for 
the  additional  cost  of  conveying  it  to  Martinico.  This  appears  to  be 
a  fair  and  honest  transaction,  without  any  kind  of  misrepresentation. 
It  possesses  no  single  feature  of  a  gambling  policy.  The  defendants 
have  received  the  large  premium  of  $3501  on  both  policies,  on  the 
entire  valuations,  and  are  therefore  bound  to  make  up  the  whole  loss. 
Should  a  different  doctrine  prevail,  a  valued  policy,  instead  of  operat- 
ing as  an  admitted  agreed  value  of  the  property  on  the  trial,  would 
be  of  no  possible  use,  but  an  injury  to  the  insured.  If  the  voyage 
should  be  safely  performed,  the  underwriters  would  retain  the  full 
premium  on  the  whole  valuation ;  but  if  it  should  be  unsuccessful,  the 
insured  would  only  recover  the  amount  of  the  first  cost  of  the  goods 
put  on  board,  with  the  proper  premium  thereon.  These  remarks  go 
on  the  ground  of  the  insurance  being  intended  as  a  real  indemnity, 
and  not  where  the  policy  has  been  effected  on  gaming  principles. 

The  jury  found  a  verdict  for  the  plaintiff  for  $4812.09,  without 
leaving  the  bar.^® 

16  In  Lewis  v.  Rucker,  2  Burr.  1107,  1171  (1761),  Lord  INLinsfield,  C.  J.,  in 
answer  to  the  objection  that  the  policy  in  suit  was  a  wager  policy,  because 
valued,  said: 

"A  valued  ixtlicy  is  not  to  be  considered  as  a  wager  policy,  or  like  'interest 
or  no  interest' ;  if  it  was,  it  would  be  void  by  the  act  of  19  Geo.  2,  c.  37. 
The  only  effect  of  the  valuation  is  fixing  the  amount  of  the  prime  cost,  just 
as  if  the  parties  admitted  it  at  the  trial ;  but  in  every  argument,  and  for 
every  other  purpose,  it  must  be  taken  that  the  value  was  fixed  in  such  a  man- 
ner as  that  the  insured  meant  only  to  have  an  indemnity. 

"If  it  be  under-valued,  the  merchant  himself  stands  insurer  of  the  surplus. 
If  it  be  much  over-valued,  it  must  be  done  with  a  bad  view ;  either  to  gain, 
contrary  to  the  19th  of  the  late  Kins:,  or  with  some  view  to  a  fraudulent  loss 


56  SUBJECT-MATTER    OF   THE  CONTRACT  (Ch.  2 

RUSE  V.  MUTUAL  BENEFIT  LIFE  INS.  CO. 

•(Court  of  Appeals  of  New  York,  ISGl.     23  N.  Y.  516.) 

SeldEN,  J.^^  *  *  ♦  Our  inquiry,  therefore,  is,  whether  at 
common  law,  independent  of  any  statute,  it  is  essential  to  the 
validity  of  a  policy,  obtained  by  one  person  for  his  own  benefit 
upon  the  life  of  another,  that  the  party  obtaining  the  policy  should 
have  an  interest  in  the  life  insured. 

A  policy,  obtained  by  a  party  who  has  no  interest  in  the  subject 
of  insurance,  is  a  mere  wager  policy.  Wagers  in  general,  that  is, 
innocent  wagers,  are,  at  common  law,  valid ;  but  wagers  involving 
any  immorality  or  crime,  or  in  conflict  with  any  principle  of  pub- 
lic policy,  are  void.  To  which  of  these  classes,  then,  does  a  wager- 
ing policy  of  insurance  belong? 

Aside  from  authority,  this  question  would  seem  to  me  of  easy 
solution.  Such  policies,  if  valid,  not  only  afford  facilities  for  a 
demoralizing  system  of  gaming,  but  furnish  strong  temptations  to 
the  party  interested  to  bring  about,  if  possible,  the  event  insured 
against.  In  respect  to  insurances  against  fire,  the  obvious  tempta- 
tion presented  by  a  wagering  policy  to  the  commission  of  the  crime 
of  arson  has  generally  led  the  courts  to  hold  such  policies  void, 
even  at  common  law.  It  was  so  held  in  England,  at  an  early  day, 
by  Lord  Chancellor  King  in  Lynch  v.  Dalzell,  4  Bro.  P.  C.  431, 
and  by  Lord  Hardwicke,  in  Saddlers'  Company  v.  Badcock,  2  Atk. 
557;  and  the  courts  in  this  country  have  generally  acquiesced  in 
and  approved  of  the  doctrine.  In  this  state  such  policies  would 
fall  under  the  condemnation  of  our  statute  avoiding  all  wagers 
and  gambling  contracts  of  every  sort;  but  they  would,  no  doubt, 
also  be  held  void,  independently  of  that  statute,  at  common  law. 

Therefore  the  insured  never  can  be  allowed  in  a  court  of  justice  to  plead  that 
he  has  greatly  over-valued,  or  that  his  interest  was  a  trifle  only. 

"It  is  settled  'that,  upon  valued  policies,  the  merchant  need  only  prove  some 
interest,  to  take  it  out  of  19  Geo.  2,  because  the  adverse  party  has  admitted 
the  value;  and  if  more  was  required,  the  agreed  valuation  would  signify 
nothing.'  But  if  it  should  come  out  in  proof  that  a  man  had  insured  £2000. 
and  had  interest  on  board  to  the  value  of  a  cable  only,  there  never  has  been, 
and  I  believe  there  never  will  be  a  determination,  that  by  such  an  eva- 
sion the  Act  of  Parliament  may  be  defeated. 

"There  are  many  conveniences  from  allowing  valued  policies ;  but  where 
they  are  used  merely  as  a  cover  to  a  wager,  they  would  be  considered  as  an 
evasion. 

"The  effect  of  the  valuation  is  only  fixing,  conclusively,  the  prime  cost.  If 
it  be  an  open  policy,  the  prime  cost  must  be  proved ;  in  a  valued  policy,  it  is 
agreed." 

As  to  the  effect  of  over-valuation  in  case  of  valued  policies,  see  Kane  v. 
Com.  Ins.  Co.,  8  Johns.  (N.  Y.)  229  (1811) ;  Clark  v.  Ocean  Ins.  Co.,  16  Pick. 
(Mass.)  289  (183,5). 

17  That  part  of  the  opinion  of  the  court  in  which  it  was  held  that  an  al- 
luring prospectus  issued  by  the  defendant  formed  no  part  of  the  insured's  con- 
tract is  omitted,  as  is  that  part  holding  that  the  gaming  statutes  of  New  Jer- 
sey, the  law  of  which  is  found  to  be  applicable,  did  not  prohibit  wageriufir 
policies. 


Sec.  1)        NECESSITY    FOR    EXISTENCE    OF    INSURABLE   INTEREST  57 

In  Howard  v.  Albany  Insurance  Company,  3  Denio,  301,  Bron- 
son,  C.  J.,  asserted  the  necessity  of  an  interest  in  the  assured  in 
all  such  cases,  referring,  in  support  of  the  doctrine,  not  to  the  stat- 
ute, but  to  the  decisions  of  the  Lord  Chancellors  King  and  Hard- 
wicke,  supra. 

In  regard,  however,  to  marine  insurances,  a  different  rule  seems 
to  have  prevailed  in  England ;  and  the  cases  of  Clendining  v. 
Church,  3  Caines,  141,  Juhel  v.  Church,  2  Johns.  Cas.  333,  and 
Buchanan  v.  Ocean  Insurance  Company,  6  Cow.  318,  are  supposed 
to  have  established  the  same  rule  in  this  state.  No  reason,  that 
I  am  aware  of,  has  ever  been  given  for  this  difference  between 
fire  and  marine  policies.  The  latter,  when  of  a  wagering  character, 
are  vicious  and  evil  in  their  tendencies  as  well  as  the  former,  and 
have  "been  generally  considered  as  noxious  and  dangerous,  whenever 
the  question  has  arisen.  They  should,  therefore,  as  it  would 
seem,  for  the  reasons  applied  to  policies  against  fire,  have  been 
held  void,  as  contrary  to  public  policy. 

The  distinction  between  these  two  classes  of  policies  is,  in  my 
view,  a  mere  matter  of  accident,  and  grew  out  of  the  peculiar 
manner  in  which  the  question  was  presented  in  respect  to  marine 
policies.  The  case  of  Depaba  v.  Ludlow,  Comyn,  361,  shows  how 
the  doctrine,  that  wagering  policies  upon  ships  are  valid,  originat- 
ed. The  defendant  there  had  insured  the  plaintiff,  "interest  or  no 
interest."  On  the  trial  it  was  objected  that  the  plaintiff  could  not 
recover,  unless  he  had  a  property  in  the  ship ;  but  the  court  said 
that  the  insurance  was  good  and  that  the  import  of  the  clause, 
"interest  or  no  interest,"  was,  that  the  plaintiff  had  no  occasion 
to  prove  his  interest.  Had  the  question  been  directly  presented  in 
this  case,  whether  a  mere  wagering  policy  was  valid,  the  decision 
would,  I  think,  have  been  different.  The  case  itself  shows  the  court 
to  have  supposed  that  the  plaintiff  actually  had  an  interest;  and 
it  is  apparent,  from  the  authorities,  that  it  had  always  been  previ- 
ously held,  in  suits  upon  policies  not  containing  the  words  "in- 
terest or  no  interest,"  or  other  equivalent  words,  that  the  plaintiff' 
must  aver  and  prove  that  he  had  an  interest.  This  is  distinctly 
asserted  by  Lord  Hardwicke,  in  the  case  of  Saddlers'  Company  v. 
Badcock,  supra;  and  in  the  case  of  Crauford  v.  Hunter,  8  Term, 
14,  the  counsel,  on  looking  into  the  precedents  at  the  request  of 
the  court,  found  that  it  had  been  the  uniform  practice,  in  suits 
upon  marine  policies,,  to  insert  an  averment  of  interest.  To  me, 
therefore,  it  seems  clear,  that  the  decision  in  Depaba  v.  Ludlow 
was  made  because  the  court  failed  to  distinguish  between  a  waiver 
of  proof  at  the  trial,  which  the  defendant  was,  of  course,  at  liberty 
to  make,  and  a  waiver  in  the  policy  itself,  by  which  it  was  con- 
verted into  a  mere  wager. 

In  consequence  of  this  case,  and  others  which  followed  it,  Parlia- 
ment was  forced  to  interfere,  as  it  did,  by  the  act  of  19  George  II 


58  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

(chapter  2)7),  reciting  the  mischiefs  which  had  arisen  from  the 
making  of  marine  insurances,  "interest  or  no  interest,"  and  prohibit- 
ing them  thereafter;  and  when  the  question  subsequently  arose  in 
Crauford  v.  Hunter,  supra,  as  to  the  validity  at  common  law  of  a 
mere  wagering  policy  upon  a  ship,  it  was  held  to  be  valid,  solely 
upon  the  authority  of  the  recitals  in  this  act.  It  was  in  this  in- 
direct way  that  the  doctrine  in  question,  as  to  marine  policies,  first 
crept  into  the  law.  It  was  important  to  show  this,  because  the 
effect  of  what  I  consider  as  the  inadvertence  of  the  court  in  Depaba 
V.  Ludlow  was  not  confined  to  policies  upon  ships.  It  must  have 
been,  I  think,  in  consequence  of  the  doctrine  initiated  by  that 
case,  that  it  came  to  be  understood  in  England  that,  in  insurances 
upon  lives,  it  was  not  necessary  at  common  law  that  the  party  to 
be  benefited  by  the  policy  should  have  any  interest  in  the  life  in- 
sured. There  may  not  have  been  any  direct  decision  to  that  effect ; 
yet,  that  such  was  the  prevalent  impression,  is  to  be  inferred  from 
the  enactment  of  the  statute  of  14  George  III  (chapter  48),  pro- 
hibiting insurances  upon  lives  where  the  person  insuring  had  no  in- 
terest in  the  life.  Angell,  in  speaking  of  this  statute,  says:  "At 
common  law  it  seemed  to  have  been  thought  unnecessary  that, 
at  the  time  of  effecting  the  policy,  the  assured  should  have  had 
any  interest  which  might  be  prejudiced  by  the  happening  of  the 
event  insured  against."  Ang.  on  Life  and  Fire  Ins.  §  297.  In  New 
Jersey  they  have  no  such  statute ;  and  the  question  now  to  be  de- 
cided, therefore,  is,  whether  the  impression  which  seems  to  have 
prevailed  in  England  prior  to  the  statute  of  14  George  III  was 
well  founded. 

That  impression  does  not  appear  to  be  supported  by  any  ad- 
judged case.  Life  insurance  seems  not  to  have  been  practised  to 
a  great  extent  in  England  until  a  comparatively  modern  date,  and 
the  probability  is,  that  as  soon  as  such  insurance  became  frequent, 
the  evils  of  gambling  in  them  was  so  apparent  that  Parliament 
interposed,  upon  the  assumption  that  the  same  rule  would  be  ap- 
plied to  them  as  to  insurances  upon  ships.  I  cannot  regard  that  act 
as  affording  any  very  strong  evidence,  that,  at  common  law, 
wagering  policies  upon  lives  were  valid.  It  seems  to  me,  that,  were 
the  naked  question  presented,  whether  such  a  policy  comes  within 
the  admitted  exception  to  the  validity  of  wagers  in  general,  that 
is,  whether  it  is  repugnant  to  a  sound  public  policy,  no  court,  not 
hampered  by  some  unfortunate  or  mistaken  precedent,  would  hesi- 
tate for  a  moment  in  holding  the  affirmative.  In  Massachusetts, 
in  Vermont,  in  Pennsylvania,  and  I  believe  other  states,  it  has  been 
so  held  in  regard  to  wager  policies  in  general.  But  policies  without 
interest,  upon  lives,  are  more  pernicious  and  dangerous  than  any 
other  class  of  wager  policies;  because  temptations  to  tamper  with 
life  are  more  mischievous  than  incitements  to  mere  pecuniary 
frauds. 


Sec.  1)       NECESSITY    FOR    EXISTENCE    OF    INSURABLE   INTEREST  59 

Chancellor  Kent  was  evidently  embarrassed  by  the  position 
of  this  question  in  England.  He  commences  his  remarks  on  the 
subject  by  saying  that  "the  party  insuring  must  have  an  interest 
in  the  life  insured,"  and  then  immediately  refers  to  the  English 
statute,  of  14  George  III,  chapter  48,  but  says  not  a  word  upon 
the  question  whether  at  common  law  an  interest  was  necessary. 
He,  however,  concludes  by  saying  that  "the  necessity  of  an  inter- 
est in  the  life  insured,  in  order  to  support  the  policy,  prevails  gen- 
erally in  this  country,  because  wager  contracts  are  almost  univer- 
sally held  to  be  unlawful,  either  in  consequence  of  some  statute 
provision,  or  upon  principles  of  the  common  law."  3  Kent,  Com. 
368. 

This  obscure  manner  of  treating  the  subject  is  plainly  to  be 
attributed  to  the  reluctance  of  the  learned  author  to  admit  (not- 
withstanding the  impression  that  appears  to  have  obtained  in  Eng- 
land) that  gambling  in  life  insurance  could  be  tolerated  at  common 
law.  That  impression  has  been  here  traced,  as  I  think,  with  justice 
to  the  very  questionable  doctrine  of  the  English  courts  in  regard  to 
marine  policies.  It  has  never,  that  I  am  aware  of,  been  recogniz- 
ed and  adopted  by  any  American  court,  and  is  so  obviously  repug- 
nant to  the  plainest  principles  of  public  policy,  that  it  is  somewhat 
surprising  that  it  should  ever  have  existed.  My  conclusion,  there- 
fore, is,  that  the  statute  of  14  George  III,  avoiding  wager  policies 
upon  lives  was  simply  declaratory  of  the  common  law,  and  that 
all  such  policies  would  have  been  void,  independently  of  that  act. 

It  is  said  that  the  defendants,  by  issuing  the  policy  upon  the 
representation  of  the  plaintiff  that  he  had  an  interest,  have  ad- 
mitted his  interest,  and  that  the  production  of  the  policy  is  at  least 
prima  facie  evidence  of  such  interest.  This  position  cannot  be 
sustained.  All  the  older  authorities  show,  that  even  in  actions 
upon  marine  policies,  not  containing  the  clause  "interest  or  no 
interest,"  it  was  necessary  to  aver,  and  of  course  to  prove,  the 
interest  of  the  plaintiff.  It  is  an  indispensable  part  of  the  plain- 
tiff's case,  to  be  made  out  affirmatively  at  the  trial.  Upon  this 
ground,  therefore,  as  well  as  that  before  considered,  the  judgment 
of  the  Supreme  Court  must  be  reversed ;  and  there  must  be  a 
new  trial,  with  costs  to  abide  the  event. 

All  the  judges,  except  Davii;s  and  Mason,  JJ.,  concurred  that 
the  plaintiff  must  show  an  interest  in  the  life  insurance.  On  the 
question  of  evidence  in  respect  to  the  prospectus  being  admissible 
as  part  of  the  policy  or  entering  into  the  contract,  Co-MSTock,  C. 
J.,  and  DaviES  and  James,  JJ.,  dissented. 

Judgment  reversed,  and  new  trial  ordered.^* 

18  The  presence  of  a  clause  in  the  policy  making  it  incontestable  after  a 
certain  time  does  not  do  away  with  the  necessity  of  insurable  interest. 

''It  is  also  insisted  for  the  plaintiff  that  as  the  policies  contain  a  clause 
to  the  effect  that  they  are  incontestable  after  one  year,  the  company  cannot 


GO  SUBJECT-MATTER    OP    THE  CONTRACT  (Ch.  2 

TRENTON  MUT.  LIFE  &  FIRE  INS.  CO.  v.  JOHNSON. 
(Supreme  Court  of  New  Jersey,  1854.    24  N.  J.  Law,  576.) 

EivMER,  J.^"  *  *  *  j^^^|.  ^|-^g  error  principally  relied  on,  and 
the  one  most  important  is,  that  the  court  refused  to  char,c:e  as 
requested,  "that  under  the  facts  proved  the  plaintiff  had  not  shown 
an  insurable  interest  to  the  full  amount  of  the  policy;  that  the 
policy  was  not  a  valued  policy,  but  a  policy  of  indemnity,  and 
that  the  defendants  were  not  bound  to  the  full  extent  of  the  insur- 
ance unless  on  proof  to  such  extent  of  the  value  of  such  interest ;" 
and  that  on  the  contrary,  the  court  charges,  "that  under  the  facts 
proved,  and  considering  that  the  nature  and  extent  of  the  plaintiff's 
interest  was  truly  stated  to  the  defendants,  at  the  time  the  insur- 
ance was  effected,  so  far  as  the  question  of  interest  was  concerned, 
sufficient  was  shown  on  the  part  of  the  plaintiff  to  entitle  him  to 
recover  to  the  full  amount  of  the  policy.  A  policy  of  life  insurance 
is  a  valued  policy.  Where  a  man  effects  an  insurance  upon  his 
life,  the  amount  to  be  recovered  is  the  amount  insured,  there  can 
be  no  other  measure.  In  such  cases  insurers  are  bound  to  the  full 
amount  of  such  insurance,  without  proof  of  the  value  of  interest 
to  that  extent." 

The  policy  was  effected  by  Johnson,  the  plaintiff,  and  Van  Mid- 
dlesworth,  jointly,  for  the  sum  of  one  thousand  dollars,  for  the 
use,  benefit  and  account  of  the  said  Johnson  to  the  amount  of 
five  hundred  dollars,  and  for  the  use,  benefit  and  account  of  the 
said  Van  Middlesworth,  to  the  amount  of  five  hundred  dollars ; 

rely  upon  this  defense  [lack  of  insurable  interest].  But  the  incontestable 
clause  is  no  less  a  part  of  the  contract  than  any  other  provision  of  it.  If 
the  contract  is  against  public  policy  the  court  will  not  lend  its  aid  to  its 
enforcement.  The  defense  need  not  be  pleaded.  If  at  any  time  it  appears 
in  the  process  of  the  action  that  the  contract  sued  upon  is  one  which  the  law 
forbids,  the  court  will  refuse  relief.  The  parties  to  an  illegal  contract  cannot 
by  stipulating  that  it  shall  be  incontestable,  tie  the  hands  of  the  court  and 
compel  it  to  enforce  contracts  which  are  illegal  and  void.  If  this  were  al- 
lowed, then  the  law  might  be  evaded  in  all  cases  and  the  aid  of  the  court 
might  be  secured  in  aid  of  its  infraction.  In  Hall  v.  Coppell,  7  Wall.  558, 
19  L.  Ed.  244  [1868],  the  United  States  Supreme  Court  said :  'The  defense  is 
allowed,  not  for  the  sake  of  the  defendant,  but  of  the  law  itself.  The  prin- 
ciple is  indispensable  to  the  purity  of  its  administration.  It  will  not  enforce 
what  it  has  forbidden  and  denounced.  The  maxim,  'Ex  dolo  malo  non  oritur 
actio,'  is  limited  by  no  such  qualification.  The  proposition  to  the  contrary 
strikes  us  as  hardly  worthy  of  serious  refutation.  Whenever  the  illegality 
appears,  whether  the  evidence  comes  from  one  side  or  the  other,  the  dis- 
closure is  fatal  to  the  case.  No  consent  of  the  defendant  can  neutralize  its 
effect.  A  stipulation  in  the  most  solemn  form  to  waive  the  objection,  would 
be  tainted  with  the  vice  of  the  original  contract,  and  void  for  the  same  rea- 
sons. Wherever  the  contamination  reaches,  it  destroys.  The  principle  to  be 
extracted  from  all  the  cases  is,  that  the  law  will  not  lend  its  support  to  a 
claim  founded  upon  its  violation.'  "  Hobson,  C.  J.,  in  Bromley's  Adm'r  v. 
Washington  Life  Ins.  Co.,  122  Ky.  402,  92  S.  W.  17,  28  Kv.  Law  Rep.  1300,  5 
L.  R.  A.  (N.  S.)  747,  121  Am.  St.  Rep.  467,  12  Ann.  Cas.  685  (1906). 

19  Only  that  part  of  the  opinion  relating  to  insurable  interest  is  printed. 


Sec.  1)       NECESSITY    FOR   EXISTENCE    OF    INSURABLE   INTEREST  61 

and  the  declaration  avers  that  the  plaintiff,  at  the  time  and  until 
the  death  of  the  said  Van  Middlesworth,  was  interested  in  his 
.  life  in  a  large  amount,  to  wit,  the  amount  of  five  hundred  dollars. 
The  objection  made  on  the  trial,  to  the  recovery  for  want  of  inter- 
est, and  the  charge  on  that  subject,  had  reference  only  to  the  sum 
of  five  hundred  dollars,  insured  for  the  benefit  of  Johnson,  no 
objection  having  been  made  on  that  score  to  the  recovery  of  the 
five  hundred  dollars  insured  for  the  benefit  of  Van  Middlesworth 
himself.  The  declaration  also  avers  that  the  nature  of  the  plain- 
tiff's interest  in  the  life  of  Van  Middlesworth  was  stated  to  the 
agents  of  the  company,  and  the  bill  of  exceptions  shows  that  this 
averment  was  sustained  by  the  proof.  His  interest  was  this :  Van 
Middlesworth  and  the  plaintiff',  together  with  certain  other  persons, 
had  entered  into  an  association  called  The  New  Brunswick  and 
California  Mining  and  Trading  Company,  the  capital  stock  of  which 
consisted  of  forty-five  shares,  of  six  hundred  dollars  each.  The 
members  were  partly  shareholding  members  and  partly  active 
members ;  the  shareholders  being  required  to  furnish  a  substitute 
to  proceed  to  the  mines  of  the  company.  The  plaintiff  owned  one 
share,  advanced  six  hundred  dollars  of  capital,  and  procured  Van 
Middlesworth  to  go  out  as  his  substitute,  which  he  did  and  acted 
as  his  agent  and  substitute,  and  the  assets  of  the  company  having 
been  divided  in'  California,  before  his  death,  he  received  the  plain- 
tiff's share,  dying  before  he  had  returned  and  paid  over  the  same. 
By  one  of  the  articles  of  the  association,  all  treasures  and  all  the 
proceeds  of  the  labor  of  each  member,  and  all  profits,  were  to  go 
into  the  general  fund  for  the  benefit  of  the  whole. 

On  behalf  of  the  plaintiffs  in  error,  it  was  insisted  that  the  con- 
tract of  insurance  is  simply  a  contract  of  indemnity,  and  that  the 
plaintiff  below  having  failed  to  show  an  interest  in  the  life  of 
Van  Middlesworth,  to  the  extent  of  five  hundred  dollars,  was  not 
entitled  to  recover  that  sum,  and  that  the  judge  erred  in  not  so 
charging.  Our  first  inquiry,  therefore,  must  be  as  to  the  nature 
of  the  contract  itself. 

The  case  of  Godsal  v.  Baldero,  9  East,  72,  is  the  leading  case 
relied  on  to  show  that  a  contract  of  life  insurance  is  simply  a  con- 
tract of  indemnity,  not  only  requiring  an  interest  in  the  assured  in 
order  to  give  validity  to  it  at  its  inception,  but  continuing  good 
only  so  far  as  it  is  rendered  so  by  the  permanence  of  such  an 
interest.  This  case  has  been  since  adhered  to  and  has  often  been 
considered  as  founded  on  the  common  law,  an  impression  to  which 
some  countenance  is  given  by  some  of  the  language  used  by  Lord 
Ellenborough  in  giving  the  opinion  of  the  court.  It  is  evident, 
however,  that  the  decision  was  warranted  not  by  the  common  law, 
but  by  the  statute  of  14  Geo.  3,  c.  48,  which  does  not  purport  to 
bft  a  declaratory  act,  but  enacts  in  express  terms,  that  no  insur- 
ance shall  be  made  on  the  life  of  any  person  wherein  the  person 


62  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

for  whose  use  such  policy  shall  be  made  shall  have  no  interest, 
and  that  in  all  cases  where  the  insured  hath  interest  in  the  life,  no 
greater  sum  shall  be  recovered  or  received  from  the  insurers  than 
the  amount  or  value  of  the  interest  of  the  insured  in  such  life. 
This  statute  not  extending-  to  Ireland,  the  courts  in  that  country- 
have  held  in  several  recent  cases,  that  at  the  common  law,  policies 
of  insurance  are  valid  without  any  interest.  Ferguson  v.  Lomax, 
2  Dru.  &  Walsh,  120,  238;  Brit.  In.  Co.  v.  Magee,  Cook  &  Al. 
182;  Scott  V.  Roose,  Long  &  Town  Ir.  R.  54;  Shannon  v.  Nugent, 
1  Hayes'  Ir.  R.  539,  cited  in  Bunyon  on  Life  Insurance,  p.  11. 

No  such  statute  exists  in  this  state.  Whether  an  action  can 
be  sustained  on  a  policy  without  interest,  which  is  therefore  in 
some  respects  like  a  mere  wager  on  the  life  of  a  third  person,  or 
any  other  wager  relating  to  a  transaction  in  itself  legal,  does  not 
appear  to  have  been  decided  by  our  courts.  The  case  of  Mul- 
ford  V.  Bowen,  9  N.  J.  Law,  315,  was  an  action  upon  a  wager  about 
the  weight  of  a  hog,  in  which  the  judgment  was  reversed  upon 
the  ground  of  variance,  no  notice  having  been  taken  by  the  court 
of  the  general  question,  although  it  was  directly  involved,  and 
was  argued  by  the  counsel.  In  the  case  of  Hutchinson  v.  Targee, 
14  N.  J.  Law,  386,  a  wager  policy  depending  upon  the  result  of 
a  lottery,  was  held  void,  upon  the  special  ground  that  it  contra- 
vened the  policy  of  the  act  for  suppressing  lotteries.  Wagers  on 
indififerent  questions  are  held  good  grounds  of  action  in  England; 
and  it  was  there  held  that  at  common  law  wagering  policies  of 
insurance  were  valid.  Crauford  v.  Hunter,  8  Term  R.  13.  In  New 
York,  actions  on  wager  policies  and  other  wagers,  were  sustained, 
until  a  statute  was  passed  declaring  them  illegal.  Buchanan  v. 
Ocean  Ins.  Co.,  6  Cow.  318.  In  several  other  stdtes,  where  stat- 
utes existed  prohibiting  gaming  in  such  terms  as  were  held  to 
include  all  wagers,  wager  policies  have  been  declared  illegal. 
Amory  v.  Oilman,  2  Mass.  1 ;  Babcock  v.  Thompson,  3  Pick. 
(Mass.)  446,  15  Am.  Dec.  235;  Adams  v.  Penn  In.  Co.,  1  Rawle 
(Pa.)  107;  Lloyd  v.  Leisenring,  7  Watts  (Pa.)  294;  Collamer  v. 
Day,  2  Vt.  144.  The  American  text-  writers  strongly  favor  the 
doctrine  that  wager  policies  should  in  all  cases  be  held  bad,  upon 
general  principles  of  policy  and  morality.  3  Kent  277;  Duer. 
Ins.  92 ;  Angell  on  Life  and  Fire  Ins.  §  14,  Intr.  I  confess,  how- 
ever, that  whatever  might  be  my  opinion  as  to  the  expediency  of 
a  statute  like  that  in  England,  before  quoted,  I  must  agree  with 
the  Irish  courts  in  holding  that  such  is  not  the  law.  Our  act  to 
prevent  gaming  (Rev.  St.  p.  572)  does  not,  in  terms  or  by  impli- 
cation, prohibit  all  wagers,  but  only  particular  kinds  of  gaming. 
Until  the  legislature  shall  think  proper  to  interfere,  the  courts 
can  only  adhere  to  the  common  law  as  they  find  it  established. 
To  do  otherwise,  would  be  an  act  of  legislation,  and  not  of  judi- 
cial construction. 


Sec.  1)       NECESSITY    FOR    EXISTENCE    OF    INSURABLE  INTEREST 


63 


It  was  insisted  by  counsel,  and  with  much  apparent  force,  that 
wagers  on  the  life  of  a  third  person  are  in  their  very  nature 
dangerous,  and  contrary  to  the  policy  of  the  law,  and  to  sound 
morality.  But  the  danger,  if  any  exists,  would  apply  with  great, 
although  not  with  equal  force,  to  policies  where  there  is  an  inter- 
est, as  well  as  to  those  where  there  is  none.  All  life  insurances 
have  been  prohibited  in  some  countries.  The  objection  made  to 
the  wager  in  the  case  of  Gilbert  v.  Sykes,  16  East,  150,  was  not 
merely  that  a  wager  on  the  life  of  another  would  endanger  his 
assassination,  the  fear  of  the  law  being  deemed  sufficient  to  coun- 
tervail that,  but  that  the  bet  was  on  the  hfe  of  Napoleon,  a  foreign 
sovereign,  and  grew  out  of  a  conversation  upon  the  probability 
of  his  being  assassinated,  so  that  to  entertain  an  action  on  it  was 
considered  to  contravene  public  policy.  As  was  well  remarked 
in  the  argument  of  that  case,  such  an  objection  would  apply  with 
equal  force  to  cases  for  the  life  of  a  third  person,  which  have  never 
been  held  illegal.  The  cases  of  Earl  of  Chesterfield  v.  Jansen,  1 
Atk.  346,  2  Ves.  25,  and  of  March  v.  Pigot,  3  Burr.  2803,  are  direct 
authorities  in  favor  of  the  legality  of  such  wagers.  And  the  same 
principle  is  sanctioned  by  the  cases  which  uphold  post  obit  secu- 
rities, where  in  consideration  of  an  immediate  advance  of  money, 
bonds  are  given,  or  contingent  or  reversionary  property  charged, 
for  the  payment  of  a  much  larger  amount,  upon  the  death  of  a 
particular  person.  Curling  v.  Marquis  Townsend,  19  Ves.  628; 
Free  v.  Hinde,  2  Sim.  7. 

Modern  experience  has  proved  the  value  of  insurances  upon  the 
insurer's  own  life,  or  upon  the  life  of  another,  upon  whom  the 
insurer  may  be  dependent,  or  in  whose  life  he  has  a  real  or  sup- 
posed interest.  And  it  is  worthy  of  notice,  that  even  in  England 
since  the  statute,  so  great  is  considered  the  injustice  of  requiring 
the  continued  subsistence  of  an  insurable  interest,  that  in  practice 
it  is  disregarded,  and  the  offices  find  it  to  their  interest,  and  are 
in  the  common  practice  of  paying,  without  any  inquiry  as  to  the 
interest.  Bunyon,  23;  Barber  v.  Morris,  1  Moo.  &  R.  66.  An 
insurance  upon  life  has,  in  fact,  but  a  remote  resemblance  to  a 
marine  or  fire  insurance.  In  the  latter,  the  particular  object  is  to 
indemnify  against  a  pecuniary  loss ;  and  the  event  upon  which 
the  money  is  made  payable,  is  the  happening  of  the  loss,  the  con- 
tract being  in  terms  to  pay  whatever  is  lost,  not  exceeding  a  speci- 
fied sum.  But  a  life  insurance  is  a  contract  to  pay  a  certain  spe- 
cific sum  on  the  happening  of  a  particular  event,  which  may  or 
may  not  occasion  a  pecuniary  loss.  Where  that  event  is  the  death 
of  the  insured  himself,  there  is  nothing  like  an  indemnity  against 
loss  to  him,  for  he  can  never  receive  the  money.  In  such  a  case, 
the  object  is  to  provide  for  some  relative  or  friend,  or  creditor, 
and  this  person  who  is  to  be  benefited  by  his  death  has,  in  many 


64  SUBJECT-MATTER    OP    THE   CONTRACT  (Ch.  2 

cases,  the  same  motive  to  desire  it,  as  in  the  case  where  the  pre- 
mium is  paid  and  the  insurance  obtained  by  a  third  person.  Upon 
a  view  of  the  whole  matter,  I  think  it  admits  of  great  doubt 
whether  the  English  statute,  by  throwing  impediments  in  the 
way  of  life  insurances,  and  by  raising  questions  often  of  difficult 
solution  as  to  the  nature  and  amount  of  the  required  interest, 
can  be  regarded  as  wise  and  salutary.  At  all  events,  in  the  absence 
of  any  such  legislation  here,  I  see  no  solid  ground  upon  which  we 
can  safely  depart  from  the  doctrines  of  the  common  law,  and  upon 
reasons  of  doubtful  expediency,  hold  a  policy  of  life  insurance  to 
be  something  different  from  what  it  purports  to  be — that  is  to  say, 
a  contract  to  indemnify  against  loss,  and  not  a  contract  to  pay 
a  given  sum,  upon  the  happening  of  a  particular  event. 

But  if  it  be  admitted  that  an  interest  in  the  life  of  Van  Middles- 
worth  on  the  part  of  Johnson,  was  necessary  to  be  shown,  I  think 
it  satisfactorily  appeared  that  he  had  such  interest.  It  is  clear 
that  the  policy  was  entered  into  not  as  a  cover  for  a  wager,  but 
for  the  bona  fide  purpose  of  securing  Johnson  against  what  he 
and  the  company  regarded  as  a  danger  of  real  pecuniary  loss. 
The  interest  required  need  not  be  such  as  to  constitute  the  basis 
of  any  direct  claim  in  favor  of  the  jplaintiff  upon  the  party  whose 
life  is  insured;  it  is  sufficient  if  an  indirect  advantage  may  result 
to  the  plaintiff  from  his  life,  and  therefore  the  reciprocal  inter- 
ests of  husband  and  wife,  parent  and  child,  and  brother  and  sis- 
ter, in  the  lives  of  each  other,  are  sufficient  to  support  the  con- 
tract. 2  Greenl.  Ev.  §  409;  Lord  v.  Dall,  12  Mass.  115,  7  Am. 
Dec.  38.  In  a  case  before  the  circuit  court  of  Albany,  three  per- 
sons, v.,  M.  and  S.,  entered  into  a  co-partnership  to  carry  on  the 
liquor  business.  S.  undertook  the  business,  and  against  the  capital 
of  V.  and  M.  was  to  put  in  his  skill.  S.  insured  his  life  for  ten 
thousand  dollars,  and  by  the  articles  of  co-partnership,  in  case  of 
his  death  without  children,  or  unmarried,  his  partners,  V.  and  M., 
were  to  receive  this  sum  secured  by  the  policy.  S.  shortly  after- 
wards died  unmarried,  M.  assigned  his  interest  to  A.,  and  A.  and 
V.  sued  to  recover  the  insurance.  The  court  held  that  V.  and  M. 
had  an  insurable  interest,  and  were  entitled  to  recover.  Valton  et 
al.  V.  National  L.  F.  Life  Ass'n  So.,^"  Angell  on  L.  and  F.  Ins.  p. 
326,  n.  In  the  present  case,  Johnson  had  a  direct  interest  in  the 
life  of  his  substitute,  whose  earnings  were  to  constitute  a  part  of 
the  joint  funds,  of  which  he  was  entitled  to  his  share,  an  interest 
fully  equivalent  to  the  interest  of  a  wife  in  the  life  of  her  husband, 
of  a  child  in-  that  of  a  parent,  or  a  sister  in  that  of  a  brother.  And 
at  Van  Middlesworth's  death,  although  prior  to  that  time  the  com- 

20  For  the  subsequent  history  of  this  interesting  case,  see  Valton  v.  Na- 
tional Fund  Life  Assur.  Co.,  20  N.  Y.  32  (1859) ;  s.  c.  (subsequent  appeal),  *40 
N.  Y.  21  (1864). 


Sec.  2)        INSURABLE  INTEREST — MARINE  INSURANCE  65 

pany  had  been  virtually  dissolved,  he  had  an  interest  in  him  as 
his  creditor,  to  the  extent  of  his  share  of  the  assets  in  his  hands. 

I  am,  therefore,  of  opinion  that  there  was  no  error  in  the  ruling 
excepted  to,  and  that  the  judgment  must  be  affirmed. ^^ 

The  CiiiUi^  JusTicii  concurred. 


SECTION  2.— WHAT   CONSTITUTES    INSURABLE    INTER- 
EST—MARINE  INSURANCE 


LE  CRAS  V.  HUGHES. 

(King's  Bench,  1782.     Tark,  Ins.  [2d  Am.  Ed.]  269,  s.  c.  3  Doug.  81.) 

An  action  upon  a  policy  of  insurance  on  the  ship  St.  Domingo, 
at  and  from  Omoa  to  London ;  upon  which  a  case  was  reserved  for 
the  opinion  of  the  court.  The  facts  of  the  case  were  these :  Captain 
Luttrell,  commanding  five  of  his  majesty's  ships,  and  Captain  Dal- 
rymple,  commanding  a  party  of  the  land  forces,  captured  two  Spanish 
register  ships,  lying  under  the  protection  of  Fort  Omoa;  that  the 
ship  St.  Domingo  (on  which  the  insurance  was  made)  was  one  of  the 
prizes,  and  was  coming  home  laden  with  the  property  then  captured, 
upon  which  ship  the  defendant  underwrote  500  pounds ;  and  that  the 
ship  was  lost  by  perils  of  the  sea.  The  question  was  whether,  by 
virtue  of  the  prize  act  of  the  19  Geo.  Ill,  c.  67,  the  officers  and  crews 
of  the  ships  under  Captain  Luttrell  had  such  an  insurable  interest  in 
the  St.  Domingo  as  to  entitle  them  to  recover? 

21  It  is  to  be  regretted  tliat  tliis  important  question  has  never  come  be- 
fore the  Court  of  Errors  and  Appeals  of  New  Jersey.  See  Mevers  v.  Schu- 
mann, 54  N.  J.  Eq.  414,  417,  34  Atl.  1066  (1896).  Tliat  the  doctrine  denying 
the  necessity  for  the  existence  of  an  insurable  interest  as  a  basis  for  valid 
insurance  is  becoming  firmly  established  in  New  Jersey  is  apparent  from 
the  following  extracts  from  the  opinion  of  the  Supreme  Court  in  Thomas  v. 
Nationaf  Benefit  Ass'n,  81  N.  J.  Law,  349,  79  Atl.  1042  (1911):  "The  first 
cause  for  reversal  is  that  the  plaintiff  had  no  insurable  interest  in  the  life 
of  the  insured,  and  therefore  should  have  been  nonsuited.  This  contention 
cannot  prevail.  Trenton  Mutual  Ins.  Co.  v.  Johnson,  24  N.  .1.  Law,  576 
[1854];  Vivar  v.  Knights  of  Pythias,  52  N.  J.  Law,  455,  20  Atl.  .36  [1890]; 
Sun  Ins.  Office  of  London  v.  Merz,  63  N.  J.  Law,  365,  43  Atl.  693  [1899]. 
Moreover,  the  contract,  in  which  the  beneficiary  is  described  as  "guardian," 
prescribed  that  "the  beneficiary  must  have  something  more  than  a  pecuniary 
interest  in  the  insured,  as  speculative  policies  are  not  issued  by  this  associa- 
tion"— a  vague  provision,  and  subject  to  interpretation  by  the  court.  But 
the  writing  and  delivery  of  the  policy,  and  the  acceptance  by  the  defendant 
of  premiums,  amounts  to  a  practical  interpretation  of  the  policy  by  the  par- 
ties, and  it  would  be  a  fraud  to  permit  the  defendant  thus  to  contract  and 
receive  the  premiums,  with  full  knowledge  that  the  policy  was  void."  On  ap- 
peal the  Court  of  Errors  and  Appeals  affirmed  the  judgment  of  the  Supreme 
Court  on  the  ground  tha-'  in  fact  an  insurable  interest  existed.  84  N.  J.  Law, 
281,  86  Atl.  375,  46  L.  R.  k.  (N.  S.)  779  (1913). 
Vance  Ins.— 5 


66  SUBJECT-MATTKU    OF    THE   CONTRACT  (Ch,  2 

Lord  MansfuvTvD.  There  are  two  questions  in  this  cause:  1st. 
Whether  the  sea  officers  had  an  insurable  interest?  This  will  de- 
pend on  the  prize  act  and  proclamation.  2dly.  Whether  possession 
would  entitle  them  to  insure,  upon  the  bare  continj^ency  of  a  future 
grant  from  the  crown?  As  to  the  first,  consider  the  act  of  parlia- 
ment, which  gives  to  all  the  people  on  board,  that  is,  to  the  flag  offi- 
cers, commanders,  and  other  officers,  to  the  seamen,  marines  and 
soldiers  on  board  every  ship  and  vessel  of  war,  the  sole  interest  and 
property  of  and  in  all  and  every  ship  and  vessel,  goods  and  mer- 
chandises, which  they  shall  take  during  the  war,  after  condemnation. 
Does  the  act  say,  that  the  seamen  only  shall  take?  Does  it  leave  a 
joint  capture  by  the  army  and  navy  undefined  ?  Certainly  not.  Sup- 
pose, for  instance,  a  case  which  I  remember  to  have  happened :  ,  A 
Dutch  and  English  fleet  combined  captured  some  ships ;  the  English 
sailors  could  not  take  solely ;  nor  could  the  act  mean  that  they  should 
have  nothing.  In  the  case  in  question,  suppose  Captain  Dalrymple 
had  given  no  assistance,  is  there  any  doubt  that  Captain  Luttrell 
would  have  taken  the  whole?  The  only  difiference  is,  that  now  he 
has  not  the  merit  of  a  sole  capture.  The  word  "soldiers,"  in  the 
proclamation,  means  soldiers  on  board  the  ship.  Thus  it  stands  on 
the  act  and  proclamation.  But  supposing  that  doubtful,  as  far  back 
as  Queen  Anne's  time  down  to  the  present,  wherever  a  capture  has 
been  made  by  a  king's  ship  or  a  privateer,  the  crown  has  always  given 
a  grant  of  it  after  condemnation.  There  is  no  instance  to  the  con- 
trary. Have  not,  then,  the  insured  such  an  interest  in  the  ship  com- 
ing home,  as  to  entitle  them  to  an  indemnity?  Suppose  a  man  is 
made  agent  of  prizes ;  he  has  not  the  possession  of  the  property,  and 
yet  he  has  such  an  interest  in  any  ship  coming  home,  that  he  may  in- 
sure. Here  the  insured  have  the  possession,  and  a  certain  expecta- 
tion of  receiving  the  property  captured  for  their  own  emolument  from 
the  crown. 

Judgment  for  the  plaintifT.^^ 

22  In  Boelim  v.  Bell,  8  T.  R.  154  (1799),  an  action  was  bronsht  to  recover 
premiums  paid  for  insurance  of  a  certain  American  vessel  capturefl  wrong- 
fully, and  subsequently  restored  to  her  owners  by  decree  of  the  prize  court. 
The  opinion  of  Lawrence,  J.,  was  as  follows:  "The  case  turns  on  this  short 
question,  whether  or  not  the  assured  had  an  interest  which  they  might  in- 
sure? Did  they  mean  to  game?  or  was  not  there  a  loss  against  which  they 
might  indemnify  themselves,  by  a  policy  of  insurance?  I  do  not  mean  a  cer- 
tain, but  a  possible,  loss.  Now  it  has  been  shewn  that  this  was  a  case  in 
which  the  Court  of  Admiralty  might  have  decreed  them  to  pay  damages  and 
costs;  and  that  is  sufficient.  It  might  be  asked,  in  the  language  of  Lord 
Mansfield  in  Le  Cras  v.  Hughes,  'Had  not  the  insured  such  an  interest  in  the 
ship  coming  home,  as  to  entitle  them  to  an  indemnity?'  I  think  that  they 
had ;    and  therefore  that  the  plaintiffs  are  not  entitled  to  a  return  of  pre- 


Sec.  2)        INSURABLE  INTEREST MARINE  INSURANCE  6*7 

BARCLAY   V.    COUSINS. 
(Court  of  King's  Beuch,  1802.    2  East,  544.) 

This  was  an  action  on  a  policy  of  insurance,  dated  the  27th  August 
1799,  and  effected  by  the  plaintiff  as  agent  for  and  on  account  of  one 
Richard  Wells  on  the  ship  Jonah,  at  and  from  Barbadoes  to  the  coast 
of  Africa,  during  her  stay  and  trade  there,  and  at  and  from  thence 
back  to  her  port  or  ports  of  discharge  in  the  West  Indies,  at  a  pre- 
mium of  25  guineas  per  cent,  with  various  returns  for  convoy.  The 
policy  was  declared  to  be  on  profits  valued  at  £2000.,  and  was  under- 
written by  the  defendant.  The  declaration  contained  averments  that 
the  ship  sailed  upon  the  voyage  insured  with  a  cargo  of  goods  and 
merchandizes  on  board;  and  that  the  said  Richard  Wells  was  inter- 
ested in  the  profits  to  arise  and  be  made  from  the  sale  and  disposal  of 
the  said  cargo  of  goods  and  merchandizes  to  the  amount  insured ; 
and  stated  a  total  loss  by  capture.  The  defendant  pleaded  the  gen- 
eral issue,  and  paid  the  premium  into  Court.  At  the  trial  before 
Lord  Kenyon  at  the  sittings  at  Guildhall  after  last  Trinity  term,  a 
verdict  was  found  for  the  plaintiff  for  i221.  5s.  subject  to  the  opinion 
of  this  Court  on  the  following  case. 

In  February  1799,  Richard  Wells  shipped  a  cargo  of  goods  on  his 
own  account  on  board  his  own  ship  the  Jonah  at  Barbadoes,  to  be 
carried  on  a  trading  voyage  to  the  coast  of  Africa.  The  invoice  value 
of  the  ship  and  cargo  was  about  £5880.  In  April  1799,  the  plaintiff 
received  an  order  from  Mr.  Wells  to  insure  £6000.  on  this  ship  and 
cargo  ;  in  consequence  whereof  he  effected  an  insurance  to  the  amount 
of  £8470.  to  cover  the  sum  of  £6000.  ordered  and  the  premiums  of  in- 
surance thereon ;  which  insurance  was  declared  to  be  on  the  ship  and 
cargo  at  and  from  Barbadoes  to  the  coast  of  Africa,  during  her  stay 
and  trade  there,  and  at  and  from  thence  back  to  her  port  or  ports  of 
discharge  in  the  West  Indies.  On  the  13th  of  August  following,  the 
plaintiff  received  a  letter  from  Mr.  Wells  directing  the  insurance  in 
question,  which  was  thereupon  accordingly  effected.  The  said  ship 
sailed  from  Barbadoes  on  the  29th  of  March  1799,  upon  the  voyage 
insured,  and  arrived  at  Cape  Mount  her  port  of  discharge  in  Africa 
on  the  21st  of  July  following;  and  thereupon  the  agents  of  the  as- 
sured began  to  unload  and  sell  her  cargo,  and  with  part  of  the  prod- 
uce thereof  purchased  30  slaves ;  and  on  the  28th  of  August  fol- 
lowing, she  was  captured  by  three  French  frigates,  but  was  afterwards 
given  up  to  one  George  Hewitt  for  the  purpose  of  conveying  English 
prisoners  to  a  British  port,  and  arrived  at  Sierra  Leone  on  the  6th 
of  September,  together  with  the  said  thirty  slaves,  and  the  remainder 
of  her  cargo,  and  a  number  of  English  prisoners ;  but  was  soon  after 
deserted  by  the  said  George  Hewitt  and  part  of  her  crew ;  and  her 
original  captain  refusing  to  take  the  charge  of  her,  Captain  Gray, 
the  then  acting  governor  of  that  settlement,  gave  the  command  there- 


68  SUBJECT-MATTER    OF    THE  CONTRACT  (Ch.  2 

of  to  one  Walter  Stott,  who  accordingly  took  possession  thereof. 
That  by  the  direction  of  the  said  Walter  Stott  the  30  slaves  were  un- 
shipped, and  sent  to  Bance  Island,  where  they  were  afterwards  sold, 
and  the  remainder  of  the  cargo  was  landed  and  sold  at  Sierra  Leone, 
and  produced  the  sum  of  £46.  6s.  6d.  That  the  said  brig  afterwards 
departed  for  Barbadoes  with  prisoners  on  board,  where  she  arrived, 
and  where  the  Court  of  Admiralty  adjudged  to  the  said  Walter  Stott 
and  the  then  crew  of  the  said  brig  one  full  eighth  part  of  .the  net  pro- 
ceeds thereof,  and  of  the  cargo  on  board  her  at  the  time  she  was  taken 
possession  of  as  aforesaid.  The  question  for  the  opinion  of  the  Court 
is,  whether  the  plaintiff  is  entitled  to  recover. 

This  case  was  very  fully  argued  first  in  Easter  term  41  Geo.  3,  by 
J.  B.  Warren  for  the  plaintiff,  and  Giles  for  the  defendant;  and  again 
in  last  Easter  term,  by  Park  for  the  plaintiff,  and  Adam  for  the  de- 
fendant ;  but  as  the  principal  arguments  and  authorities  were  noticed 
by  the  Court  in  their  judgment,  which  they  took  time  to  consider  of 
till  this  term,  it  is  unnecessary  to  state  them  in  another  form. 

Lawrence;,  J.  (in  the  absence  of  Grose;,  J.,  who  was  indisposed) 
now  delivered  the  opinions  of  Grose;  and  Ls  Blanc,  JJ.,  and  his 
own. 

The  case  states,  that  the  insured  shipped  on  board  the  ship  Jonah 
a  cargo  of  goods  to  be  carried  on  a  trading  voyage;  so  that  it  ap- 
pears that  he  had  an  interest  in  the  profits  to  arise  from  a  cargo  which 
was  liable  to  be  affected  by  the  perils  insured  against.  And  the  ques- 
tion is,  if  on  an  insurance  made  on  the  profits  to  arise  from  such 
cargo  the  plaintiff  can  recover?  As  insurance  is  a  contract  of  in- 
demnity it  cannot  be  said  to  be  extended  beyond  what  the  design  of 
such  species  of  contract  will  embrace,  if  it  be  applied  to  protect  men 
from  those  losses  and  disadvantages,  which,  but  for  the  perils  insur- 
ed against,  the  assured  would  not  suffer:  and  in  every  maritime  ad- 
venture the  adventurer  is  liable  to  be  deprived  not  only  of  the  thing 
immediately  subjected  to  the  perils  insured  against,  but  also  of  the 
advantages  to  arise  from  the  arrival  of  those  things  at  their  destined 
port.  If  they  do  not  arrive,  his  loss  in  such  case  is  not  merely  that 
of  his  goods  or  other  things  exposed  to  the  perils  of  navigation,  but 
of  the  benefits  which,  were  his  money  employed  in  an  undertaking  not 
subject  to  the  perils,  he  might  obtain  without  more  risk  than  the 
capital  itself  would  be  liable  to :  and  if  when  the  capital  is  subject  to 
the  risks  of  maritime  commerce  it  be  allowable  for  the  merchant  to 
protect  that  by  insuring  it,  why  may  he  not  protect  those  advantages 
he  is  in  danger  of  losing  by  their  being  subjected  to  the  same  risks? 
It  is  surely  not  an  improper  encouragement  of  trade  to  provide  that 
merchants  in  case  of  adverse  fortune  should  not  only  not  lose  the 
principal  adventure,  but  that  that  principal  should  not  in  consequence 
of  such  bad  fortune  be  totally  unproductive :  and  that  men  of  small 
fortunes  should  be  encouraged  to  engage  in  commerce  by  their  hav- 
ing the  means  of  preserving  their  capitals  entire,  which  would  con- 


Sec.  2)        INSURABLE  INTEREST — MARINE  INSURANCE  69 

tinually  be  lessened  by  the  ordinary  expences  of  living,  if  there  were 
no  means  of  replacing  that  expenditure  in  case  the  returns  of  their 
adventures  should  fail.  Where  a  capital  is  employed  subject  to  such 
risks,  in  case  of  loss  the  party  is  a  sufferer  by  not  having  used  his 
money  in  a  way,  which  might  with  a  moral  certainty  have  made  a 
return  not  only  of  his  principal  but  of  profit:  and  it  is  but  playing 
with  words  to  say,  that  in  such  case  there  is  no  loss  because  there 
is  no  possession,  and  that  it  is  but  a  disapi)C)intment. 

(Foreign  writers  upon  insurance,  whose  doctrines  form  the  great- 
est part  of  our  law  on  this  subject,  certainly  do  not  treat  of  insur- 
ance on  profits  as  a  matter  inconsistent  with  the  true  nature  and  de- 
sign of  such  a  contract ;  and  where  it  is  spoken  of  by  them  as  a  spe- 
cies of  insurance  which  cannot  be  made,  this  latter  doctrine  will  be 
found  to  be  referable  to  the  positive  institutions  of  different  nations, 
who  have  thought  it  wise  to  prohibit  it.  Roccus,  an  Italian  jurist, 
inquiring  how  goods  that  are  lost  are  to  be  valued,  has  in  his  Notabilia 
de  Assecurationibus,  No.  3.  this  passage:  "Dictingue  aut  merces 
fuerunt  sestimatae  pro  certa  quantitate  tempore  contractus  assecura- 
tionis,  et  tunc  non  sumus  in  dubia  quia  dicta  quantitas  sestimata  sol- 
venda  est;  aut  assecuratio  fuit  facta  pro  asportandis  mercibus  salvis 
Romam,  et  tunc  sestimatio  inspicenda  est  Romse.  Aut  assecuratio 
fuit  facta  simpliciter,  de  solvendo  aestimationem  seu  valorem  mercium, 
in  casu  periculi,  si  navis  perierit,  &  tunc  inspici  debet  tempus  obli- 
gationis,  &  prout  tunc  valebant,  debet  fieri  sestimatio,  et  sic  damnum 
quod  assecuratus  patitur  in  amissione  rei,  non  lucrum  faciendum  con- 
sideratur."  And  for  this  he  cites  Santerna,  a  Portuguese  lawyer, 
de  Assecurationibus,  part  the  3d,  num.  40.  and  41.  in  which  book 
there  is  a  long  disquisition  to  shew  that  in  this  latter  case  the  profit 
on  the  goods  is  not  to  be  paid,  but  only  the  value  at  the  time  of  the 
insurance.  So  that  it  seems  the  insurance  of  profits  is  so  far  from 
being  inconsistent  with  the  nature  of  insurance,  that  e  contra  Santerna 
thinks  it  necessary  to  shew  by  argument  that  the  profit  is  not  to  be 
considered  in  all  cases ;  and  that  where  the  assurance  is  made  sim- 
pliciter, then  lucrum  non  spectatur.  And  Stracca,  another  Itahan 
lawyer,  agrees  with  Santerna  in  his  Gloss,  No.  6.  In  France,  such  as- 
surances were  unlawful ;  but  that  depends  according  to  Valin  on  the 
ordinance  of  the  marine,  which  also  forbids  insurance  upon  freight : 
and  the  reason  given  by  Valin  for  making  those  ordinances  with  re- 
spect to  the  one  and  the  other  is  the  same.  So  in  Holland  it  appears 
from  Bynkershoek's  Qu?estiones  Juris  Privati,  book  4.  c.  5.  that  such 
insurances  cannot  be  legally  made  there ;  but  that  is  by  the  positive  laws 
of  that  country ;  notwithstanding  which  the  practice  has  so  generally 
obtained  to  insure  expected  profits,  as  that  in  a  case,  he  there  states, 
the  majority  of  the  Judges  of  the  Court,  where  the  question  arose, 
determined  in  favour  of  the  assured ;  and  those  who  opposed  that 
decision  rested  their  opinions  on  the  positive  laws  of  the  country, 
and  not  on  such  contracts  being  contrary  to  the  nature  of  insurance. 


70  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch,  2 

In  this  country,  there  is  no  law  forl)i(l(lin<j^  such  insurance,  unless 
it  could  be  shewn  that  the  insurer  had  no  interest  in  the  profits,  or 
that  from  its  nature  it  must  be  a  mere  wager,  so  as  to  bring  the  case 
within  the  stat.  19  Geo.  2.  And  that  they  are  not  considered  as  con- 
tracts inconsistent  with  the  general  nature  of  insurance  is  proved  by 
the  instance  put  of  an  insurance  on  freight;  which,  as  was  very  truly 
argued  at  the  bar,  differs  only  from  the  case  now  before  us  in  the 
same  degree  as  a  return  of  capital  vested  in  shipping  differs  from  a 
return  of  capital  vested  in  merchandize ;  and  by  the  cases  of  Grant 
and  Parkinson,  in  Marshall,  111,  and  Park,  267.  which  was  an  insur- 
ance on  the  profits  of  a  cargo  of  molasses ;  and  of  Henrickson  and 
Walker,  and  Henrickson  and  Margetson,  Mich.  1776.-^  The  au- 
thority of  Grant  and  Parkinson  as  applied  to  this  case  has  been  at- 
tempted to  be  gotten  rid  of  by  observing  that  the  thing  insured  there 
was  the  profits  of  a  specific  cargo  ;•  but  in  that  respect  the  two  cases 
do  not  differ :  for  this  is  an  insurance  on  a  specific  cargo ;  and  we 
have  no  ground  to  say,  that  the  profits  of  a  cargo  to  be  exchanged 
in  the  African  trade,  from  which  exchange  the  profits  will  arise,  are 
not,  to  use  the  expression  of  Lord  Mansfield  in  Grant  and  Parkin- 
son, pretty  certain ;  admitting  for  the  sake  of  the  argument,  which  it 
is  not  necessary  for  us  now  to  determine,  that  in  some  mercantile  ad- 
ventures there  may  be  so  much  uncertainty  as  to  the  profits,  as  to  make 
it  not  possible  to  insure  them  without  the  policy  being  a  wagering 
contract.  This,  however,  we  cannot  presume  of  the  returns  to  be 
made  from  an  adventure  undertaken  according  to  a  long  established 
course  of  trade  like  that  in  question,  in  which  numbers  have  been  en- 
gaged to  great  advantage  for  a  continued  succession  of  years. 

It  has  been  objected  to  this  sort  of  insurance,  that  the  subject  hav- 
ing no  physical  existence  cannot  be  insured.  This  objection  would 
hold  against  insuring  freight  and  bottomree  and  respondentia  inter- 
est. Again,  that  the  goods  might  be  going  to  a  losing  market,  in 
which  case  the  assured  would  gain  by  the  loss  of  his  goods :  but  if 
that  were  the  case,  it  would  be  evidence  on  non  assumpsit,  as  it  would 
prove  either  that  the  plaintiff  was  not  damnified  as  to  profit  by  the 
loss  of  the  goods ;  or  that  at  the  time  of  the  loss,  he  had  no  interest 
in  the  thing  insured.  It  was  further  objected,  that  there  can  be  no 
average  nor  abandonment :  but  that  objection  does  not  hold  in  the 
present  case ;  for  if  there  be  only  a  partial  loss,  the  assured  will  only 
be  liable  to  pay  for  the  expected  profits  on  the  goods  lost,  and  there 
may  be  an  abandonment  of  the  profits  by  abandoning  the  goods  from 
whence  the  profits  are  to  arise.  And  as  to  general  average,  there 
would  be  no  difficulty  in  the  case  of  a  valued  policy :  and  in  the  case 
of  an  open  policy  the  difficulty  would  be  no  greater  than  in  ascertain- 
ing the  damages  in  case  of  loss ;    the  impossibility  of  doing  which  in 

23  The  note  of  these  cases,  read  by  Mr.  Justice  Lawrence,  is  omitted. 


Sec.  2)        INSURABLE  INTEREST — MARINE  INSURANCE  71 

every  case  will  not  prove  that  an  insurance  can  be  made  on  profits  in 
no  case. 

A  considerable  time  has  elapsed  between  the  first  and  second 
argument  of  this  case  in  consequence  of  a  writ  of  error  in  the 
Exchequer  Chamber  in  another  case,  the  decision  of  which  might 
have  had  weight  in  favour  of  the  defendant  had  it  been  deter- 
mined otherwise  than  it  has  been.  The  grounds  of  that  decision 
we  are  not  acquainted  with,  so  as  to  say  whether  they  will  sup- 
port this  case;  but  as  that  determination  does  not  militate  with 
the  opinion  Mr.  Justice  GkosE,  Mr.  Justice  Le  Blanc  and  I  have 
formed,  and  I  may  add  that  of  Lord  Kt^nyon  on  hearing  the  first 
argument,  we  do  not  think  it  fit  that  we  should  longer  delay  the  judg- 
ment of  the  Court. 

Postea  to  the  plaintiff. 


LUCENA  V.  CRAUFURD. 

(House  of  Lords,  1805.     2  Bos.  &  P.  N.  R.  269.) 

[The  following  statement  of  facts  and  summary  of  the  history  of 
this  famous  and  much  litigated  case — in  King's  Bench  (1798)  8  T.  R. 
13;  in  Exchequer  Chamber  (1802)  3  Bos.  &  Pull.  75;  in  House  of 
Lords  (1805)  2  Bos.  &  Pull.  N.  R.  269,  (1808)  1  Taunt.  325— is  taken 
from  the  opinion  of  Denio,  C.  J.,  in  Herkimer  v.  Rice  (1863)  21  N.  Y. 
163:] 

"The  action  was  on  a  marine  policy  upon  several  vessels  and  their 
cargoes,  on  a  voyage  from  St.  Plelena  to  a  port  in  Great  Britain. 
The  plaintiffs  were  commissioners  appointed  by  the  crown  pursuant 
to  an  act  of  Parliament  and  to  certain  orders  in  council ;  and  their 
general  duty  was  to  take  into  their  possession  and  under  their  care 
all  ships  and  cargoes  which  should  be  brought  into  the  kingdom 
pursuant  to  the  act  of  Parliament  and  orders  referred  to,  and  to  man- 
age, sell  and  dispose  of  the  same  to  the  best  advantage,  according  to 
such  instructions  as  they  should,  from  time  to  time,  receive  from  the 
crown.  The  case  was,  that  the  French  Republic  had,  in  the  year  1795, 
invaded  Holland,  then  on  terms  of  friendship  with  Great  Britain, 
with  a  view  to  revolutionize  the  government  and  make  it  a  party,  in 
the  French  interest,  to  the  war  which  France  was  then  waging  with 
the  principal  European  states.  The  course  of  the  British  govern- 
ment was  to  seize  upon  all  the  Dutch  vessels  which  their  cruisers 
could  find  at  sea,  and  to  bring  them  into  a  British  port,  to  await  such 
disposition  of  them  as  the  course  of  events  in  Holland  and  the  pol- 
icy of  the  British  government  should  require ;  it  being  assumed  that 
the  Dutch  merchants  and  a  part  of  the  population  were  favorable  to 
England  and  its  allies  and  hostile  to  the  French,  but  that  the  govern- 
ment of  that  country  might  be  coerced  to  join  France  in  the  w^ar. 
The  act  of  Parliament  and  the  orders  in  council  estabUshed  that  pol- 


72  SUBJECT-MATTER    OF   THE   CONTRACT  (Ch.  2 

icy,  and  the  plaintiffs  were  appointed  to  deal  with  the  captured  ves- 
sels upon  their  arrival  at  a  British  port ;  but  it  was  not  contended 
that  tliey  had  any  concern  with  them  until  such  arrival.  The  ships 
insured,  eight  in  number,  were  captured  pursuant  to  this  system,  and 
"the  commissioners,  on  receiving  advices  that  they  had  sailed  from 
St.  Helena  for  England,  effected  the  policy  sued  on;  and,  several  of 
them  being  lost  on  the  voyage  by  the  perils  of  the  sea,  the  action  was 
brought  against  the  underwriters  to  recover  the  amounts  insured. 
The  only  material  question  was,  whether  the  plaintiffs  had  an  insur- 
able interest.  The  King's  Bench  gave  judgment  for  the  plaintiffs, 
holding  that  they  had  such  an  interest  as  trustees  of  the  parties  who 
might  eventually  be  interested,  likening  the  case  to  that  of  trustees, 
consignees  and  agents  for  prizes. 

"On  error  to  the  Exchequer  Chamber,  this  judgment  was  affirmed, 
after  three  arguments,  by  eight  judges  against  Chambre,  J.,  who  dis- 
sented. The  principal  objection  to  the  recovery  related  to  the  doubt- 
ful and  contingent  nature  of  the  interests  represented  by  the  com- 
missioners, who  had  no  concern  with  the  ships  until  they  should  ar- 
rive ;  and  it  was  argued  that  they  might  be  prevented  from  arriving 
in  a  condition  to  be  subject  to  the  control  of  the  commissioners,  by 
various  causes,  independent  of  the  perils  insured  against.  They  might 
be  given  up  by  the  government,  or  they  might  vest  provisionally  in 
the  crown  by  the  occurrence  of  a  state  of  war  between  England  and 
the  States  of  Holland,  in  either  of  which  cases  the  agency  of  the  com- 
missioners, it  was  argued,  would  not  attach.  In  the  opinion,  con- 
curred in  by  a  majority  of  the  judges,  the  rule  was  stated  which  they 
said  had  been  laid  down  by  the  counsel  for  the  commissioners,  and 
that  no  exception  had  been  suggested  to  it,  viz. :  'That  where  nothing 
intervenes  between  the  subject  insured  and  the  possession  of  it,  but 
the  perils  insured  against,  the  person  so  situated  may  insure  the  ar- 
rival of  such  subject  of  insurance,  for  he  has  an  interest  to  avert  the 
perils  insured  against.'  The  opinion  of  the  dissenting  judge  went 
upon  the  ground  that  the  commissioners  had  no  power  of  disposition 
for  the  benefit  of  any  one  except  under  the  discretionary  direction  of 
the  Privy  Council,  and  that  it  could  not  be  ascertained  until  such  or- 
ders were  received  who  were  the  beneficiaries  of  the  trust  confided  to 
those  officers.  But  the  learned  judge  admitted  the  rule  as  to  interest 
to  be  sufficiently  broad  tO'  cover  the  rights  of  the  creditors  in  the  pres- 
ent case.  'There  appears  to  me,'  he  said,  'to  have  been  great  propriety 
in  establishing  the  contract  of  insurance,  whenever  the  interest  de- 
clared upon  was,  in  the  common  understanding  of  mankind,  a  real  in- 
terest in,  or  arising  out  of  the  thing  insured,  or  so  connected  tvith  it 
as  to  depend  on  the  safety  of  the  thing  insured  and  the  risk  insured 
against,  without  much  regard  to  technical  distinctions  respecting  prop- 
erty; still,  however,  excluding  mere  speculations  or  expectation,  or 
interest  created  no  otherwise  than  by  gaming.'    • 

"When  the  case  came  before  the  House  of  Lords,  the  twelve  judges 


Sec.  2)        INSURABLE  INTEREST — MARINE  •  INSURANCE  73 

were  called  upon  to  answer  certain  questions,  and  principally  whether 
the  commissioners  had  an  insurable  interest.  Eight  judges,  including 
Sir  James  Mansfield,  chief  justice  of  the  Common  Pleas,  were  of  opin- 
ion with  the  plaintiffs,  and  two,  Chambre  and  Laurence,  thought  the 
interest  too  uncertain  to  be  the  subject  of  an  insurance.  In  the  an- 
swer of  Chambre,  J.,  he  said  there  was  no  other  foundation  for  the 
claim  of  interest  than  a  mere  naked  expectation  of  acquiring  a  trust 
or  charge  respecting  the  property,  without  a  scintilla  of  present  right, 
either  absolute  or  contingent,  in  possession,  reversion  or  expectancy, 
in  the  proper  legal  sense  of  the  word ;  that  if  they  could  insure  these 
vessels,  they  could  insure  any  ships  belonging  to  the  provinces  of  Hol- 
land which  were  out  at  sea.  He  contended  that  the  destination  of 
the  insured  vessels  for  a  British  port  might  be  changed  at  any  time 
at  the  pleasure  of  the  king ;  that  he  might  give  them  up  to  the  Dutch 
owners,  and  that  the  property  might  be  changed  by  the  commence- 
ment of  hostilities  with  the  Dutch  government.  Hence,  he  thought 
the  supposed  interest  altogether  too  vague  and  uncertain.  In  the  an- 
swer of  Laurence,  J.,  who  dissented  from  the  majority  on  nearly  the 
same  grounds,  he  undertook  to  state  the  nature  of  a  contract  of  in- 
surance, which,  he  said,  was  to  protect  men  against  uncertain  events 
which  might  be  in  any  wise  of  disadvantage  to  them,  'not  only  these 
persons  to  whom  positive  loss  may  arise  by  such  events  occasioning 
the  deprivation  of  that  zvhich  they  may  possess,  but  those  also  who, 
in  consequence  of  such  events,  may  have  intercepted  from  them  the 
advantage  of  profit,  which,  but  for  such  events,  they  would  .acquire 
according  to  the  ordinary  and  probable  course  of  things.'  On  these 
grounds  he  thought  a  contract  of  insurance  might  extend  to  protect 
every  kind  of  interest  that  might  subsist  in,  or  be  dependent  upon, 
things  exposed  to  the  dangers  to  which  maritime  ventures  were  sub- 
jected."    *     *     * 

Lord  Eldon.2*  *  *  *  'phg  effect  of  the  averment  of  interest 
in  this  count,  as  it  seems  to  me,  is,  that  the  commissioners  had  a 
right  and  an  interest,  as  such  commissioners,  to  make  an  insurance 
for  their  use,  benefit  and  account,  as  such  commissioners,  at  the  time 
when  the  ships  were  at  St.  Helena,  when  they  sailed  from  thence, 
and  till  the  time  of  the  losses.  And  the  averment  is  not  only  pred- 
icated of  all  the  ships,  but  of  each  of  them  at  each  of  the  times 
mentioned  in  this  part  of  the  declaration.  It  is  averred  that  the 
ships  sailed  from  St.  Helena  upon  the  2d  of  July  1795  for  London; 
that  the  Houghly,  with  part  of  her  cargo,  w^as  lost  by  perils  of  the 
sea  on  the  1st  of  September  1795 ;  and  the  Surcheance  and  her 
cargo  on  the  5th  of  September;  that  the  Dordrecht  was  disabled 
on  the  13th,  but  was  carried  into  Ireland  and  sold  there,  and  her 
cargo  brought  to  London ;  and  that  the  Zeelelye  was  lost  on 
the  29th  of  September,  which  was  after  the  declaration  of  hostili- 

2  4  Only  the  opinion  of  Lord  Eldon  is  given,  and  tliat  only  in  part  The 
omitted  portion  refers  to  the  state  of  the  pleadings. 


74  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

ties  between  this  country  and  the  United  Pro\'inces,  which  tocjk 
place  on  the  15th  of  September,  and  which  stamped  the  character 
of  enemies'  property  upon  the  Zeclelye  from  the  date  of  that  dec- 
laration. As  I  understand  the  case,  the  verdict  has  been  taken 
for  damages,  computed  upon  the  principle  that  the  commissioners 
had  a  right  to  recover  in  respect  of  all  these  ships  and  their  car- 
goes, and  not  merely  upon  some  of  them.  If,  therefore,  it  should 
turn  out  that  they  have  only  a  right  to  recover  upon  some,  and 
that  it  should  appear  upon  the  record  that  they  have  recovered 
upon  all,  there  will  be  a  miscarriage  in  the  course  of  justice.  [His 
lordship  then  stated  the  bill  of  exceptions.] 

The  questions  now  are :  First.  Whether  upon  the  matters  dis- 
closed on  the  first  count  the  commissioners  had  an  insurable  in- 
terest in  any  of  the  ships  and  cargoes  upon  which  they  have  re- 
covered? Secondly.  If  they  had  an  insurable  interest  in  any, 
whether  there  are  not  some  on  which  they  had  no  such  right? 
Whether  your  lordships  shall  come  to  the  conclusion  that  they  have 
no  right  to  recover  upon  any  of  these  ships  and  cargoes,  or  to  a 
more  limited  conclusion,  and  take  such  steps  as  may  be  in  your 
power  to  collect  the  true  result  of  the  proceedings  which  have 
been  had,  it  seems  to  me  due  to  the  importance  of  the  subject 
to  enter  into  some  of  the  topics  which  have  been  discussed  at  the 
bar;  and  to  determine  the  real  character  of  the  Plaintiffs  which 
led  to  the  existence  of  their  commission.  The  orders  of  Council, 
referred  to  in  the  bill  of  exceptions,  applied  to  a  state  of  this 
country  with  relation  to  the  United  Provinces  and  their  inhabitants, 
which  I  may  represent  as  perfectly  unparalleled.  The  United 
Provinces  had  been  reduced  under  the  yoke  of  France,  then  at 
open  war  with  this  country;  whether  finally  reduced  or  not  was 
the  question.  The  former  Government  and  a  great  part  of  its 
subjects  were  adverse  to  France  and  attached  to  this  country; 
many  of  the  inhabitants  had  proposed  to  resort  to  this  country 
for  protection  and  some  had  come  here  with  their  property.  It 
was  thought  a  humane  policy  not  only  to  protect  the  individuals, 
but  to  bring  into  the  ports  of  this  country  Dutch  property  bound 
to  Holland,  for  the  benefit  of  those  who  might  ultimately  turn  out 
to  be  entitled.  On  the  other  hand,  in  case  a  war  should  take  place 
the  property  of  the  United  Provinces  and  of  its  inhabitants  would 
become  the  property  of  the  crown,  and  subject  to  be  disposed  of 
by  his  majesty.  Yet  even  in  that  event  it  appears  to  me  to  have 
been  taken  for  granted  that  many  Dutchmen  might  acquire  a 
friendly  character,  and  be  entitled  to  be  considered  as  owners  of  the 
property  taken,  and  to  whom  therefore  it  would  have  become  liable 
to  have  been  restored.  It  was  impossible,  however,  to  make  a 
provision  of  this  sort  in  the  exercise  of  his  majesty's  prerogative, 
since  such  ships  and  cargoes  could  not  enter  British  ports  consist- 
ently with  law.    The  power  of  the  Legislature  therefore  was  called 


Sec.  2)  INSURABLE    INTEREST MARINE    INSURANCE  75 

in ;  but  it  may  be  observed,  that  so  far  as  related  to  detaining 
Dutch  ships  and  cargoes  at  sea,  by  the  force  of  the  state  the 
prerogative  of  the  crown  was  fully  sufficient,  and  the  act  appears 
to  have  been  studiously  framed  to  avoid  any  interference  with  that 
prerogative.  Accordingly,  the  power  of  the  commissioners  is  ex- 
pressly limited  to  ships  and  goods  that  have  actually  come,  or  been 
brought  into  the  ports  of  Great  Britain. 

All  the  directions  relative  to  bringing  these  ships  into  port 
were  given  in  the  legitimate  exercise  of  the  king's  prerogative  for 
the  protection  of  the  state  and  its  allies;  and  it  appears  to  me,  as 
it  has  done  to  the  learned  Judges  unanimously,  that  there  is  noth- 
ing in  this  act  of  parliament  which  touches  the  prerogative  while 
the  ships  and  cargoes  were  at  sea,  or  even  in  the  ports  of  Ireland ; 
and  that  it  was  competent  to  the  crown  from  the  moment  they 
were  taken  possession  of  to  restore  them  to  the  Dutch  owners 
or  the  Dutch  government,  or  to  deal  with  them  in  any  manner 
which  should  be  thought  fit;  for  the  power  of  the  commissioners 
never  attached  till  they  actually  came  into  a  British  port.  If 
this  be  the  law,  it  is  a  direct  negative  of  that  which  the  averment 
seems  in  a  general  sense  to  import,  and  those  averments  can  only 
be  true  in  this  sense,  that  the  commissioners  had  a  power  to  dis- 
pose of  the  ships  and  cargoes  if  they  happened  to  come  into  port, 
and  his  majesty's  orders  did  not  intervene  to  prevent  their  being 
brought  in,  or  hostilities  did  not  intervene  to  prevent  their  being 
brought  in,  or  to  change  the  characters  of  the  owners.  For  it  ap- 
pears to  me,  that  even  though  the  ships  and  cargoes  were  taken 
possession  of  by  the  commissioners,  the  act  was  not  intended  to 
operate  upon  them  if  hostilities  should  take  place.  With  respect 
to  those  brought  in  after  hostilities  they  would  be  ships  in  the 
hands  of  the  king's  officers,  to  be  condemned  as  seized  by  the 
force  of  the  state,  and  distributed  according  to  his  majesty's 
bounty.  It  could  not  be  the  intention  of  the  act  to  affect  the 
rights  of  the  crown.  It  has  indeed  been  stated  by  one  of  the 
learned  Judges,  that  these  commissioners  might  have  sold  the 
ships.  With  great  deference  to  the  authority  of  that  learhed  Judge 
I  must  state  to  your  lordships  my  humble  but  confident  opinion, 
that  they  could  not  have  sold  them;  and  I  go  much  further;  the 
commissioners  could  not  have  made  a  good  title,  even  if  they  had 
been  brought  into  an  English  port.  Among  the  subjects  of  this 
country  indeed  who  are  bound  by  an  English  act  of  parliament 
they  might  have  made  a  good  title.  But  if  a  ship  be  taken  by  hos- 
tile force,  the  title  to  that  ship  as  against  foreigners  cannot  be 
changed  by  any  act  of  local  legislature,  but  the  ship  must  be 
condemned  in  a  court  proceeding  according  to  the  law  of  nations 
on  rules  binding  not  only  on  the  subjects  of  the  country  where 
the  court  is  held,  but  on  foreigners  who  are  not  so.  So  far  therefore 
from    these   commissioners   having   a  power  to    sell    the   ships    in 


76  SUBJECT-MATTER    OF    THE  CONTRACT  (Ch.  2 

transitu,  they  could  never  make  a  good  title  against  the  Dutchman 
at  sea,  unless  the  person  having  possession  could  show  the  con- 
demnation  of   a   prize   court. 

These  principles  are  strongly  illustrated  by  the  evidence.  The 
moment  hostilities  took  place  the  property  was  condemned  as 
prize.  The  power  of  the  commissioners  could  never  have  attached 
upon  it  in  the  hands  of  the  king,  nor  could  they  have  any  authority 
to  deal  with  it,  unless  the  king  had  thought  proper  to  grant  it  to 
them.  With  respect  to  the  ships  in  the  ports  of  Ireland,  he  ex- 
pressly constitutes  them  prize  agents ;  and  with  respect  to  those 
brought  into  this  country  and  condemned,  he  authorizes  them  to 
deal  with  the  proceeds  in  the  manner  they  had  been  instructed 
to  deal  as  commissioners,  and  according  to  such  instructions  as 
they  should  thereafter  receive.  But  I  state  it  with  great  confidence, 
though  I  hope  with  proper  humility,  as  my  clear  opinion,  that  after 
the  declaration  of  hostilities  the  commissioners  neither  did  deal, 
nor  had  a  right  to  deal  with  the  property  as  commissioners.  His 
majesty  having  a  title  to  it  makes  them  his  agents,  and  points  out 
to  them  in  what  manner  they  shall  exercise  that  agency;  directing 
that  it  should  be  in  the  same  manner  as  if  they  had  derived  their 
title  under  the  commission,  and  not  under  their  special  appoint- 
ment as  prize  agents.  This  is  not  a  case  in  which  there  is  any 
averment  of  an  interest  in  these  commissioners  beneficial  to  them- 
selves, and  the  question  is.  Whether  the  power,  or  faculty,  or 
right  of  concern  and  management  which  these  commissioners 
might  or  might  not  have  had,  which  they  would  have  had  if  these 
ships  had  come  into  port,  and  which  they  might  have  ceased  to 
have  the  moment  after,  be  the  subject  of  a  legal  insurance?  Since 
the  19  Geo.  2,  it  is  clear  that  the  insured  must  have  an  interest, 
whatever  we  understand  by  that  term.  In  order  to  distinguish 
that  intermediate  thing  between  a  strict  right,  or  a  right  derived 
under  a  contract,  and  a  mere  expectation  or  hope,  which  has  been 
termed  an  insurable  interest,  it  has  been  said  in  many  cases  to  be 
that  which  amounts  to  a  moral  certainty.  I  have  in  vain  endeavor- 
ed however  to  find  a  fit  definition  of  that  which  is  between  a  cer- 
tainty and  an  expectation ;  nor  am  I  able  to  point  out  what  is  an 
interest  unless  it  be  a  right  in  the  property,  or  a  right  derivable  out 
of  some  contract  about  the  property,  which  in  either  case  may  be 
lost  upon  some  contingency  affecting  the  possession  or  enjoyment 
of  the  party.  In  the  19  Geo.  2,  as  well  as  in  every  other  statute  and 
charter  relating  to  insurance,  the  objects  of  insurance  are  plainly 
described  to  be  ships,  cargoes,  wares,  merchandises,  or  effects. 
One  or  two  later  statutes  mention  property;  but  as  to  expectation 
of  profits  and  some  other  species  of  interest  which  have  been  in- 
sured in  later  times,  there  is  nothing  to  show  that  they  were  con- 
sidered as  insurable. 


Sec.  2)        INSURABLE  INTEREST — MARINE  INSURANCE  77 

I  do  not  wish  that  certain  decisions  which  have  taken  place  since 
the  19  Geo.  2  should  be  now  disturbed,  but  considering  the  cau- 
tion with  which  the  Legislature  has  provided  against  gambling 
by  insurances  upon  fanciful  property,  one  should  not  wish  to  see 
the  doctrines  of  those  cases  carried  further,  unless  they  can  be 
shown  to  be  bottomed  in  principles  less  exceptionable  than  they 
would  be  found  to  be  upon  closer  investigation.  Lord  Kenyon,  in 
Craufurd  v.  Hunter,  considered  the  19  Geo.  2  as  a  legislative  dec- 
laration that  an  insurance  might  have  been  effected  before  that 
statute  without  interest.  It  is  with  great  deference  that  I  entertain 
doubts  on  that  subject.  Ld.  Ch.  Baron  Comyns,  in  the  case  of 
Depaba  v.  Ludlow,  Com.  360,  speaking  of  this  statute  says,  that 
it  was  an  act  to  affect  the  form  of  the  policy;  and  Lord  Hardwicke 
has  said  the  same  in  two  cases.  The  Sadlers'  Company  v.  Badcock, 
2  Atk.  554,  and  Pringle  v.  Hartley,  3  Atk.  195.  In  the  latter  of 
which  he  distinctly  says,  that  the  words  "interest  or  no  interest" 
were  meant  only  to  dispense  with  the  proof  of  interest  on  the  trial. 
If  then  a  policy  with  the  words  "interest  or  no  interest"  were  stated 
in  a  declaration,  and  those  words  meant  that  there  should  be  a  dis- 
pensation with  the  proof  of  interest,  there  would  be  something 
like  an  averment  on  the  one  part  and  an  admission  on  the  other 
that  there  was  an  interest.  I  cannot  conceive  how  such  decrees 
could  have  been  made  in  courts  of  equity  as  were  made  there  pre- 
vious to  the  19  Geo.  2,  if  an  insurance  could  have  been  made  with- 
out interest,  for  no  court  of  equity  could  relieve  against  the  eft'ect 
of  a  contract  valid  in  law.  But  if  the  words  "interest  or  no  inter- 
est" amounted  to  an  agreement  to  dispense  with  the  proof  of 
interest,  the  principles  upon  which  those  decrees  proceeded  may 
easily  be  accounted  for.  If  the  insurer,  having  admitted  an  inter- 
est which  he  supposed  capable  of  proof,  afterwards  discovered 
that  no  interest  existed,  he  might  state  to  a  court  of  eqviity  that 
he  had  been  taken  by  surprise  in  his  admission,  and  the  policy 
would  be  ordered  to  be  delivered  up. 

There  is  some  strange  language  to  be  found  in  our  books  re- 
specting wagering  and  valued  policies,  the  latter  of  which,  though 
frequently  in  eft'ect  wagering  policies,  have  been  permitted,  be- 
cause it  has  been  supposed  that  the  convenience  of  them  is  greater 
than  would  result  from  the  prohibition  of  them.  But  the  language 
of  all  courts  of  justice  has  been  extremely  careful  lest  the  per- 
mission of  valued  policies  should  introduce  a  species  of  gambling 
policies.  With  respect  to  foreign  ships,  the  averment  of  interest 
has  been  dispensed  with,  not  because  insurance  on  them  could 
be  made  without  interest,  but  on  account  of  the  difficulty  of  proof. 
But  whatever  may  have  been  the  common  law,  the  19  Geo.  2  has 
prescribed  what  should  be  the  law  thereafter,  and  all  courts  of 
justice  are  bound  to  follow  up  the  spirit  of  that  act.  If  this  pow- 
er and  faculty  of  future  concern  be  an  insurable  interest,  we  ought 


78  SUBJECT-MATTER    OF   THE   CONTRACT  (Ch.  2 

at  least  to  take  care  not  to  extend  to  such  interest  a  protection 
that  would  be  denied  to  policies  of  a  more  solid  nature,  lest  that 
sort  of  wagering  in  policies  should  grow  up,  which  has  of  late 
been  extending  itself  considerably.  It  has  been  said,  that  the 
commissioners  either  are  or  arc  not  like  trustees,  consignees,  or 
agents,  and  that  they  had  as  good  an  insurable  interest  as  the 
captors  in  the  Omoa  case,  or  a  creditor  on  the  life  of  his  debtor.  If 
the  Omoa  case  was  decided  upon  the  expectation  of  a  grant  from 
the  crown,  I  never  can  give  my  assent  to  such  a  doctrine.  That 
expectation,  though  founded  upon  the  highest  probability,  was 
not  interest,  and  it  was  equally  not  interest,  whatever  might  have 
been  the  chances  in  favour  of  the  expectation.  That  which  was 
wholly  in  the  crown,  and  which  it  was  in  the  power  of  his  majesty 
to  give  or  withhold,  could  not  belong  to  the  captors,  so  as  to  create 
any  right  in  them. 

I  am  far  from  saying,  however,  that  that  case  might  not  have 
been  put  upon  other  ground.  The  captors  not  only  had  the  pos- 
session, but  a  possession  coupled  with  the  liability  to  pay  costs 
and  charges  if  they  had  taken  possession  improperly.  There  was 
also  a  liability  to  render  back  property  which  should  turn  out  to  be 
neutral,  and  a  liability  as  agents  to  act  for  the  king  as  their  prin- 
cipal ;  and  I  should  be  disposed  to  say,  that  the  king  had  an  in- 
surable interest  as  the  person  who  had  the  jus  poss^ssionis.  His 
right  indeed  was  liable  to  be  affected  by  a  sentence  of  the  Court 
of  Admiralty.  But  as  the  insured  is  often  entitled  to  consider 
the  property  as  gone  the  moment  the  capture  takes  place,  so  I 
think  that  the  king  may  be  considered  as  against  all  the  world 
as  having  an  interest  in  the  property  before  condemnation  for 
the  purpose  of  insuring.  With  respect  to  the  case  of  a  trustee,  I 
can  see  nothing  in  this  case  which  resembles  it.  A  trustee  has 
a  legal  interest  in  the  thing,  and  may  therefore  insure.  So  a  con- 
signee has  the  power  of  selling,  and  the  same  may  be  said  of  an 
agent.  I  cannot  agree  to  the  doctrine  said  to  be  established  in  the 
courts  below,  that  an  agent  may  insure  in  respect  of  his  lien  upon 
a  subsequent  performance  of  his  contract,  nor  can  I  advise  your 
lordships  to  proceed  without  much  more  discussion  upon  au- 
thority of  that  kind.  There  are  different  sorts  of  consignees :  some 
have  a  power  to  sell,  manage  and  dispose  of  the  property,  sub- 
ject only  to  the  rights  of  the  consignor.  Others  have  a  mere  naked 
right  to  take  possession.  I  will  not  say  that  the  latter  may  not 
insure,  if  they  state  the  interest  to  be  in  their  principal.  But  in 
the  present  case  the  commissioners  do  not  insure  in  respect  of 
any  benefit  to  themselves,  nor  of  any  benefit  to  the  crown,  or  to 
any  other  person  or  persons  stated  on  this  record ;  they  insure 
merely  as  commissioners,  and  if  they  have  a  right  so  to  insure  it 
seems  to  me  that  any  person  who  is  directed  to  take  goods  into 
his  warehouse  may  insure;    and  that  there  is  nothing  to  prevent 


Sec.  2)        INSURABLE  INTEREST — MARINE  INSURANCE  79 

the  West  India  Dock  Company  from  insuring  all   the  ships  and 
goods  which  come  to  their  docks. 

If  moral  certainty  be  a  ground  of  insurable  interest,  there  are 
hundreds,  perhaps  thousands,  who  would  be  entitled  to  insure. 
First  the  dock  company,  then  the  dock-master,  then  the  ware- 
house-keeper, then  the  porter,  then  every  other  person  who  to  a 
moral  certainty  would  have  anything  to  do  with  the  property,  and 
of  course  get  something  by  it.  Suppose  A.  to  l)e  possessed  of  a 
ship  limited  to  B.  in  case  A.  dies  without  issue;  that  A.  has  20 
children,  the  eldest  of  whom  is  20  years  of  age ;  and  B.  90  years 
of  age;  it  is  a  moral  certainty  that  B.  will  never  come  into  pos- 
session, yet  this  is  a  clear  interest.  On  the  other  hand,  suppose 
the  case  of  the  heir  at  law  of  a  man  who  has  an  estate  worth  £20,- 
000.  a-year,  who  is  90  years  of  age;  upon  his  deathbed  intestate, 
and  incapable  from  incurable  lunacy  of  making  a  will,  there  is 
no  man  who  will  deny  that  such  an  heir  at  law  has  a  moral  cer- 
tainty of  succeeding  to  the  estate ;  yet  the  law  will  not  allow  that 
he  has  any  interest,  or  any  thing  more  than  a  mere  expectation. 
I  am  the  more  surprised  at  the  doctrine  which  has  been  advanced 
upon  this  subject,  recollecting  the  case  of  a  gentleman  who  had 
been  in  a  state  of  incurable  lunacy  for  many  years,  in  the  time  of 
Lord  Bathurst,  who  was  then  assisted  by  no  less  a  man  than  Lord 
Chief  Justice  De  Grey.  Certain  individuals  filed  a  bill  to  per- 
petuate the  testimony  of  their  being  heirs  at  law,  and  next  of  kin. 
Lord  Thurlow,  then  attorney-general,  demurred  to  that  bill,  and 
the  ground  of  his  demurrer  was,  that  though  it  was  as  morally 
certain  as  anything  could  be,  that  those  individuals  would  succeed 
to  the  property,  yet  as  the  whole  of  it  was  in  the  lunatic,  no  part 
of  it  could  be  in  any  body  else,  and  therefore  their  moral  certainty 
raised  no  title  in  a  court  of  justice.  One  of  the  persons  to  whom  I 
am  alluding  concluded  with  these  words :  "Courts  of  justice  sit 
here  to  decide  upon  rights  and  interest  in  property ;  rights  in 
property,  or  interest  derived  out  of  contracts  about  property. 
They  do  not  sit  here  to  decide  upon  things  in  speculation.  Specu- 
lative profits  are  nothing."  I  send  my  ship  to  India;  I  expect 
profit  from  the  voyage ;  if  the  ship  is  lost,  my  expectation  is  de- 
feated ;  but  of  those  expected  profits  the  law  can  have  no  con- 
sideration ;  and  I  am  sure  that  Lord  Ch.  J.  Willes  did  not  hold  that 
such  expectations  might  be  regarded  in  the  case  of  Pole  v.  Fitz- 
gerald, Willes,  641 ;  the  doctrines  of  which  case  have  been  wound- 
ed to  the  quick  by  the  representations  made  of  them  in  subse- 
quent cases;  and  among  the  rest  in  the  first  volume  of  Burrow; 
v/hich  representations  are  most  inaccurate,  if  they  are  meant  to 
convey,  as  the  result  of  that  case,  that  where  there  is  a  contract 
under  which  a  party  is  to  receive  profit,  and  such  profit  so  secured 
by  contract  may  be  afi'ected  by  some  contingency  connected  with 
the  voyage,  it  is  insurable.     I  do  not  assert  that  it  is  not  insura- 


80  SUBJECT-MATTER    OF    THE  CONTRACT  (Ch.  2 

ble;  but  I  cannot  accede  to  that  which  has  been  stated  as  part  of 
the  doctrine  upon  this  subject — that  unascertained  profits,  which 
may  or  may  not  be  made,  may  be  insured. 

The  present  case,  however,  assumes  not  only  that  a  man  may 
insure  unascertained  profits  from  his  own  losses,  but  that  he  may 
insure  profits  to  arise  out  of  ships  and  goods,  which  he  has  not, 
and  which  he  never  may  have  in  his  possession,  and  from  the 
management  of  which  he  never  can  obtain  any  profit.  If  I  were 
bound  now  to  state  my  opinion  judicially  upon  this  first  count, 
I  should  be  obliged  very  strongly  to  say,  that  the  claims  of  the 
plaintiffs  could  not  be  supported;  but  I  do  not  think  it  will  be 
necessary  for  me  to  say,  that  I  am  sure  that  it  cannot  be  supported 
to  the  extent  to  which  damages  have  been  found,  for  the  Zeelelye 
having  been  lost  after  the  declaration  of  hostilities,  unless  I  mis- 
take the  act  and  commission  altogether,  she  was  not  a  ship  which 
the  j)laintiffs  could  have  taken  into  their  possession  as  commis- 
sioners; they  have  therefore  sustained  no  loss  as  commissioners 
with  respect  to  that  ship ;  and  it  will  be  essentially  necessary  that 
a  distinction  should  be  made  in  the  proceedings  in  the  court  be- 
low with  respect  to  the  different  ships,  in  order  that  the  damages 
may  be  properly  computed.  It  appears  to  me  that  the  proper 
mode  of  proceeding  will  be,  that  we  do  award  a  venire  de  novo 
for  this  purpose.  The  whole  record  will  then  be  carried  down, 
and  the  case  will  be  open,  and  all  the  different  interests  which  are 
averred  in  the  other  counts.  As  the  matter  now  stands,  I  think  it 
impossible  to  affirm  this  judgment.  With  respect  to  the  conduct 
of  the  underwriters  I  have  said  nothing.  Courts  of  justice  have 
no  right  to  tell  men  whether  they  are  acting  honestly  or  dishonest- 
ly. It  is  the  duty  of  a  court  to  say  whether  they  have  acted  legally. 
To  that  consideration  I  have  entirely  confined  myself.    *     '''    * 

The  Lord  Chancellor  then  moved  that  a  venire  facias  de  novo  should 
be  awarded,  which  was  ordered  accordingly. 


HANCOX  v.  FISHING  INS.  CO. 

(Circuit  Court  of  the  United  States,  D.  Massacliusetts,  1838.     3   Sumn.  132, 
1  Law  Eep.  5,  Fed.  Cas.  No.  6,013.) 

Assumpsit  on  a  policy  of  insurance.  The  policy  was  as  follows : 
"The  president,  &c.,  of  the  Fishing  Insurance  Company,  do  by 
these  presents,  cause  Z.  Cook,  Jr.,  for  P.  Hancox,  to  be  insured 
lost  or  not  lost  one  thousand  dollars  on  clothes  and  the  proceeds 
thereof,  on  board  schooner  Emily,  at  and  from  New  York,  on  the 
first  day  of  September,  at  noon,  to  the  South  Seas,  and  elsewhere, 
for  the  purpose  of  taking  seals  and  oil,  and  to  continue  to  the  ter- 
mination of  her  voyage  at  any  port  in  the  United  States,  with  gen- 
eral liberty  and  the  privilege  of  taking  skins  and  procuring  refresh- 


Sec.  2)        INSURABLE  INTEREST MARINE  INSURANCE  81 

ments,  and  information  and  any  thing  else,  at  any  port  or  place 
that  the  master  may  think  for  the  benefit  of  the  voyage,  entitled 
to  the  same  average  as  outfits  and  cargo."  Liberty  was  also  given 
to  ship  home  skins  by  any  other  vessel  or  vessels.  In  case  of  loss, 
the  policy  was  to  be  sufficient  proof  of  interest.  The  premium 
was  eight  per  cent.,  per  annum,  warranting  eight  per  cent.  The 
clothing  and  proceeds  were  valued  at  the  sum  insured.  The  policy 
contained  the  usual  perils  in  Boston  policies.  The  declaration 
alleged  a  loss  by  the  perils  of  the  seas.  Plea,  the  general  issue. 
By  consent  of  the  parties,  a  verdict  was  taken  for  the  plaintiff,  for 
$1200,  subject  to  the  opinion  of  the  court  upon  a  statement  of 
facts  admitted  by  the  parties ;  and  the  verdict  to  be  altered  and 
amended  according  to  the  opinion  of  the  court. 

The  facts  will  be  found  embodied  in  the  opinion  of  the  court. 

Story,  Circuit  Justice.  The  questions  arising  upon  this  policy 
are  of  a  somewhat  novel  character.  The  insurance  is  upon  "clothes 
and  the  proceeds  thereof,"  on  a  sealing  voyage  for  seals  and  oil, 
in  the  South  Seas,  and  back  to  the  United  States.  In  the  course  of 
the  voyage,  the  schooner  was  shipwrecked  on  Refreshment  Island, 
one  of  the  group  of  the  Tristan  d'Acunha  Islands,  in  the  South 
Seas;  and  the  vessel  and  cargo,. then  consisting  of  about  ninety 
barrels  of  whale  and  elephant  oil,  and  thirty-six  seal-skins,  were 
totally  lost,  with  the  exception  of  the  thirty-six  seal-skins,  about 
fifty  barrels  of  whale  oil,  worth  $600  or  $700,  and  one  hundred  and 
eighty-two  skins,  worth  about  $2600,  which  had  been  previously 
sent  home  in  another  vessel,  and  had  safely  arrived.  According 
to  the  usage  of  this  trade,  it  is  customary  to  take  on  board  clothing, 
bedding,  and  stores  of  all  kinds  for  the  use  of  the  crew  during 
the  voyage,  which  are  dealt  out  and  sold  to  the  crew,  according 
to  their  wants  during  the  voyage,  by  the  master,  and  they  are 
charged  against  the  crew  accordingly.  They  are  sometimes  put 
on  board  by  the  owner,  and  sometimes  by  other  persons ;  and 
upon  all  such  sales,  the  master  is  entitled  to  a  commission.  The 
crew  in  these  voyages,  receive  a  certain  portion  of  the  profits  and 
proceeds  of  the  oil  and  skins  taken  during  the  voyage,  in  lieu  of 
wages.  Their  shares  of  the  proceeds  of  the  voyage  are  received, 
and  sold  by  the  owners,  and  are  liable  for  all  advances  made  to 
them  by  the  owners,  the  master,  and  the  shippers  of  clothes  dur- 
ing the  voyage,  in  the  following  order ;  first,  the  advances  of  the 
owners  are  to  be  paid;  next,  those  of  the  master;  and  lastly,  those 
of  the  shippers. 

In  the  present  case,  the  plaintiff  was  a  shipper  of  clothes  to  an 
amount  as  invoiced,  exceeding  $1000,  under  the  usage ;  and  it  was 
agreed,  that  they  should  be  taken  on  board  and  dealt  out  by  the 
master  to  the  crew,  as  they  should  need  them ;  and  be  charged  to 
them  accordingly.  The  master  was  to  receive  a  commission  of 
Vance  Ins. — 6 


82  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

seven  per  cent,  for  his  services.  Accordingly,  in  the  course  of 
the  voyage,  and  before  the  shipwreck,  the  master  had  dealt  out  and 
sold  to  the  crew  about  $950  worth  of  the  clothing;  and  there  re- 
mained at  the  time  of  the  shipwreck,  unsold,  about  $50  or  $100 
worth  of  the  clothing,  which  was  then  lost.  It  seems,  that  the 
shares  of  the  crew,  in  the  proceeds  of  the  cargo  sent  home,  were 
insufficient  to  pay  the  advances  due  to  the  owners  and  master; 
and  therefore,  nothing  could  be  obtained  from  that  source  by  the 
plaintiff.  Some  of  the  crew  ran  away ;  others  of  them  have  gone 
to  places  unknown ;  and  others  have  no  known  places  of  residence. 
Upon  receiving  information  of  the  loss,  the  plaintiff,  through  his 
agent,  abandoned  to  the  underwriters  for  a  total  loss.  Three  other 
policies  had  been  effected  by  the  owners  of  the  schooner  Emily, 
on  the' schooner  and  her  outfits,  for  the  same  voyage;  upon  which 
also,  it  seems,  abandonments  have  been  made,  and  they  have  re- 
ceived payment,  as  for  a  total  loss. 

Such  are  the  general  facts ;  and  upon  these  the  question  arises, 
whether  the  plaintiff  is  entitled  to  recover  for  a  total  loss ;  if  not, 
whether  he  is  entitled  to  recover  for  a  partial  loss.  That  he  is  en- 
titled to  recover  the  amount  of  the  clothing  which  actually  per- 
ished in  the  shipwreck,  does  not  seem  to  me  a  matter  upon  which 
there  can  be  any  real  dispute.  No  point  of  this  sort  was  made 
at  the  argument ;  and  I  do  not  well  see  how  any  can  be  made.  The 
real  question  turns  upon  the  right  to  recover  for  a  total  loss.  That 
this  was  a  policy  upon  a  real  interest  is  clear ;  and  the  policy  at- 
tached upon  that  interest  to  the  full  amount  insured.  The  point 
of  controversy  is,  whether  the  policy  upon  the  goods  sold  had 
terminated  at  the  time  of  the  shipwreck.  The  argument  for  the 
plaintiff  is,  that,  upon  the  construction  of  the  policy,  it  was  either 
(1)  a  policy  upon  the  clothing,  until  sold  to  the  crew;  or  (2)  it 
was  a  policy  upon  the  clothing,  until  it  was  sold,  delivered,  and 
paid  for.  If  the  former  be  the  true  construction,  then  it  is  said 
that  by  the  sales  to  the  crew  the  policy  pro  tanto  was  discharged. 
If  the  latter  be  the  true  construction,  then  it  amounts  in  effect  to  an 
insurance  upon  the  seamen's  wages ;  for  their  shares  of  the  pro- 
ceeds are  in  the  nature  of  wages ;  and  the  policy  of  the  law  pro- 
hibits such  an  insurance.  The  terms  of  the  policy,  construed  with- 
out any  reference  to  the  usage  of  the  trade,  would  not  involve  any 
real  difficulty.  A  policy  upon  goods  and  their  proceeds  is  a  policy, 
which  covers  the  original  goods,  while  they  remain  subject  to  the 
risks  in  the  policy ;  and  any  other  property,  in  which  the  proceeds 
of  those  goods  are  invested,  when  taken  on  board  in  lieu  thereof, 
and  subjected  to  the  like  risks.  But  it  is  plain,  that  such  could 
not  have  been  the  intention  of  the  parties  to  this  policy ;  for 
though  it  was  contemplated,  that  the  clothing  should  be  sold,  it 
was  never  contemplated,  that  the  proceeds  should  be,  in  a  strict 
sense,  specifically  invested  in  any  other  property  during  the  voyage. 


Sec.  2)        INSURABLE  INTEREST MARINE  INSURANCE  83 

The  usage  of  the  trade,  which  must  be  taken  into  consideration 
in  construing  all  policies,  fully  explains  this  whole  matter.  Strip- 
ped of  its  artificial  texture,  the  real  object  of  the  policy  was  to 
cover  the  risks  of  the  shippers,  arising  from  the  loss  of  the  goods, 
or  the  frustration  of  the  voyage,  by  any  of  the  perils  insured 
against.  The  goods  were  to  be  put  at  risk.  They  were  to  be  sold 
to  the  seamen;  and  if  the  voyage  was  successful,  the  shipper  con- 
fidently looked  to  the  proceeds  of  the  adventure  for  the  due  pay- 
ment of  the  sales  made  to  the  seamen.  His  reliance  upon  their 
personal  responsibility  was  altogether  a  secondary  consideration. 
As  soon  as  the  goods  were  sold  to  the  seamen,  the  shipper  acquired 
an  interest  in  the  success  of  the  voyage,  equal  to  the  sales.  It 
was  something  in  the  nature  of  an  inchoate  lien,  and  which  became 
an  actual  lien  upon  the  shares  of  the  seamen  in  the  proceeds  of  the 
adventure  pro  tanto,  as  fast  as  they  were  obtained.  It  was  not 
against  the  marine  perils  alone  to  the  goods  themselves,  while 
they  were  unsold,  that  the  policy  meant  to  protect  the  shipper; 
but  also  against  the  hazards  of  a  loss  of  the  voyage  and  adventure. 
It  is  analogous  to  an  insurance  upon  outfits  in  a  fishing  or  whal- 
ing voyage,  where  a  large  portion  of  the  outfits  are  continually 
in  the  process  of  consumption  in  the  progress  of  the  voyage,  and 
are  expected  to  be  repaid  out  of  the  proceeds  of  the  adventure. 
No  one  ever  supposed,  that  an  insurance  upon  outfits  terminated 
pro  tanto  with  every  day's  consumption  or  destruction  of  the  out- 
fits ;  or,  that  such  a  policy  did  not  attach  upon  the  proceeds  of  the 
adventure,  though  they  could  not  be  deemed  in  a  strict  sense  the 
proceeds  of  the  outfits.  This  is  sufficiently  apparent  from  what 
was  said  by  the  court  in  Brough  v.  Whitmore,  4  Term  R.  206, 
and  Hill  v.  Patten,  8  East,  2)72>.  An  insurance  on  the  ship  always 
includes  the  provisions  of  the  crew  for  the  voyage ;  and  if  the  ship 
be  totally  lost  during  the  voyage,  no  deduction  is  ever  made  on 
account  of  the  provisions  antecedently  consumed,  whether  the 
policy  on  the  ship  be  open  or  valued.  See,  also,  Haskins  v.  Pick- 
ersgill,  2  Marsh.  Ins.  727;  1  Phil.  Ins.  (1st  Ed.)  71,  72;  2  Phil. 
Ins.  (2d  Ed.)  43. 

The  terms  of  the  present  policy  appear  to  me  clearly  to  require 
this  interpretation.  It  is  a  policy,  as  has  been  already  stated,  on 
the  "clothes,  and  the  proceeds  thereof."  The  word  "proceeds" 
can  here  have  no  sensible  meaning  with  reference  to  the  usage  of 
the  trade,  unless  it  means  the  proceeds  of  the  adventure.  And 
then,  again,  it  is  added,  that  the  insured  is  to  be  "entitled  to  the 
same  average  as  outfits  and  cargo."  So  that  the  subject-matter  of 
the  insurance  in  this  case  is  treated  by  the  underwriters  them- 
selves as  governed  by  the  same  principles  and  entitled  to  the  same 
average  losses  as  outfits  and  cargo  in  such  voyages  are.  The  valua- 
tion in  the  policy,  also,  in  a  case  of  this  sort,  seems  to  me  to  point 
clearly  to  an  understanding  of  the  parties,  that  the  interest  insured 


84  SUBJECT-MATTER    OF   THE  CONTUACT  (Ch.  2 

and  property  put  on  board  are  to  be  treated  as  of  the  same  value 
during  the  whole  of  the  adventure,  for  all  the  purposes  of  the  voy- 
age. Nor  does  the  policy  stop  here ;  for  it  goes  on  to  provide,  that 
in  case  of  loss  the  policy  itself  is  to  be  svifticient  proof  of  interest. 

If,  then,  under  the  usage  of  trade  and  the  terms  of  the  policy, 
we  are  to  treat  this  as  in  the  nature  of  a  policy  on  outfits,  it  would 
seem  that  there  was  no  substantial  objection  in  the  way  of  the 
right  of  the  plaintifif  to  recover  for  a  total  loss  under  the  abandon- 
ment. If,  in  the  present  case,  the  vessel  had  been  successful  in 
her  outward  voyage,  and  upon  the  homeward  voyage  had  been 
lost,  with  her  catchings  and  other  proceeds  on  board,  it  would  be 
difficult  to  resist  the  claim  of  the  plaintiff  to  a  recovery  for  a  total 
loss.  He  would  have  had  a  lien  on  the  shares  of  the  seamen  in 
those  proceeds,  or  some  interest  in  the  nature  of  a  lien.  It  seems 
perfectly  clear,  that  a  person  having  a  lien,  or  an  interest  in  the 
nature  of  a  lien,  on  the  property  on  board,  has  an  insurable  inter- 
est. And  it  will  make  no  difiference  in  such  a  case,  that  he  might 
still  have  a  right  to  pursue  his  debtor  personally  for  the  debt,  on 
account  of  which  the  lien  attached.  There  are  many  authorities  in 
the  books  to  this  effect ;  and  among  them  are  Godin  v.  London 
Assur.  Co.,  1  Burrows,  90;  Lucena  v.  Craufurd,  2  Bos.  &  P.  (N. 
R.)  294;  Hill  v.  Secretan,  1  Bos.  &  P.  315;  Wolff  v.  Horncastle, 
Id.  316;  Wells  v.  Philadelphia  Ins.  Co.,  9  Serg.  &  R.  (Pa.)  103; 
Seamans  v.  Loring,  Fed.  Cas.  No.  12,583;  Russel  v.  Union  Ins. 
Co.,  Fed.  Cas.  No.  12,146;  and  the  cases  of  mortgagees,  factors, 
and  agents,  cited  by  Mr.  Phillips,  in  his  excellent  treatise  on  In- 
surance. 1  Phil.  Ins.  (1st  Ed.)  27,  41-51 ;  Id.  (2d  Ed.)  pp.  105-122; 
2  Phil.  Ins.  (1st  Ed.)  32-34;  Id.  41-47,  61. 

But,  then,  it  is  said,  that  in  this  case  there  were  no  proceeds,  to 
which  the  lien  did  in  fact  attach ;  and  the  mere  possibility  of  a 
lien  is  not  sufficient  to  found  an  interest.  This  may  be  true  sub 
modo.  But  here  the  question  is  not,  as  to  an  original  interest,  in 
the  clothing  on  and  for  the  voyage;  for  that  is  clear.  But  the 
question  is,  whether  the  interest,  once  having  attached  to  the 
policy,  is  gone  by  the  subsequent  sales;  so  that  the  plaintifif  has 
ceased  to  have  an  insurable  interest.  Now,  I  am  not  aware,  that 
any  decision  has  been  made,  by  which  it  has  been  established,  that 
an  interest  ceases  to  be  insurable  in  the  progress  of  a  voyage, 
simply  because  it  is  subject  to  contingencies,  or  has  not  at  the 
moment  any  thing  corporeal  or  tangible  to  which  it  is  attached. 
What,  indeed,  upon  such  an  interpretation,  would  become  of  insur- 
ances upon  profits,  or  commissions,  or  freight,  which  are  in  the  course 
of  being  earned? 

One  of  the  difficulties  of  the  argument  is  in  likening  an  insura- 
ble interest  to  any  other  interest  in  property.  The  truth  is,  that 
an  insurable  interest  is  sui  generis,  and  peculiar  in  its  texture  and 
operation.     It  sometimes  exists   where  there  is  not  any  present 


Sec.   2)  INSURABLK    INTEREST MARINE    INSURANCE  85 

property,  or  jus  in  re,  or  jus  ad  rem.  Inchoate  rights,  founded  on 
sulxsisting  titles,  unless  prohibited  by  the  policy  of  the  law,  are 
insurable;  as,  for  example,  freight,  respondentia,  and  bottomry. 
So  it  was  held  by  a  majority  of  the  judges  in  Lucena  v.  Craufurd, 
2  Bos.  &  P.  (N.  R.)  294,  295.  They  also  held,  that,  where  there  is 
an  expectancy,  coupled  with  a  present  existing  title,  there  is  an 
insurable  interest ;  words  which  approach  very  near  to  a  descrip- 
tion of  the  present  case.  After  referring  to  the  definitions  by  for- 
eign jurists  of  the  contract  of  insurance,  they  added:  "These  def- 
initions clearly  embrace  a  contingent  interest,  which  is  subject  to 
the  perils  of  the  seas,  and  for  the  loss  of  which  a  compensation 
can  be  made."  Lord  Eldon,  although  he  differed  from  some  of  the 
views  of  the  majority  of  the  judges,  in  that  case  said:  "I  have 
in  vain  endeavored,  however,  to  find  a  fit  definition  of  that  which 
is  between  a  certainty  and  an  expectation ;  nor  am  I  able  to 
point  out  what  is  an  interest,  unless  it  be  a  right  in  the  property; 
or  a  right  derivable  out  of  some  contract  about  the  property, 
which  in  either  case  may  be  lost  upon  some  contingency  affecting 
the  possession  or  enjoyment  of  the  property."  Now,  these  words 
are  very  expressive  and  direct,  as  to  the  nature  of  the  very  interest 
of  the  plaintiff  in  the  present  case.  He  had  a  right  in  the  original 
property,  and  he  had  a  right  founded  upon  a  contract  about  that 
property,  which  has  been  lost  by  the  contingencies  of  the  present 
voyage.  Indeed,  the  policy  in  the  present  case  seems  studiously 
to  have  provided  for  the  very  case,  which  has  happened,  by  the 
agreement  of  the  underwriters,  that  in  case  of  loss  the  policy  itself 
shall  be  a  sufficient  proof  of  interest. 

In  regard  to  another  suggestion,  that  the  policy  is  void  as 
against  public  policy,  because  it  in  effect  amounts  to  an  insurance 
of  seamen's  wages,  a  few  words  may  suffice.  Assuming,  for  the 
purposes  of  the  argument,  that  an  insurance  by  the  seamen  them- 
selves on  their  shares  of  the  proceeds  of  the  adventure  would  not 
be  good,  because  they  are  in  the  nature  of  wages,  though  given  in 
lieu  of  wages,  (a  point,  upon  which  I  desire  to  be  understood  as 
giving  no  opinion,)  it  is  a  sufficient  answer  to  the  argument  to  say, 
that  the  present  is  not  the  case  of  such  an  insurance.  The  plaintiff 
has  insured  his  own  interest  in  the  voyage,  and  not  theirs.  They 
may,  indeed,  in  a  possible  case  be  benefited  by  this  insurance; 
but  the  policy  itself  is  not  on  wages  or  on  shares  in  lieu  of  wages ; 
but  simply  on  the  property  originally  shipped,  and  upon  the  pro- 
ceeds of  the  adventure,  so  far  as  the  plaintiff  could  or  might  have 
a  lien  thereon  for  his  advances  to  the  seamen. 

It  has  been  suggested,  that  the  plaintiff  has  in  fact  sustained 
no  loss,  because  for  any  thing  that  appears,  he  may  still  recover 
the  debts  due  to  him  from  the  seamen;  and  if  so,  he  has  sustained 
no  loss.  This  objection  has  already  been  in  effect  answered.  The 
question  is  not,  in  cases  of  this  sort,  whether  the  party  has  ac- 


86  SUBJECT-MATTER    OF    THE  CONTRACT  (Ch.  2 

tually  lost  his  debt,  which,  if  caused  by  the  insolvency  or  death  of 
the  debtor,  would  not  be  by  a  peril  within  this  policy;  but  the 
question  is,  whether  he  has  lost  the  security  for  that  debt  by  the 
perils  insured  against,  which  the  underwriters  agreed  to  assume 
upon  themselves.  A  mortgagee  or  consignee  of  property  may 
recover  his  insurance,  if  the  property  mortgaged  or  consigned  is 
lost  in  the  voyage,  although  the  mortgagor  or  consignor  still  re- 
mains his  debtor  and  is  solvent.  Then,  again,  it  has  been  suggest- 
ed, that  the  party  insured  must  not  only  have  an  interest  in  the 
property  at  the  time  when  the  insurance  was  made,  but  also  at 
the  time  of  the  loss.  This  I  certainly  have  been  accustomed  to  con- 
sider the  established  doctrine,  not  only  in  the  American  but  in  the 
English  courts.  It  was  certainly  so  laid  down  by  a  majority  of 
the  judges  in  the  case  of  Lucena  v.  Craufurd,  2  Bos.  &  P.  (N.  R.) 
295 ;  and  it  has  been  repeatedly  recognized  in  the  American  courts. 
See  1  Phil.  Ins.  27;  Carroll  v.  Boston  Marine  Ins.  Co.,  8  Mass.  515; 
Stetson  V.  Massachusetts  Mut.  Fire  Ins.  Co.,  4  Mass.  330,  336, 
337,  3  Am.  Dec.  217;  2  Phil.. Ins.  27;  Gordon  v.  Massachusetts 
Fire  &  Marine  Ins.  Co.,  2  Pick.  (Mass.)  249;  Lazarus  v.  Com- 
monwealth Ins.  Co.,  5  Pick.  (Mass.)  76,  81. 

However,  in  the  recent  case  of  Sparkes  v.  Marshall,  3  Scott,  186, 
2  Bing.  N.  C.  761,  774,  776,  there  are  intimations  of  opinion  by  the 
court  of  common  pleas  in  England  that,  if  the  assured  had  prop- 
erty in  the  goods  insured  at  the  time  of  the  insurance,  no  change 
of  interest  afterwards,  before  or  after  the  loss  happened,  would 
afifect  the  right  of  the  insurer  to  recover.  Whether  this  doctrine, 
so  novel  and  so  difficult  to  be  sustained  upon  principle,  will  be 
adhered  to,  is  more  than  I  am  able  to  conjecture.  I  can  only  say, 
that  nothing  in  my  judgment  in  the  present  case  proceeds  upon 
the  admission  of  any  such  doctrine.  And,  indeed,  it  is  quite  possi- 
ble, that  the  court  may  have  intended  to  restrict  their  observa- 
tions to  the  particular  frame  of  the  policy  in  that  case  (the  words 
of  which  are  not  given  in  the  report),  and  under  the  peculiar  cir- 
cumstances there  stated.  The  policy  may  have  been  drawn  up  in 
general  terms,  "for  whom  it  may  concern." 

Upon  the  whole,  my  opinion  is,  that  the  plaintiff  in  the  present 
case  is  entitled  to  recover  for  a  total  loss.  This  opinion  is  founded 
upon  the  nature  and  terms  of  the  present  policy,  operating  upon 
the  usage  in  this  particular  trade.  I  consider,  that  the  parties  to 
this  policy  intended  to  cover  the  whole  interest  of  the  plaintiff, 
as  a  valued  interest  for  the  whole  voyage,  not  only  in  the  original 
clothing,  but  in  the  proceeds  thereof,  when  attached  by  a  lien,  or  a 
claim  in  the  nature  thereof,  to  the  shares  of  the  seamen  in  the 
proceeds  of  the  adventure ;  and  further,  that  the  property  insured 
was  to  be  treated,  as  in  the  nature  of  an  outfit;  and  that,  if  by  the 
perils  insured  against,  the  voyage  was  totally  lost  and  frustrated, 
then  that  the  plaintiff  was  entitled  to  recover  the  full  amount  of 


Sec.  2)       INSURABLE  INTEREST — MARINE  INSURANCE  87 

the  insurance,  according  to  the  valuation  in  the  policy,  leaving  to 
the  underwriters  all  their  rights  to  salvage,  &c.,  under  the  aban- 
donment, as  in  the  common  cases  of  an  insurance  upon  outfits, 
and  other  special  interests. 


HOOPER  V.  ROBINSON. 

(Supreme  Court  of  the  United  States,  1878.    98  U.  S.  528,  25  L.  Ed.  219.) 

Error  to  the  Circuit  Court  of  the  United  States  for  the  District 
of  Maryland. 

The  British  steamer  Carolina  came  to  Baltimore,  consigned  to 
James  Hooper  &  Co.  They  were  also  her  agents  while  she  re- 
mained in  that  port.  The  plaintiff  in  error  was  a  member  of  the 
firm.  Having  taken  on  board  her  return  cargo,  the  steamer  pro- 
ceeded on  her  homeward  voyage.  While  in  the  Chesapeake  Bay 
she  was  injured  by  a  collision  with  another  vessel,  and  put  back 
to  Baltimore  for  repairs.  She  was  repaired,  and  Hooper  &  Co. 
paid  all  the  bills  and  made  other  disbursements  for  her.  McGarr, 
the  captain,  drew  on  Good  Brothers  &  Co.,  of  Hull,  England,  for 
the  amount  in  favor  of  Hooper  &  Co.,  and  at  the  same  time  di- 
rected them  to  protect  the  drawees  by  insurance,  which  was  in- 
tended to  be  done  by  the  policy  here  in  question.  The  draft  bore 
date  Oct.  20,  1872;  was  for  £1,611.  18s.  7d. ;  was  payable  in  Lon- 
don thirty  days  after  sight;  and  directed  that  the  amount  should 
be  charged  "to  account  for  advances  for  repairs  and  disbursements 
of  steamship  Carolina  and  her  freight,  to  enable  the  ship  to  pro- 
ceed on  her  voyage." 

The  policy  of  insurance  was  dated  on  the  26th  of  October,  1872, 
and  was  to  "James  Hooper  &  Co.,  on  account  of  whom  it  may 
concern,  in  case  of  loss  to  be  paid  to  their  order."  The  insurance 
was  "lost  or  not  lost,  *  *  *  on  merchandise,  to  cover  such 
risks  as  are  approved  and  indorsed  on  the  policy."  The  indorse- 
ment set  forth  the  date  of  the  insurance,  the  name  of  the  vessel, 
the  course  of  the  voyage,  the  rate  of  the  premium,  the  amount  in- 
sured ($8,000),  and  the  remark,  "paid  advance  to  cover  disburse- 
ments and  repairs."  The  names  of  the  agents  of  the  underwriters 
were  afiixed.  The  instrument  was  a  cargo  policy.  No  inquiry 
was  made  of  Hooper  as  to  whom  he  was  insuring  for,  and  no  rep- 
resentation was  made  by  him  except  as  is  disclosed  in  the  memo- 
randum indorsed  upon  the  policy.  The  draft  of  McGarr  was 
bought  by  Brown  &  Sons,  bankers,  of  Baltimore.  They  transmit- 
ted it  to  their  correspondents  in  London.  On  the  11th  of  November, 
1872,  it  was  accepted  by  Good  Brothers  &  Co.,  and  on  the  14th 
of  December  following  they  paid  it.  On  the  14th  of  November, 
1872,  the  steamer  foundered  at  sea.  On  the  28th  of  that  month 
notice  of  the  loss  was  given  to  the  underwriters.     On  the  6th  of 


88  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

December,  in  answer  to  a  call  for  proof  of  loss  and  interest,  Hooper 
&  Co.  furnished  the  Baltimore  agent  of  the  underwriters  with  the 
protest  and  a  full  account  of  the  items  of  "outfit  and  disbursements 
of  the  British  steamer  Carolina."  In  the  statement  was  the  charge, 
"to  cash  paid  insurance  on  advances  $117.33."  On  the  15th  of  Jan- 
uary, 1873,  the  agent  in  Baltimore  drew  on  the  defendants  in  error, 
his  principals  in  New  York,  for  $8,012,  at  five  days'  sight.  The 
draft  was  paid  on  the  24th  of  that  month,  and  on  the  31st  Hooper 
&  Co.  remitted  the  amount  to  Good  Brothers  &  Co.  in  England. 
When  Hooper  &  Co.  received  the  draft  of  the  15th  of  January, 
they  gave  a  receipt  setting  forth  that  when  the  draft  was  paid  it 
would  be  "in  full  for  claim  for  total  loss  of  advancements  for  dis- 
bursements, and  repairs  per  steamer  Carolina,  *  *  *  insured 
26th  of  October,  1872,  under  policy  No.  22,706."  The  receipt  con- 
cluded with  a  promise,  upon  the  payment  of  the  draft,  "to  assign 
all  our  right,  title,  and  interest  in  the  above  advances  for  disburse- 
ments and  repairs  to  the  underwriters."  Hooper  said  at  the  time 
to  the  agent  "that  he  had  nothing  to  assign."  On  the  10th  of 
Februar}^,  1873,  Hooper  &  Co.  executed  to  Robinson  &  Cox,  the 
attorneys  of  the  underwriters,  the  promised  assignment,  which 
was  a  printed  form  filled  up  by  the  agent,  "such  as  is  taken  in  all 
cases  of  abandonment  for  total  loss."  Hooper  then  again  told  the 
agent  "that  he  had  no  interest  in  the  matter,  but  as  it  was  cus- 
tomary, he  would  sign  the  paper." 

During  all  these  transactions  Hooper  &  Co.  were  not  asked 
whether  they  had  insured  for  themselves  or  for  others ;  whether 
they  had  been  or  expected  to  be  repaid  their  disbursements ;  wheth- 
er any  one  else  was  interested  in  the  policy,"  or  for  whom  they 
were  collecting  the  insurance.  '  More  than  a  month  after  the  loss 
had  been  paid  and  the  money  remitted  to  England,  a  marine  ad- 
juster came  from  New  York  to  Baltimore  "to  ascertain  who  owed 
Mr.  Hooper  for  advances."  A  full  disclosure  was  thereupon 
made  by  Hooper.  The  adjuster  suggested  to  him  "to  write  his 
friends  on  the  other  side  to  return  the  money."  Hooper  asked  if 
the  underwriters  did  not  get  the  premium  for  insurance,  and  if 
the  vessel  was  not  lost.  Being  answered  in  the  affirmative,  he 
said  he  "would  not  have  the  face  to  write  to  the  parties  to  return 
the  money."  No  offer  has  been  made  to  return  to  Hooper  &  Co., 
or  to  Good  Brothers  &  Co.,  the  premium  for  insurance.  This 
suit  was  brought  by  the  underwriters  on  the  30th  of  October,  1873, 
more  than  nine  months  after  the  loss  had  been  paid  and  the  money 
remitted  to  Good  Brothers  &  Co.,  and  more  than  seven  months  after 
Hooper's  disclosure  to  the  adjuster. 

When  the  testimony  was  closed  on  both  sides  in  the  court  below, 
the  defendant.  Hooper,  asked  the  court  to  charge  the  jury,  in 
effect,  that  if  they  believed  the  advances  and  the  insurance  were 
made;  that  the  draft  on  Good  Brothers  &  Co.  was  drawn,  accepted. 


Sec.  2)  INSURABLE    INTEREST — MARINE    INSURANCE  89 

and  paid;  that  the  steamer  was  lost;  proof  of  loss  and  payment 
demanded ;  that  Hooper  then  furnished  the  plaintififs  with  the 
account  of  his  disbursements ;  that  the  plaintiffs  thereupon  paid 
him  and  took  the  assignment  without  having  made  any  inquiry 
as  to  whether  he  was  collecting  for  himself  or  for  others,  and  that 
within  a  few  days  thereafter  he  remitted  the  money  to  Good 
Brothers  &  Co., — all  as  stated  in  the  evidence,  the  plaintiffs  were 
not  entitled  to  recover.  This  instruction  the  court  refused  to 
give,  and  instructed,  in  substance,  that  if  the  jury  believed  that 
when  Hooper  made  his  claim  for  indemnity  under  the  policy  he 
produced  the  account  and  subsequently  gave  the  receipt  and  ex- 
ecuted the  assignment,  and  that  when  he  received  payment  and 
delivered  the  assignment  he  had  received  notice  of  the  payment 
of  the  draft  upon  Good  Brothers  &  Co.,  given  to  him  to  recover 
his  advances,  which  fact  he  did  not  communicate  to  the  under- 
writers, then  the  plaintiffs  were  entitled  to  recover  the  amount 
of  the  insurance  money  which  he  had  received.  Hooper  excepted 
to  the  refusal  to  instruct  and  to  the  instruction  given.  The  jury 
found  for  the  plaintiffs,  and  judgment  was  entered  accordingly. 
The  defendant  then  brought   the  case  here  for  review. 

Air.  Justice  Swayne;,  after  stating  the  facts,  delivered  the  opinion 
of  the  court. 

As  the  facts  of  which  the  instruction  given  was  predicated  were 
all  indisputable  and  undisputed,  that  instruction  was  equivalent 
to  a  direction  to  find  for  the  plaintiffs.  The  same  remarks  apply 
mutatis  mutandis  to  the  instruction  asked  by  the  defendant.  The 
case,  then,  resolves  itself  in  to  this :  Were  the  plaintiffs  entitled 
to  recover  upon  the  case  as  presented  in  the  record? 

A  policy  like  the  one  here  in  question,  in  the  name  of  a  specified 
party,  "on  account  of  whom  it  may  concern,"  or  with  other  equiva- 
lent terms,  will  be  applied  to  the  interest  of  the  persons  for  whom 
it  was  intended  by  the  person  who  ordered  it,  provided  the  latter 
had  the  requisite  authority  from  the  former,  or  they  subsequently 
adopted  it.     1  Phillips,  Ins.  §  383. 

This  is  the  result,  though  those  so  intended  are  not  known  to 
the  broker  who  procures  the  policy,  or  to  the  underwriters  who 
are  bound  by  it.    Id.  §  384. 

One  may  become  a  party  to  an  insurance  effected  in  terms  ap- 
plicable to  his  interest,  without  previous  authority  from  him, 
by  adopting  it  either  before  or  after  the  loss  has  taken  place,  though 
the  loss  may  have  happened  before  the  insurance  was  made.  Id. 
§  388. 

The  adoption  of  the  policy  need  not  be  in  any  particular  form. 
Anything  which  clearly  evinces  such  purpose  is  sufficient. 

"It  is  now  clearly  established  that  an  insurable  interest,  sub- 
sisting during  the  risk  and  at  the  time  of  loss,  is  sufficient,  and  that 
the  assured  need  not  also  allege  or  prove  that  he  was  interested  at 


90  SUBJECT-MATTER    OF    THE  CONTRACT  (Ch.  2 

the  time  of  effecting  the  policy;  indeed,  it  is  every  day's  practice 
to  effect  insurance  in  which  the  allegation  could  not  be  made  with 
any  degree  of  truth;  as,  for  instance,  where  goods  are  insured  on  a 
return  voyage  long  before  they  are  bought."  1  Perkins'  Arnould, 
238. 

This  is  consistent  with  reason  and  justice,  and  is  supported  by 
analogies  of  the  law  in  other  cases.     We  will  name  a  few  of  them. 

A  deed  voidable  under  certain  circumstances  may  be  made  valid 
for  all  purposes  by  a  sufficient  after-consideration.  A  devise  to  a 
charitable  use  may  be  made  to  a  grantee  not  in  esse,  and  vest  and 
take  effect  when  the  grantee  shall  exist.  The  doctrine  of  spring- 
ing and  shifting  uses  is  familiar  to  every  real-property  lawyer. 
They  always  depend  for  their  efficacy  upon  events  occurring  sub- 
sequently to  the  conveyance  under  which  they  arise. 

Where  the  insurance  is  "lost  or  not  lost,"  the  thing  insured 
may  be  irrecoverably  lost  when  the  contract  is  entered  into,  and 
yet  the  contract  be  valid.  It  is  a  stipulation  for  indemnity  against 
past  as  well  as  future  losses,  and  the  law  upholds  it. 

Where  a  vessel  insured  for  a  stated  time  was  sold  and  trans- 
ferred and  was  repurchased  and  transferred  back  within  that 
time,  it  has  been  held  that  the  insurance  was  suspended  while  the 
title  was  out  of  the  assured,  "and  was  revived  again  on  the  re- 
conveyance of  the  assured  during  the  term  specified  in  the  policy." 
Worthington  v.  Bearse  and  Others,  12  Allen  (Mass.)  382,  90  Am. 
Dec.  152. 

A  right  of  property  in  a  thing  is  not  always  indispensable  to 
an  insurable  interest.  Injury  from  its  loss  or  benefit  from  its 
preservation  to  accrue  to  the  assured  may  be  sufficient,  and  a  con- 
tingent interest  thus  arising  may  be  made  the  subject  of  a  policy. 
Lucena  v.  Craufurd  et  al.,  3  Bos.  &  Pul.  75;  s.  c.  5  id.  269;  Buck 
&  Hedrick  v.  Chesapeake  Insurance  Co.,  1  Pet.  151,  7  L.  Ed.  90; 
Hancox  v.  Fishing  Insurance  Company,  3  Sumn.  132,  Fed.  Cas. 
No.  6,013. 

In  the  law  of  marine  insurance,  insurable  interests  are  multi- 
form and  very  numerous. 

The  agent,  factor,  bailee,  carrier,  trustee,  consignee,  mortgagee, 
and  every  other  lien-holder,  may  insure  to  the  extent  of  his  own 
interest  in  that  to  which  such  interest  relates ;  and  by  the  clause,  "on 
account  of  whom  it  may  concern,"  for  all  others  to  the  extent  of 
their  respective  interests,  where  there  is  previous  authority  or 
subsequent  ratification. 

Numerous  as  are  the  parties  of  the  classes  named,  they  are  but 
a  small  portion  of  those  who  have  the  right  to  insure. 

Where  money  is  advanced,  as  in  this  case,  for  repairs  and  sup- 
plies to  enable  a  vessel  to  proceed  on  her  voyage,  the  lender  has  a 
lien,  not  on  the  cargo,  but  upon  the  vessel,  and  the  amount  of 
the  debt  may  be  protected  by  insurance  upon  the  latter.     Insur- 


Sec.  2)       INSURABLE  INTEREST MARINE  INSURANCE  91 

ance  Company  v.  Baring,  20  Wall.  163,  22  L.  Ed.  250,  and  the  au- 
thorities there  cited.  If  the  owner  of  a  vessel,  being  also  the 
owner  of  the  cargo,  or  the  owner  of  the  cargo,  not  being  the  own- 
er of  the  vessel,  procures  a  third  person  to  make  such  advances 
upon  an  agreement  that  he  shall  be  repaid  from  the  cargo,  and  a 
bill  of  lading  is  furnished  to  him,  he  has  a  lien  on  the  cargo  for 
the  amount  of  his  advances,  and  may  insure  accordingly.  Clark 
V.  Mauran  and  Others,  3  Paige  (N.  Y.)  373;  Dows  v.  Greene, 
24  N.  Y.  638;  Holbrook  v.  Wight,  24  Wend.  (N.  Y.)  169,  35  Am. 
Dec.  607.  The  assignment  of  a  bill  of  lading  passes  the  legal 
title  to  the  goods.  Chandler  v.  Belden,  18  Johns.  (N.  Y.)  157, 
9  Am.  Dec.  193.  The  assignment  of  a  debt,  ipso  facto,  carries 
with  it  a  lien  and  all  other  securities  held  by  the  assignor  for  the 
discharge  of  such  debt.  The  Hull  of  a  New  Ship,  2  Ware,  203, 
Fed.  Cas.  No.  6,859;  Pattison  v.  Hull,  9  Cow.  (N.  Y.)  747;  Lang- 
don  v.  Buel,  9  Wend.  (N.  Y.)  80. 

Where  a  lien  subsists  either  on  the  vessel  or  cargo,  a  third  party 
may  pay  the  debt,  and,  with  the  consent  of  the  debtor  and  cred- 
itor, be  substituted  to  all  the  rights  of  the  latter.  Dixon  on  Sub- 
rogation, 163 ;  Garrison  et  al.  v.  Memphis  Insurance  Co.,  19  How. 
312,  15  L.  Ed.  656;  The  Cabot,  1  Abb.  Adm.  (U.  S.)  150,  Fed. 
Cas.  No.  2,277.  Where  there  is  neither  an  agreement  nor  an  as- 
signment, there  can  be  no  subrogation,  unless  there  has  been  a 
compulsory  payment  by  the  party  claiming  to  be  substituted. 
Sandford  v.  McLean,  3  Paige  (N.  Y.)  117,  23  Am.  Dec.  773. 

Recurring  to  the  facts,  there  are  two  points  upon  which  we 
deem  it  proper  particularly  to  remark : 

First.  We  find  no  ground  for  any  imputation  of  bad  faith  upon 
Hooper.  We  think  there  was  no  indirection  and  no  purpose  of 
concealment  on  his  part.  Before  the  insurance  was  effected,  the 
underwriters  had  a  clear  right,  if  they  so  desired,  to  know  for 
whom  they  were  asked  to  insure.  Buck  &  Hedrick  v.  Chesapeake 
Insurance  Co.,  supra.  They  made  no  inquiry.  This  excused 
Hooper  from  making  any  communication  upon  the  subject.  When 
the  insurance  money  was  paid,  although  the  face  of  the  policy 
and  other  facts,  patent  and  notorious,  which  must  have  been  known 
to  the  underwriters,  showed  clearly  that  the  advances  were  made, 
and  that  the  insurance  was  effected  by  Hooper,  not  for  himself, 
but  for  others,  the  underwriters  were  again  silent.  The  draft  on 
Good  Brothers  &  Co.  had  then  been  sold,  and  Hooper  had  received 
the  money.  Thereafter  he  had  nothing  at  stake  but  the  solvency 
of  the  drawees.  When  the  adjuster,  more  than  a  month  later, 
made  the  inquiry,  which  should  have  been  made  before.  Hooper 
had  paid  over  the  money.  He  then  made  a  frank  and  full  disclo- 
sure. We  see  no  reason  to  doubt  that  if  the  inquiry  had  been  made 
earlier  it  would  have  been  answered  in  the  same  way.  In  this 
respect   the   underwriters  have   themselves   to   blame   rather   than 


92  .    SUBJECT-MATTER    OF    THE  CONTRACT  (Ch.  2 

Hooper.  The  record  discloses  no  ground  upon  which,  ex  aequo  et 
bono,  he  can  be  called  upon  to  pay  back  the  fund  in  controversy. 

Second.  It  does  not  appear  in  the  record  to  whom  the  vessel  and 
cargo  belonged.  There  is  not  a  ray  of  light  upon  the  subject.  In 
that  respect  the  case  is  left  wholly  in  the  dark. 

The  proof  as  to  who  were  intended  to  be  insured  is  that  they 
w'ere  Good  Brothers  &  Co.,  and  no  one  else,  though,  according  to 
the  terms  of  the  policy,  payment  in  the  event  of  loss  was  to  be 
made  to  Hooper  &  Co.  The  former  fact  is  established  by  the  tes- 
timony of  Hooper,  and  there  is  none  other  upon  the  subject.  He 
is  unimpeached,  and  his  testimony  is  conclusive.  The  inquiry 
then  arises,  whether  Good  Brothers  &  Co.  had  any  insurable  in- 
terest in  the  cargo.  It  does  not  appear  whether  they  had  or  had 
not.  We  have  suggested  several  ways  in  which  such  an  interest 
may  have  arisen,  and  have  shown  that  under  the  policy  in  question 
it  would  have  been  sufficient  if  it  had  subsisted  at  any  time  before 
the  loss  was  known  to  them.  It  may  possibly  have  arisen  in  other 
modes.  This  brings  us  to  the  question  of  the  burden  of  proof.  Did 
it  rest  upon  the  plaintiffs  or  upon  the  defendant?  In  order  to 
maintain  the  plaintiififs'  case  it  was  necessary  to  be  made  to  appear 
that  Good  Brothers  &  Co.,  the  assured,  had  no  insurable  interest 
in  the  cargo,  being  the  thing  insured.  Upon  both  reason  and  au- 
thority, we  think  the  onus  probandi  was  upon  the  plaintiffs. 

It  was  for  them  to  make  out  their  case.  The  premium  had  been 
paid,  the  loss  had  occurred,  and  the  indemnity  money  had  been 
received  by  the  agents  of  the  assured  and  paid  over  to  their  prin- 
cipals. The  plaintiffs  claim  the  right  to  go  behind  all  this,  and  to 
reclaim  from  Hooper  the  fund  thus  received  and  parted  with.  It 
was  incumbent  upon  them  to  establish  everything  necessary  to 
entitle  them  to  recover,  and  they  have  no  right  to  throw  upon  the 
defendant  any  part  of  the  burden  that  belonged  to  themselves. 
For  authorities  upon  this  subject  see  1  Greenl.  Evid.  §§  34,  35, 
80,  81,  and  the  notes.  Such  is  the  legal  result,  nothwithstanding 
the  negative  form  of  the  averment,  to  be  established. 

But  suppose  the  case  were  made  out  as  against  Good  Brothers 
&  Co.,  and  that  a  recovery  could  be  had  if  the  action  were  against 
them,  still  it  by  no  means  follows  that  the  plaintiff  in  error  was 
liable. 

There  was  laches  on  the  part  of  the  underwriters,  or  their  agents,, 
which  is  the  same  thing.  Nothing  in  the  record  is  clearer  than 
that  Hooper  received  the  money  as  the  agent  of  the  assured.  It 
was  his  duty  immediately  to  advise  his  principals  and  promptly 
to  pay  them.  1  Wait,  Actions  and  Defenses,  252,  255.  This  latter 
duty  it  appears  he  performed.  He  had  then  received  no  notice  of 
the  adverse  claims  subsequently  made,  and  had  no  reason  to  ex- 
pect it.  His  parting  with  the  money  is  proof  of  his  sincerity  and 
honesty. 


Sec.  2)       INSURABLE  INTEREST — MARINE  INSURANCE  93 

Under  all  the  circumstances,  we  think  he  is  entitled  to  the  bene- 
fit of  the  principle  which  in  such  cases  gives  immunity  to  the  agent 
and  refers  the  party  complaining  for  satisfaction  to  the  principals 
who  have  received  and  hold  the  money. 

There  was  error  in  the  instruction  given  by  the  court  to  the  jury. 

The  counsel  on  neither  side  referred  to  the  state  of  the  pleadings. 
We  have,  therefore,  not  adverted  to  that  subject,  but  have  con- 
sidered the  case  as  it  was  argued, — entirely  upon  the  merits. 

The  judgment  of  the  Circuit  Court  will  be  reversed,  and  the 
cause  remanded  for  further  proceedings  in  conformity  to  this  opin- 
ion;   and  it  is  so  ordered. '° 


SHAW  V.  ^TNA  INS.  CO. 

(Supreme  Court  of  Missouri,  1872.    49  Mo.  578,  8  Am.  Rep.  150.) 

Adams,  J.  This  was  an  action  on  a  policy  of  insurance  issued 
by  defendant.  The  plaintiffs  filed  a  second  amended  petition,  to 
which  the  defendant  demurred;  the  demurrer  was  sustained  and 
judgment  given  thereon  against  the  plaintiffs,  from  which  they 
appealed  to  the  general  term,  where  the  judgtnent  of  the  special 
term  was  affirmed,  and  the  plaintiffs  have  appealed  to  this  court. 

The  petition  substantially  sets  forth  that  the  plaintiffs,  being  the 
owners  of  five  barges  of  ice,  on  the  upper  Mississippi  river,  con- 
signed the  same  to  Scherholtz  &  Klinesmith,  of  the  city  of  St. 
Louis,  to  be  sold  by  them  on  commission ;  that  the  plaintiffs  or- 
dered the  consignees  to  have  the  ice  insured,  and  that  the  con- 
signees undertook  the  agency  and  agreed  to  have  the  ice  insured  for 
plaintiffs.  Instead  of  insuring  the  ice  in  the  names  of  the  plaintiff's, 
they  made  the  insurance  in  their  own  names,  to  indemnify  them- 
selves in  case  of  loss,  as  they  would  be  liable  for  such  loss,  having 
disobeyed   the   instructions    of    their    principals    in    not   procuring 

2  5  Insurance  for  Whom  It  may  Concern. — Policies  made  payable  "to  whom 
it  may  concern"  or  "on  account  of  owner"  are  of  frequent  occurrence  in  ma- 
rine insurance.  It  seems  tliat  such  a  designation  includes  all  persons  pos- 
sessing an  insurable  interest  who  are  contemplated  by  the  person  who  takes 
out  the  insurance.  Hagan  v.  Scottish  Union  Ins.  Co..  186  U.  S.  423,  22  Sup. 
Ct.  862,  46  L.  Ed.  1229  (1902) ;  Duncan  v.  China  Mut.  Ins.  Co.,  129  N.  Y. 
237,  29  N.  E.  76  (1891).  It  seems  that  the  person  really  interested  in  property 
insured  under  such  a  policy  may  take  the  benefit  of  the  insurance,  though 
the  insurance  was  not  authorized,  by  ratifying  the  agent's  act  even  after 
loss.  See  Hagan  v.  Scottish  Union  Ins.  Co.,  supra ;  Williams  v.  North  China 
Ins.  Co.,  L.  R.  1  C.  P.  D.  757  (1876).  But  in  a  recent  English  case  it  has  been 
held  that  this  rule  does  not  extend  to  unauthorized  contracts  of  fire  insur- 
ance. See  Grover  v.  Mathews,  [1910]  2  K.  B.  401.  The  broad  rule  obtaining 
in  marine  insurance  does  not,  however,  cover  the  case  where  a  person,  not 
within  the  contemplation  of  the  agent  taking  out  the  insurance,  subsequent- 
ly acquires  an  interest  in  the  property  covered  by  the  policy.  Boston  Fruit 
Co.  V.  British  &  Foreign  Mar.  Ins.  Co.  (H.  L.)  [1906]  A.  C.  336.  See,  also. 
Pacific  Ins.  Co.  v.  Catlett,  4  Wend.  (N.  Y.)  75  (1829). 


94  SUBJECT-MATTER    OF   THE   CONTRACT  (Cll.  2 

insurance  in  their  names.  One  of  the  barges  of  ice  was  lost  by  a 
peril  provided  against,  and  the  consignees  assigned  the  policy  to 
plaintiffs,  and  this  suit  was  brought  by  them  as  assignees  for  the 
value  of  the  lost  cargo.  The  alleged  ground  of  demurrer  was  that 
the  consignees  had  no  insurable  interest  in  the  ice. 

A  consignee,  as  such,  has  no  insurable  interest  in  goods  con- 
signed to  him  for  sale  on  commission,  unless  it  be  to  the  extent 
of  the  commissions  or  profits  he  expects  to  derive  from  such 
sales.  This  he  has  a  right  to  insure,  regardless  of  any  instruc- 
tions from  the  consignor.  But  if  he  accepts  a  consignment  with 
instructions  from  his  principals  to  insure  for  their  benefit,  it  be- 
comes his  duty  to  insure ;  and  if  he  neglects  to  do  so  and  a  loss 
occurs,  he  is  liable  to  them  for  the  amount.  The  consignees,  in 
the  case  under  consideration,  instead  of  taking  out  a  new  policy 
in  the  names  of  their  principals,  had  the  risk  entered  on  their 
own  policy  in  their  own  names,  as  a  convenient  mode  of  indemnify- 
ing themselves  against  such  damage  as  they  might  suffer  in  not 
insuring  in  the  names  of  their  principals.  I  think  they  had  the 
right  to  thus  protect  themselves,  and  to  this  end  they  ought  to  be 
considered  as  interested  to  the  full  value  of  the  ice.  See  Bartlet 
et  al.  V.  Walter,  13  Mass.  267,  7  Am.  Dec.  143;  Oliver  v.  Greene, 
3  Mass.  133,  3  Am.  Dec.  96;   Herkimer  v.  Keil,  27  N.  Y.  163. 

After  being  ordered  to  insure,  the  consignees  might  have  con- 
sidered themselves  trustees  for  the  consignors  and  insured  in  their 
own  names  for  them.  My  impression  is  that  in  such  case  the  "posi- 
tive stipulation  of  the  underwriter  to  pay  the  loss  to  the  agent 
would  never  be  rendered  void  by  the  inability  of  the  party  really 
assured  to  sustain  an  action  on  the  policy  in  his  own  name."  See 
2  Duer,  Ins.  7,  §  6.  In  such  case  the  policy  ought  to  inure  to  the 
benefit  of  the  principal,  and  the  agent  or  consignee  be  treated  as 
a  trustee  of  an  express  trust,  and  the  amount  of  recovery  would 
go  to  his  principal.  But  whether  he  is  a  trustee  of  an  express 
trust  or  not,  he  is  nevertheless  a  trustee  for  the  consignor;  and 
in  a  suit  upon  the  policy,  in  the  name  of  the  consignee,  this  may 
be  shown  in  order  to  show  that  he  had  an  insurable  interest  as  trus- 
tee for  his  consignor.  The  demurrer  in  this  case  ought  to  have 
been  overruled. 

Judgment  reversed  and  cause  remanded.  The  other  judges 
concur.^^ 

26  See,  further,  as  to  the  extent  of  the  consignee's  right  to  insure,  Sea- 
grave  V.  Union  Marine  Ins.  Co.,  L.  R.  1  C.  P.  305  (1S66)  ;  Hill  v.  Secretan, 
1  B.  &  P.  315  (1798) ;  Wolff  v.  Horncastle,  1  B.  &  P.  316,  13  Eng.  Ruling  Cas. 
265  (1798). 

As  to  the  rights  of  bailees  in  general  to  insure  goods  in  their  possession, 
see  Ferguson  v.  Pekin  Plow  Co.,  141  Mo.  161.  42  S.  W.  711  (1897) ;  Wagner 
V.  Westchester  Fire  Ins.  Co.,  92  Tex.  549,  50  S.  W.  569  (1899).  Such  bailee 
may  insure  the  property  in  his  own  name,  and  upon  its  destruction  recover 
the  full  value  of  the  property,  holding  the  excess  above  his  own  interest  in 
trust  for  the  owners.     See  Home  Ins.  Co.  v.  Warehouse  Co.,  93  U.  S.  527,  23 


Sec.  3)         INSURABLE  INTEREST FIRE  INSURANCH  95 


SECTION  3.— WHAT  CONSTITUTES  INSURABLE  INTER- 
EST—FIRE INSURANCE 


GREVEMEYER  v.  SOUTHERN  MUT.  FIRE  INS.  CO. 
(Supreme  Court  of  Pennsylvania,  1869.    62  Pa.  340,  1  Am.  Rep.  420.) 

TnoMrsoN,  C.  J.  Four  years  after  the  plaintiff  had  effected  an 
insurance  on  the  property  covered  by  the  policy  of  the  defendant 
on  which  the  suit  was  brought,  he  sold  and  conveyed  it  to  a  third 
party,  one  Donahoe,  and  having  received  a  portion  of  the  purchase- 
money,  took  a  judgment  for  the  balance.  Some  months  after  this 
the  property  was  destroyed  by  fire.  Not  having  assigned  the  policy 
to  the  purchaser,  he  now  claims  to  recover  on  it  in  satisfaction  of 
his  judgment,  on  the  ground  that  to  that  extent  he  has  an  interest 
in  the  property  sold  and  conveyed. 

That  there  is  material  difference,  especially  in  the  law  of  insur- 
ance, between  a  mortgage  and  judgment,  is  beyond  question.  The 
able  argument  of  the  counsel  for  the  defendant  in  error,  and  the 
authorities  cited  by  them,  very  clearly  show  this.  In  Britton's 
Appeal,  45  Pa.  172,  Strong,  J.,  said:  "They  [mortgages]  are  in 
form  defeasible  sales,  and  in  substance  grants  of  specific  security, 
or  interest  in  land  for  the  purpose  of  security.  Ejectment  may 
be  maintained  by  a  mortgagee,  or  he  may  hold  possession  on  the 
footing  of  ownership  and  with  all  its  incidents." 

That  a  mortgagee  has  an  insurable  interest  on  property  is  so 
well  understood  that  it  would  be  a  waste  of  time  to  cite  authorities 
to  prove  it.  Hence  it  is  a  very  common  thing  to  strengthen  the 
security  by  insurance  of  the  property  for  the  benefit  of  the  mort- 
gagee. That  its  purpose  is  ordinarily  a  security  does  not  destroy 
the  legality  of  the  insurance.  The  interest  in  the  property  pledged 
or  mortgaged  is  coextensive  with  the  security  it  is  to  satisfy.  Be- 
ing a  specific  lien,  no  other  property  is  answerable.  It  is  there- 
fore a  specific  pledge  of  definite  property,  and  the  mortgagee  has 
necessarily  an  interest  in  it. 

But  a  judgment  is  a  general  and  not  a  specific  lien.  Ruth's 
Appeal,  54  Pa.  173.  If  there  be  personal  property  of  the  debtor, 
it  is  to  be  satisfied  out  of  that.  If  there  be  not,  then  it  is  a  lien 
on  all  his  real  estate  without  discrimination,  and  hence  the  plain- 
tiff is  not  interested  in  the  property  as  property,  but  only  in  his 

L,  Ed.  868  (1876);    Murdock  v.  Insurance  Co.,  33  W.  Va.  407,  10  S.  E.  777, 
7  L.  R.  A.  572  (18S0) ;    Waters  v.  Assurance  Co.,  5  El.  &  Bl.  870  (1856). 

As  to  measure  of  insurable  interest  of  bailor  and  bailee,  see  11  Harv.  Law 
Rev.  520-523. 


96  SUBJECT-MATTER    OP    THE  CONTRACT  (Ch.  2 

lien.  As  was  said  in  Cover  v.  Black,  1  Pa.  493,  the  judgment- 
creditor  has  neither  jus  in  re  nor  ad  rem,  as  regards  the  defend- 
ant's property.  He  has  a  lion,  and  the  law  gives  a  right  to  satis- 
faction out  of  the  property,  and  that  is  all.  For  the  same  doctrine 
see  Reed's  Appeal,  13  Pa.  476,  and  Conard  v.  AtU'intic  Ins.  Co.,  1 
Pet.  386,  7  L.  Ed.  189.  To  these  might  be  added  citations  of 
authorities  almost  without  limit. 

The  result  of  all  this  is  that  the  plaintiff,  having  sold  and  con- 
veyed the  property  in  question  before  its  destruction  by  fire, 
taking  only  a  judgment  for  the  unpaid  purchase-money,  had  no 
interest  in  the  property  when  it  was  destroyed.  That  the  judg- 
ment, being  for  purchase-money,  did  not  draw  after  it  a  specific 
pledge  of  the  land,  as  in  case  of  a  mortgage,  is  shown  by  Ruth's 
Appeal,  supra.  Like  any  other  judgment,  it  was  a  general  lien, 
and  to  be  satisfied  by  execution  of  the  personal  property  of  the 
debtor  first,  and  after  that  out  of  any  other  estate  as  well  as  that 
for  which  it  was  given  to  secure  purchase-money. 

This  want  of  interest  in  the  property  was  a  complete  answer  to 
the  plaintiff's  action,  and  renders  it  unnecessary  to  consider  other 
questions  considered  in  the  argument.    Judgment  affirmed. 


ROHRBACH  v.  GERMANIA  LIFE  INS.  CO. 

(Court  of  Appeals  of  New  York,  1875.    62  N.  Y.  47,  20  Am.  Rep.  451.) 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court  in  the  third  judicial  department,  affirming  a  judgment  in 
favor  of  plaintiff  entered  upon  a  verdict.  Reported  below,  1 
Thomp.  &  C.  339. 

This  was  an  action  upon  a  policy  of  insurance,  by  its  terms 
insuring  plaintiff  upon  "his  two  framed  buildings"  situate  in  the 
village  of  Jefifersonville.  N.  Y.  Prior  to  the  28th  June,  1868,  the 
plaintiff  had  been  in  the  employ  of  Margaretha  Hartmann,  and 
she  was  indebted  to  him  for  his  labor  and  services.  On  that  day 
they  intermarried.  On  the  13th  of  the  same  month  she  executed 
and  delivered  to  him  an  instrument,  in  writing,  of  the  body  of 
which  the  following  is  a  copy : 

"Jefifersonville,  June  30th,  1868. 

"I  do  hereby  certify  that  I  owe  to  John  Rohrbach  the  sum  of 
seven  hundred  dollars ;  and,  also,  twenty-five  dollars  for  each  and 
every  month  from  the  fourteenth  day  of  July,  1863,  and  for  every 
month  he  may  live  with  me  henceforth  without  any  deduction 
whatsoever,  which  amount  shall  be  a  lien  on  my  property." 

She  died  intestate  July  8th,  1868,  leaving  personal  property  of 
the  value  of  $600,  and  a  lot  in  said  village  upon  which  were  the 
buildings  in  question.     The  principal  value  of  the  premises  was 


Sec.  3)         INSURABLE  INTEREST FIRE  INSURANCH  97 

in  the  buildings.  Her  indebtedness,  other  than  that  to  plaintiff, 
was  from  $1,200  to  $1,400.  Her  indebtedness  to  him  was  about 
$2,100.  Plaintiff  continued  in  the  use  and  occupation  of  the  build- 
ings. Plaintiff  obtained  the  policy  in  suit  in  December,  1868. 
*  *  *  Defendant's  counsel  moved  for  a  nonsuit  on  the  ground 
of  breach  of  warranty,  and  that  plaintiff  had  not  an  insurable 
interest.  The  motion  was  denied,  and  defendant's  counsel  ex- 
cepted.^^ 

FoLGER,  J.  The  plaintiff  cannot  maintain  this  action  unless  he 
had  an  insurable  interest  in  the  buildings  which  were  the  subject 
of  the  risk  taken  by  the  defendant,  and  which  were  destroyed  by 
fire.  He  seeks  to  found  such  an  interest  upon  the  instrument 
in  writing,  executed  by  his  wife  after  her  marriage  to  him. 

Without  entering  minutely  into  a  consideration  of  the  effect 
of  the  marriage  upon  her  pre-existing  obligations  and  liabilities 
to  him,  it  is  sufficient  to  say  that  the  instrument  executed  by  her 
was  based  upon  a  consideration  adequate  to  uphold  her  express 
promise ;  that  though  made  by  a  married  woman  it  was  in  due  form 
to  affect  her  separate  estate ;  and  that  though  a  transaction  be- 
tween a  wife  and  her  husband,  yet  equity  would  have  upheld  and 
enforced  it  in  his  favor  against  her  had  she  lived,  and  will  enforce 
it  against  her  estate  now  that  she  is  dead.  By  it  she  was  an 
equitable  creditor  of  her  estate  at  the  time  of  the  insurance;  but 
he  was  no  more  than  a  general  creditor.  Though  the  instrument 
contains  the  phrase  "shall  be  a  lien  on  my  property,"  no  specific 
lien  was  thereby  created,  and  so  far  as  that  instrument  had  effect, 
no  more  than  a  general  equitable  lien,  yet  to  be  enforced  and 
made  specific  by  a  judgment  in  an  equitable  action.  The  plain- 
tiff stood  thereby  in  no  better  plight,  so  far  as  having  an  insurable 
interest  in  the  buildings,  than  would  have  stood  a  creditor  of  the 
deceased  wife,  who  held  a  judgment  only,  rendered  and  docketed 
against  her,  which  would  have  become  a  general  lien  upon  her  real 
property.  He  did  not  stand  in  so  good  a  plight,  but  for  other 
facts  now  to  be  mentioned.  She  had  died  after  giving  the  instru- 
ment, leaving  personal  and  only  this  real  estate;  a  person  other 
than  the  plaintiff  had  taken  out  letters  of  administration  thereon; 
the  personal  estate  was  by  much  insufficient  to  pay  the  debts 
against  her;  and  this  real  estate,  including  the  insured  buildings, 
would  in  the  due  course  of  administration  for  a  space  of  at  least 
three  years  from  the  granting  of  letters  of  administration,  be  liable 
to  sale  for  the  purpose  of  meeting  her  liabilities,  and  it  was  the 
only  fund  to  which  the  plaintiff  could  look  for  payment;  the  plain- 
tiff was  in  the  possession  of  the  buildings,  occupying  them  at  the 
time  of  the  fire. 

2  7  Such  portions  of  the  statement  of  facts  and  of  the  opinion  as  do  not 
relate  to  insurable  interest  are  omitted. 
Vance  Ins. — 7 


98  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

Judg^ment  creditors,  if  any,  would  have  had  a  preference  in  pay- 
ment from  the  personal  estate  (2  Rev.  St.  p.  87,  §  27,  subsecs.  3, 
4),  and  of  course  the  lien  acquired  by  the  docketing  of  their  judg- 
ments could  not  be  disturbed  by  the  application  of  the  adminis- 
trator for  leave  to  sell  the  real  estate,  for  the  payment  of  debts,  and 
the  obtaining  of  permission  to  do  so.  But  yet  the  plaintiff  had  a 
right  to  compel  an  accounting  by  the  administrator  (Id.  p.  92,  § 
52),  and  a  sale  of  the  real  estate  (Id.  p.  108,  §  48),  for  the  pay- 
ment of  his  and  other  debts.  Thus  the  real  estate  was  to  a  degree 
subject  to  the  payment  thereof,  and  was  in  fact  from  the  slender 
amount  of  the  personal  property,  substantially  all  that  he  could 
look  to  for  payment.  His  position  was  not  as  good  in  some  re- 
spects as  that  of  a  judgment  creditor,  but  it  was  not  unlike  it; 
both  had  a  right  to  have  the  real  estate  sold  for  the  payment  of 
their  debts;  for  a  certain  space  of  time  it  could  not  escape  the 
exercise  of  that  right;  and  it  cannot  be  said  that  the  interest  of 
a  judgment  creditor  in  the  real  estate,  as  an  interest  in  property, 
was  greater  or  nearer  than  that  of  the  plaintiff.  It  was  more  man- 
ageable, but  not  more  direct  in  the  end. 

The  general  definitions  of  the  phrase  "insurable  interest,"  as 
given  in  the  text-books,  are  quite  vague  and  not  always  concord- 
ant. See  1  Arn.  Ins.  229;  Buny.  Assur.  16;  Hughes,  Ins.  30;  1 
Marsh.  Ins.  115;  1  Phil.  Ins.  2,  107;  Sherm.  Ins.  93;  Pars.  Merc' 
Law,  507;  Pars.  Cont.  438;  Ang.  Ins.  §  56;  Fland.  Ins.  342;  May, 
Ins.  §  76.  The  last  cited  author  says  that  an  insurable  interest 
sometimes  exists  where  there  is  not  any  present  property,  any  jus 
in  re,  or  jus  ad  rem,  and  such  a  connection  must  be  established 
between  the  subject-matter  insured,  and  the  party  in  whose  behalf 
the  insurance  has  been  effected,  as  may  be  sufficient  for  deducing 
the  existence  of  a  loss  to  him,  from  the  occurrence  of  an  injury 
to  it;  and  that  the  tendency  of  modern  decisions  is  to  admit  to 
the  protection  of  the  contract,  whatever  act,  event  or  property, 
bears  such  relation  to  the  person  seeking  insurance,  as  that  it  can 
be  said  with  a  reasonable  degree  of  probability,  to  have  a  bearing 
upon  his  prospective  pecuniary  condition.  While  on  the  other 
hand,  the  statement  is,  that  the  interest  must  be  founded  on  some 
legal  or  equitable  title;  and  if  it  be  inconsistent  with  the  only 
title  which  the  law  can  recognize,  it  will  not  be  deemed  an  insur- 
able interest.    Marsh.  Ins.,  supra. 

But  the  result  of  a  comparison  of  the  text-writers  above  cited 
is,  that  there  need  not  be  a  legal  or  equitable  title  to  the  property 
insured.  If  there  be  a  right  in  or  against  the  property,  which  some 
court  will  enforce  upon  the  property,  a  right  so  closely  connected 
with  it,  and  so  much  dependent  for  value  upon  the  continued  exist- 
ence of  it  alone,  as  that  a  loss  of  the  property  will  cause  pecuniary 
damage  to  the  holder  of  the  right  against  it,  he  has  an  insurable 
interest.     Thus  a  mortgagee  of  real  estate,  though   he  hold  also 


Sec.  3)         INSURABLE  INTEREST — FIRE  INSURANCE  99 

the  bond  of  the  mortgagor,  has  an  insurable  interest  in  the  build- 
ings; while  a  judgment  creditor  of  the  same  mortgagor,  his  judg- 
ment being  a  lien  upon  the  same  real  estate  and  the  same  build- 
ings, it  said  not  to  have  an  insurable  interest  in  them.  The  inter- 
est of  the  first  is  said  to  be  specific,  the  interest  of  the  latter  gen- 
eral. As  a  general  rule  the  distinction  may  be  sound.  But  I 
think  it  would  be  difficult  to  show  an  appreciable  practical  differ- 
ence in  the  pecuniary  result  to  the  two.  If  the  mortgagor  and 
judgment  debtor  should  die,  leaving  no  personal  property,  and 
no  real  estate  save  that  mortgaged,  it  principally  valuable  for  the 
buildings  upon  it,  and  they  should  be  burned,  each  must  then  look 
to  the  real  estate,  the  lands  alone,  for  a  security  for  his  debt;  and 
if  that  be  insufficient,  each  must  with  equal  certainty  suffer  a 
pecuniary  disaster,  resulting  directly  from  the  fire.  What  legal 
reason  is  there  why  the  one  may  not,  as  well  as  the  other,  protect 
himself  by  a  contract  of  insurance? 

In  Grevemeyer  v.  Insurance  Co.,  62  Pa.  340,  1  Am.  Rep.  420, 
it  was  held  that  a  judgment  creditor,  whose  judgment  was  taken 
for  the  purchase-money  of  the  property  burned,  had  no  insurable 
interest.  See,  also,  Conard  v.  Insurance  Co.,  1  Pet.  386,  7  L.  Ed. 
189.  The  reason  given  is,  that  his  lien  was  general,  and  not 
specific;  that  he  was  not  interested  in  the  property,  but  in  his 
lien  only.  His  judgment  was  distinguished  from  a  mortgage,  in 
that  the  "latter  is  a  specific  pledge  of  definite  property,  and  the 
mortgagee  has  necessarily  an  interest  in  it;  while  the  judgment 
is  a  general,  and  not  a  specific  lien;  so  that  if  there  be  personal 
property  of  the  debtor  it  is  to  be  satisfied  out  of  that;  if  there 
be  not,  then  it  is  a  lien  on  all  his  real  estate  without  discrimina- 
tion. And,  citing  Cover  v.  Black,  1  Pa.  493,  it  is  said  that  a  judg- 
ment creditor  has  neither  jus  in  re,  nor  jus  ad  rem,  as  regards  the 
judgment  debtor's  property.  It  seems  to  me  that  the  decision 
there  goes  very  much  upon  the  fact  or  the  assumption  that  the 
judgment  debtor  had  other  property,  real  and  personal,  to  look 
to  than  the  real  estate  damaged;  and  that  it  does  not  touch  the 
case  of  a  judgment  creditor  whose  only  or  principal  reliance  for 
payment  was  upon  the  property  destroyed. 

That  there  need  not  be  an  existing  jus  in  re,  or  jus  ad  rem,  is 
declared  by  Story,  J.,  in  Hancox  v.  Insurance  Co.,  3  Sumn.  132-140, 
Fed.  Cas.  No.  6,013 ;  and  also  that  the  right  to  pursue  the  debtor 
personally  does  not  deprive  the  creditor  of  an  insurable  interest. 
Id.  In  Putnam  v.  Insurance  Co.,  5  Mete.  (Mass.)  386,  which  was 
an  insurance  for  a  commission  merchant  upon  his  expected  com- 
mission from  the  sale  of  a  cargo  consigned  to  him  to  be  sold,  but 
in  which  cargo  he  had  no  other  ownership  or  interest,  it  is  said 
that  such  an  interest  in  property  connected  with  its  safety  and  its 
situation,  as  will  cause  the  insured  to  sustain  a  direct  loss  from 
its  destruction,  is  an  insurable  interest.     The  question  is  one  of 


100  SUBJECT-MATTER    OF    TUE   CONTRACT  (Ch.  2 

damages  rather  than  title  or  possession ;  and  it  will  be  enough  in 
general  to  show  such  a  relation  between  the  insured  and  the  prop- 
erty that  injury  to  it  will  in  natural  consequence  be  lost  to  him; 
and  it  is  not  necessary  to  show  that  the  insured  is  the  legal  or 
equitable  owner.  Wilson  v.  Jones,  L.  R.  2  Exch.  139;  Buck  v. 
Insurance  Co.,  1  Pet.  151,  7  L."  Ed.  90. 

It  will  be  perceived  that  between  the  case  cited  from  62  Pa. 
St.  supra,  and  the  case  in  hand,  there  are  some  features  of  distinc- 
tion ;  here  the  debtor  was  dead ;  there  was  no  longer  any  personal 
liability,  nor  sufficient  personal  property  to  satisfy  the  debt;  nor 
as  may  be  inferred,  any  other  real  estate  than  that  insured.  A 
fund  for  the  payment  of  the  debt  was  to  be  found  only  in  this 
estate,  and  principally  in  the  buildings  insured.  By  force  of  these 
circumstances,  and  by  operation  of  the  statutes  above  referred  to, 
this  real  estate  was  for  a  certain  length  of  time  bound  for  the  pay- 
ment of  this  debt.  As  it  was  bound,  as  it  alone  was  bound,  as 
there  was  nought  else,  nor  any  person,  liable  for  the  debt,  it  is  diffi- 
cult to  see  why,  in  effect,  the  debt  was  not  as  if  a  specific  lien  upon 
this  real  estate.  A  lien,  in  its  most  extensive  signification,  is  a 
charge  upon  property  for  the  payment  or  discharge  of  a  debt  or 
duty.  A  specific  lien  is  a  charge  upon  a  particular  piece  of  prop- 
erty, by  which  it  is  held  for  the  payment  or  discharge  of  a  partic- 
ular debt  or  duty  in  priority  to  the  general  debts  or  duties  of  the 
owner. 

It  is  not  the  name  of  the  right  which  gives  or  refuses  an  insur- 
able interest;  it  is  the  character  of  the  right.  A  specific  lien  gives 
an  insurable  interest,  because  a  loss  of  the  particular  property  is 
at  once  seen  to  affect  disastrously  the  specific  lienor.  But  when 
a  right  to  payment  of  a  debt  exists,  which  can  be  satisfied  only 
from  a  particular  piece  of  property,  is  there  not  the  same  result 
from  the  same  cause?  If  I  have  a  debt  against  another,  and  he 
have  but  one  piece  of  real  estate  from  which  my  debt  may  be  made, 
and  he  die  leaving  no  personal  estate,  though  in  technical  language 
my  lien  may  not  be  specific  upon  that  real  estate,  it  is  true  in  fact 
that  there  is  a  specific  piece  of  property  from  which  alone  I  may 
hope  to  satisfy  my  lien,  and  which  is  alone  legally  bound  to  satisfy 
it,  and  I  am  practically  just  like  one  to  whom  that  piece  of  real 
property  has  been  specifically  pledged  for  a  specific  debt.  If  the 
latter,  for  that  he  may  suffer  pecuniary  loss  by  the  burning  of  that 
real  property,  has  such  an  interest  as  that  he  may  insure  against 
that  burning,  I  have  such  an  interest  also,  and  I,  too,  may  insure. 
The  probability — nay,  the  possibility  of  the  payment  of  the  plain- 
tiff's debt  out  of  the  property  of  the  deceased  debtor — rested  en- 
tirely upon  the  contingency  of  this  real  estate  remaining  without 
serious  impairment  in  value. 

The  reports  of  this  state  are  meagre  upon  this  precise  question. 
In  Mapes  v.  Coffin,  5  Paige,  296,  the  complainant  had  levied  upon 


Sec.  3)         INSURABLE  INTEREST FIRE  INSURANCE!  101 

chattels  in  the  hands  of  an  executor  of  the  judgment  debtor,  which 
had  been  insured  by  the  testator  in  his  life-time,  and  which  were 
destroyed  by  fire  after  the  testator's  death,  and  after  the  levy. 
The  chancellor,  in  a  contest  between  judgment  creditors,  gave  the 
avails  of  the  insurance  to  the  creditors  who  had  made  the  first 
levy.  Perhaps  the  levy  upon  the  property  made  a  specific  lien 
upon  it,  and  so  the  case  does  not  much  aid  us.  In  Mickles  v. 
Bank,  11  Paige,  118,  42  Am.  Dec.  103,  the  defendants  were  judg- 
ment creditors  of  a  manufacturing  corporation,  had  issued  several 
executions,  had  sold  and  bid  in  personal  property,  and  advertised 
for  sale  the  real  estate.  Pending  the  advertisement,  they  took  out 
insurance  on  the  buildings  and  fixtures  in  the  joint  name  of  them- 
selves and  the  corporation.  A  few  days  after,  the  real  estate  was 
sold  and  bid  in  by  the  defendants.  After  that  occurred  a  fire,  with 
damage  to  the  buildings  and  fixtures.  The  insurers  repaired  the 
buildings,  and  paid  for  the  damage  by  fire  to  the  fixtures.  The 
real  estate  was  never  redeemed.  There  seems  to  have  been  no 
doubt  made  of  there  being  an  insurable  interest  in  the  creditors. 
By  advertising  the  premises  for  sale,  they  came  nearer  making 
their  judgment  a  specific  lien  thereupon,  though  it  was  still  a 
general  lien  upon  all  other  like  property.  In  Insurance  Co.  v.  Al- 
len, 43  N.  Y.  389-395,  396,  3  Am.  Rep.  711,  it  is  said  by  Allen. 
J. :  "An  insurable  interest  may  exist  without  any  estate  or  interest 
in  the  corpus  of  the  thing  insured;"  "it  was  enough  that"  there 
be  "a  pecuniary  interest  in  the  preservation  and  protection  of  the 
property,  and"  that  one  "might  sustain  a  loss  by  its  destruction." 

I  know  of  no  decision  in  this  state  bearing  more  directly  upon 
this  precise  question,  than  that  in  Herkimer  v.  Rice,  27  N.  Y.  163. 
The  propositions  advanced  there  are  sufficient,  if  sustainable,  or 
if  to  be  taken  as  authority,  to  uphold  an  insurable  interest  in  the 
plaintiff  in  the  case  in  hand.  Denio,  Ch.  J.,  there  says :  "It  is 
certain  that  the  creditors  had  no  estate  whatever  in  the  real  prop- 
erty. In  a  technical  sense  they  had  no  lien.  But  they  had  import- 
ant rights  connected  with  it,  and  a  pecuniary  interest  in  its  pres- 
ervation. *  *  *  file  law  does  not  require  that  the  assured  shall 
have  an  estate  or  property  in  the  subject  of  the  insurance.  *  *  * 
No  property  in  the  thing  insured  is  required.  It  is  enough,  if  the 
assured  is  so  situated  as  to  be  liable  to  loss,  if  it  be  destroyed  by 
the  peril  insured  against.  Creditors  having  no  other  means  of 
enforcing  their  debts,  but  having  a  direct  and  certain  right  to 
subject  the  real  estate  to  a  sale  for  their  benefit,  have  an  interest 
as  positive  and  absolute  as  one  having  a  specific  lien,  or  even  as  the 
owner  himself.  *  *  *  The  creditors,  whether  by  simple  contract 
or  specialty,  under  our  laws,  are  parties  interested  in  the  real  estate, 
when  there  is  a  deficiency  in  the  personal,  for  they  have  power  to  sub- 
ject it  to  the  payment  of  their  debts." 

It  is  urged  that  these  remarks  are  obiter  dicta,  and  that  the  real 


102  SUBJECT-MATTER    OF   THE  CONTRACT  (Ch.  2 

question  to  be  decided,  and  which  was  decided  in  the  case,  was,  whether 
an  administrator  of  an  insolvent  estate  had  such  an  interest  in  the 
real  estate  of  his  intestate  as  was  insurable.  Dicta  are  opinions  of  a 
judge  which  do  not  embody  the  resolution  or  determination  of  the 
court,  and  made  without  argument,  or  full  consideration  of  the  point, 
are  not  the  professed  deliberate  determination  of  the  judge  himself 
(Saunderson  v.  Rowles,  4  Burrows,  2064—2068) ;  obiter  dicta  are  such 
opinions  uttered  by  the  way,  not  upon  the  point  or  question  pending 
(Rouse  V.  Moore,  18  Johns.  407-419),  as  if  turning  aside  for  the  time 
from  the  main  topic  of  the  case  to  collateral  subjects.  I  think  that  no 
one  who  reads  the  opinion  in  Herkimer  v.  Rice  can  doubt  that  all  which 
was  said  on  the  subject  of  a  creditor  of  an  insolvent  estate  having  an 
insurable  interest  in  the  real  property  thereof,  was  the  professed  and 
deliberate  determination  of  the  learned  chief  justice,  not  hastily  formed 
nor  carelessly  expressed,  not  by  the  way  nor  on  a  collateral  question 
to  that  awaiting  decision,  but  deemed  essential  to  lead  up  to  the  sol- 
emn judgment  rendered. 

The  direct  question  was,  indeed,  whether  an  administrator  of  an 
insolvent  estate  might  insure  its  real  property.  But  the  reasoning  of 
the  opinion  shows  that  this  was  deemed  to  depend  upon  whether  the 
creditors  of  that  estate  had  such  an  interest.  After  stating  the  ques- 
tion, he  says :  "It  will  be  convenient  to  consider,  in  the  first  place, 
whether  the  creditors  themselves  have  such  an  interest;  and  then, 
whether  the  administrator  can  be  said  to  represent  that  interest,  so 
as  to  enable  him  to  make  the  contract  for  the  benefit  of  the  creditors." 
Again,  *  *  *  "the  creditors  of  an  insolvent  estate  are  generally 
numerous,  and  having  no  opportunity  for  concerted  action,  except 
through  the  executor  or  administrators,  they  could  scarcely  ever  avail 
themselves  of  the  advantage  of  insurance,  unless  by  the  agency  of 
the  representatives.  If  the  administrators  cannot  insure,  the  parties 
interested,  the  creditors,  will  be  excluded  from  a  remedy  which  all 
other  persons  having  a  similar  interest  possess."  He  then  proceeds 
to  show  that  an  agent  or  trustee  may  insure  the  interest  of  a  party 
beneficially  interested,  and  that  the  administrator,  though  not  the  trus- 
tee of  the  land,  is  a  trustee  of  a  power  over  it,  such  as  is  recognized 
by  law,  and  says :  "In  this  case  it  was  sufficiently  apparent,  from  the 
language  of  the  receipt  for  the  premium,  that  it  was  the  interest  of 
the  creditors  which  was  designed  to  be  covered  by  the  contract ;  the 
beneficiaries  of  the  administrator  were  the  parties  intended  to  be  pro- 
tected ;  the  insurers  therefore  must  have  seen  and  known  that  it  was 
the  interest  of  the  creditors  *  *  *  which  it  was  the  object  of 
the  policy  to  protect,  *  *  *  ^^(j  which  was  the  subject  of  the 
contract."  There  is  more  to  the  same  effect ;  and  the  opinion  is  based 
upon  the  ground  that  the  administrator  is  the  representative  of  the 
creditors.  Indeed,  but  for  their  being  creditors,  the  administrator 
would  have  no  concern  in  the  land,  and  the  concern  he  has  with  it 
is  that  they  through  him  may  dispose  of  it  for  the  payment  of  their 


Sec.  3)         INSURABLE  INTEREST FIRE  INSURANCB  103 

debts.     Herkimer  v.  Rice  was  a  case  in  which  there  was  full  argu- 
ment and  consideration. 

1  consider  it  gives  reasons  as  well  as  authority  for  the  det-ermina- 
tion  of  the  question  now  in  consideration.  It  has  often  been  cited 
as  an  authority,  and  at  times  as  authority  for  the  power  of  an  execu- 
tor or  administrator  to  insure,  as  having  or  as  representing  an  insur- 
able interest,  holding  it  for  the  beneficiaries  under  the  will,  or  in  the 
intestate's  estate.  Savage  v.  Insurance  Co.,  52  N.  Y.  502,  11  Am. 
Rep.  741.  In  Clinton  v.  Insurance  Co.,  45  N.  Y.  454,  it  is  cited  by 
Andrews,  J.,  as  holding  that  when  the  personal  estate  of  an  intestate 
is  insufficient  to  pay  the  debts,  the  administrator  has  an  insurable  in- 
terest in  buildings,  on  the  ground  that  he  is  the  trustee  of  a  power  to 
sell  the  land  for  the  benefit  of  creditors,  and  that  as  the  interest  of  the 
creditors  is  the  subject  of  the  insurance,  the  administrator  may  in- 
sure for  their  benefit.  The  decision  is  there  put  aside  as  not  a  prece- 
dent for  that  then  in  hand,  inasmuch  as  in  that  the  personal  property 
was  sufficient  to  pay  the  debts,  and  therefore  the  administrator  had 
no  insurable  interest. 

See,  also,  Waring  v.  Loder,  53  N.  Y.  581,  where  it  is  cited  as  au- 
thority for  the  proposition,  that  a  mortgagor  after  he  has  sold  the 
mortgaged  premises  has  still  an  interest  in  it  which  is  insurable,  in- 
asmuch as  it  stands  between  him  and  personal  liability  for  the  mort- 
gage debt.  The  distinction  is  not  perceptible,  so  far  as  this  question 
is  concerned,  between  a  power  to  obtain  indemnity  against  loss  from 
being  obliged,  to  pay  a  debt  owing  to  another,  and  against  loss  from 
failure  to  obtain  payment  of  a  debt  owing  to  one's  self.  I  conclude 
that  a  creditor  of  the  estate  of  one  deceased,  whose  personal  property 
left  is  insufficient  for  the  payment  of  his  debts,  has  an  insurable  in- 
terest in  the  sole  real  estate  of  the  deceased  debtor,  when  it  is  plain 
that  if  it  is  damaged  by  fire  a  pecuniary  loss  must  ensue  to  the  cred- 
itor thereby.     *     *     *  28 

2  8  For  other  cases  holding  that  the  general  creditor  of  a  deceased  debtor 
has  an  insurable  interest  in  the  latter's  real  estate,  see  Creed  v.  Sun  Fire  Ins. 
Co.,  101  Ala.  522,  14  South.  32.3,  23  L.  R.  A.  177.  46  Am.  St.  Rep.  134  (1S93) ; 
Herkimer  v.  Rice,  27  N.  Y.  163  (1863) ;    Sheppard  v.  Insurance  Co.,  21  W.  Va. 

368  (1883). 


104  SUBJECT-MATTER    OF   THE   CONTRACT  (^Ch.  2 


RIGGS  V.  COMMERCIAL  MUT.  INS.  CO." 

(Court  of  Appeals  of  New  York,  1800.     125  N.  Y.  7,  25  N.  E.  1058,  10  L.  R.  A. 
684,  21  Am.  St.  Rep.  716.) 

Appeal  from  superior  court  of  New  York  city,  general  term. 

Action  by  John  S.  Riggs  against  the  Commercial  Mutual  Insurance 
Company.  Defendant  issued  to  Joseph  L.  Tobias  a  policy  of  insur- 
ance upon  the  steamer  Falcon  for  $1,000,  loss  payable  to  Andrew  Si- 
monds.  Tobias  was,  at  the  time  of  effecting  this  insurance,  a  stock- 
holder in  the  Merchants'  Steam-Ship  Company,  which  then  owned 
the  steamers  Sea  Gull  and  Falcon.  Simonds,  by  an  indorsement  on 
the  policy,  directed  the  insurance  company  to  "pay  to  John  S. 
Riggs."  Plaintifif  recovered  judgment  at  special  term,  which  was 
reversed  at  general  term,  and  a  new  trial  ordered.  51  N.  Y.  Super. 
Ct.  466.     *     *     * 

Andre:ws,  J.  *  *  *  The  question  whether  a  stockholder  in 
a  corporation,  as  such,  has  an  insurable  interest  in  the  corporate 
property,  which  he  may  protect  by  an  insurance  of  specific,  tangible 
property  of  the  corporation,  is  the  question  now  presented.  The  pol- 
icy does  not  disclose  the  nature  of  the  interest  of  Tobias  in  the  ves- 
sel insured ;  but  this  was  not  necessary,  unless  required  by  some  con- 
dition in  the  policy.  Lawrence  v.  Van  Home,  1  Caines,  276;  Tyler 
V.  Insurance  Co.,  12  Wend.  507.  The  policy,  if  otherwise  valid,  at- 
tached to  whatever  insurable  interest  he  had,  whether  as  owner  or 
otherwise.  What  constitutes  an  insurable  interest  has  been  the  sub- 
ject of  much  discussion  in  the  cases,  and  is  often  a  question  of  great 
difficulty.  It  is  quite  apparent  that  the  tendency  of  decisions  in  recent 
times  is  in  the  direction  of  a  more  liberal  doctrine  upon  this  subject 
than  formerly  prevailed.  May,  Ins.  §  76.  Contracts  of  insurance 
where  the  insured  had  no  interest  were  permitted  at  common  law, 
(Craufurd  v.  Hunter,  8  Term  R.  13 ;)  but  the  manifest  evils  attending 
such  contracts,  and  the  temptation  which  they  afforded  for  fraud  and 
crime,  led  to  the  enactment  in  England  of  the  statute  19  Geo.  II.  c. 
37,  prohibiting  wager  policies,  and  this  was  followed  by  the  enact- 
ment in  this  state  of  a  similar  statute  (1  Rev.  St.  662)  prohibiting  wag- 
ers. But  to  prevent  the  application  of  the  statute  to  cases  of  insur- 
ance by  way  of  security  and  indemnity  it  was  provided  that  it  should 
"not  be  extended  so  as  to  prohibit  or  in  any  way  affect  any  insurances 
made  in  good  faith  for  the  security  or  indemnity  of  the  party  insured, 
and  which  are  not  otherwise  prohibited  by  law."  Section  10.  It 
would  seem,  therefore,  that  whenever  there  is  a  real  interest  to  pro- 
tect, and  a  person  is  so  situated  with  respect  to  the  subject  of  insur- 
ance that  its  destruction  would  or  might  reasonably  be  expected  to 
impair  the  value  of  that  interest,  an  insurance  on  such  interest  would 

29  Certain  portions  of  the  statement  of  facts  and  of  the  opinion  relating  to 
questions  of  practice  have  been  omitted. 


Sec.  3)         INSURABLE  INTEREST FIRE  INSURANCE  105 

not  be  a  wager  within  the  statute,  whether  the  interest  was  an  own- 
ership in  or  a  right  to  the  possession  of  the  property,  or  simply  an 
advantage  of  a  pecuniary  character,  having  a  legal  basis,  but  depend- 
ent upon  the  continued  existence  of  the  subject.  It  is  well  settled  that 
a  mere  hope  or  expectation,  which  may  be  frustrated  by  the  happen- 
ing of  some  event,  is  not  an  insurable  interest. 

The  stockholder  in  a  corporation  has  no  legal  title  to  the  corporate 
assets  or  property,  nor  any  equitable  title  which  he  can  convert  into 
a  legal  title.  The  corporation  itself  is  the  legal  owner,  and  can  deal 
with  corporate  property  as  owner,  subject  only  to  the  restrictions  of 
the  charter.  Plimpton  v.  Bigelow,  93  N.  Y.  593 ;  Van  Allen  v.  As- 
sessors, 3  Wall.  573,  18  L.  Ed.  229.  But  stockholders  in  a  corpora- 
tion have  equitable  rights  of  a  pecuniary  nature,  growing  out  of  their 
situation  as  stockholders,  which  may  be  prejudiced  by  the  destruc- 
tion of  the  corporate  property.  The  object  of  business  corporations 
is  to  make  profits  through  the  exercise  of  the  corporate  franchises,  and 
gains  so  made  are  distributable  among  the  stockholders  according  to 
their  respective  interests,  although  the  time  of  the  division  is  ordi- 
narily in  the  discretion  of  the  managing  body.  It  is  this  right  to  share 
in  the  profits  which  constitutes  the  inducement  to  become  stockhold- 
ers. So,  also,  on  the  winding  up  of  the  corporation,  the  assets,  after 
payment  of  debts,  are  divisible  among  the  stockholders.  It  is  very 
plain  that  both  these  rights  of  stockholders — viz.,  the  right  to  divi- 
dends and  the  right  to  share  in  the  final  distribution  of  the  corporate 
property — may  be  prejudiced  by  its  destruction.  In  this  case  the  ships 
were  the  means  by  which  profits  were  to  be  earned,  and  their  loss 
would  naturally,  in  the  ordinary  course  of  things,  diminish  the  capacity 
of  the  corporation  to  pay  dividends,  and  consequently  impair  the  val- 
ue of  the  stock.  The  same  would  be  true  in  other  cases  which  might 
be  mentioned ;  as,  for  example,  where  buildings  producing  rent, 
owned  by  a  corporation,  should  be  burned.  It  is  not  necessary,  to 
constitute  an  insurable  interest,  that  the  interest  is  such  that  the  event 
insured  against  would  necessarily  subject  the  insured  to  loss.  It  is 
sufficient  that  it  might  do  so,  and  that  pecuniary  injury  would  be  the 
natural  consequence.     Cone  v.  Insurance  Co.,  60  N.  Y.  619. 

The  question  now  before  us  was  considered  by  the  supreme  court 
of  Iowa  in  the  case  of  Warren  v.  Insurance  Co.,  31  Iowa,  464,  7  Am. 
Rep.  160.  The  court,  in  a  careful  opinion,  reached  the  conclusion 
that  a  stockholder  in  a  corporation  had  an  insurable  interest  in  the 
corporate  property.  In  Philips  v.  Insurance  Co.,  20  Ohio,  174,  there 
is  an  adverse  dictum,  but  the  decision  went  on  another  ground.  In 
Wilson  V.  Jones,  L.  R.  2  Exch.  139,  the  action  was  upon  a  policy  in  fa- 
vor of  the  plaintiff,  a  shareholder  in  the  Atlantic  Telegraph  Company. 
a  company  organized  to  lay  the  Atlantic  cable.  The  court  construed 
the  contract  as  an  insurance  of  the  plaintiff  in  respect  to  the  adventure 
undertaken  by  the  company  to  lay  the  cable,  and  it  was  held  that  his 
interest  as  shareholder  was  an  insurable  interest,  and  likened  it  to  an 


106  SUBJECT-MATTER    OF   THE  CONTRACT  (Ch.  2 

insurance  on  profits.  See,  also,  Paterson  v.  Harres,  1  Best  &  S.  336. 
It  is  difficult  to  perceive  any  good  reason  why,  if  a  stockholder  could 
be  insured  on  his  shares  in  a  corporation  against  a  loss  happening  in 
the  prosecution  of  a  corporate  enterprise,  he  could  not  insure  spe- 
cifically the  corporate  property  itself  embraced  in  the  adventure,  and 
prove  his  interest  by  showing-  that  he  was  a  shareholder. 

The  question  here  is,  did  the  plaintiff  have  an  insurable  interest  cov- 
ered by  the  policy?  The  amount  of  damages  is  not  in  question.  Ex- 
cept that  the  parties  have  taken  that  question  out  of  the  controversy, 
the  extent  of  the  loss  would  be  a  question  of  fact  to  be  ascertained 
by  proof,  and  the  recovery  up  to  the  amount  insured  would  be  meas- 
ured by  the  actual  loss.  We  are  of  opinion  that  the  view  that  a  stock- 
holder in  a  corporation  may  insure  specific  corporate  property  by  rea- 
son of  his  situation  as  stockholder,  stands  upon  the  better  reason, 
and  also  that  it  is  in  consonance  with  the  current  of  authority  defining 
insurable  interests  in  our  courts.  The  cases  of  Herkimer  v.  Rice,  27 
N.  Y.  163,  Rohrback  v.  Insurance  Co.,  62  N.  Y.  47,  20  Am.  Rep.  451, 
and  National  Filtering  Oil  Co.  v.  Citizens'  Ins.  Co.,  106  N.  Y.  535,  13 
N.  E.  337,  60  Am.  Rep.  473,  sustained  policies  upon  interests  quite 
as  remote  as  the  interest  now  in  question.  It  would  be  useless  reitera- 
tion to  restate  the  particular  facts  and  grounds  of  the  decisions  in 
these  cases.  It  is  sufficient  to  refer  to  them,  and  to  say  in  conclusion 
that  it  seems  to  us,  both  upon  authority  and  reason,  that  the  insur- 
ance now  in  question  is  not  a  wager  policy,  but  is  a  fair  and  reason- 
able contract  of  indemnity,  founded  upon  a  real  interest,  though  not 
amounting  to  an  estate,  legal  or  equitable,  in  the  property  insured. 

The  judgment  should  therefore  be  affirmed.    All  concur. ^'^ 


FOLEY  et  al.  v.   MANUFACTURERS'   &  BUILDERS'  FIRE 
INS.  CO.  OF  NEW  YORK. 

(Court  of  Appeals  of  New  York,  1897.     152  N.  Y.  131,  46  N.  E.  318,  43  L. 

R.  A.  664.) 

Appeal  from  supreme  court,  general  term,  Fourth  department. 

Action  by  Edward  H.  Foley  and  others  against  the  Manufacturers' 
&  Builders'  Fire  Insurance  Company  of  New  York.  Judgment  for 
plaintiffs,  and  defendant  appeals.    Affirmed. 

Andre;ws,  C.  J.  The  sole  question  in  this  case  is  whether  the 
plaintiffs  had  an  insurable  interest  equal  to  the  full  value  of  the  in- 
complete buildings  in  course  of  construction  on  their  lot  when  the  fire 

3  0  For  other  cases  discussing  tlie  stockliolder's  insurable  interest,  see  .?3tna 
Ins.  Co.  V.  Kennedy,  161  Ala.  600,  50  South.  73,  135  Am.  St.  Rep.  160  (1909) ; 
Warren  v.  Davenport  Fire  Ins.  Co.,  31  Iowa,  464,  7  Am.  Rep.  160  (1S71). 
See,  also,  Philips  v.  Knox  Co.  Mut.  Ins.  Co.,  20  Ohio,  174  (1851),  and  Sweeny 
V.  Franklin  Fire  Ins.  Co.,  20  Pa.  337  (1853),  in  which  it  was  held  that,  under 
the  facts  of  those  cases,  the  stockholders  had  no  insurable  interest. 


Sec.  3)         INSURABLE  INTEREST FIRE  INSURANCE  107 

occurred.  It  is  the  contention  on  the  part  of  the  defendant  that  as 
the  houses  were  being  constructed  under  a  contract  by  which  the  con- 
tractors were  to  furnish  the  materials  and  build  the  houses  (above  the 
foundations),  and  to  complete  them  by  a  time  specified,  which  had 
not  expired  at  the  time  of  the  fire,  for  a  specified  sum  to  be  paid  with- 
in 10  days  after  their  completion,  the  plaintiffs  had  no  interest  to  pro- 
tect in  the  structures  while  in  their  incomplete  state,  since  their  de- 
struction by  fire  would  be  the  loss  of  the  contractors,  and  not  of  the 
owners,  whose  obligation  to  build  and  complete  the  houses,  as  the 
condition  of  payment,  would  continue  after  as  before  the  fire.  It  may 
be  admitted  that  the  contractors  would  remain  bound  by  the  contract, 
notwithstanding-  the  destruction  of  the  buildings  by  fire,  and  that  the 
owners  would  not  be  bound  to  pay  for  the  work  done  or  materials 
supplied  up  to  the  time  of  the  fire.  Tompkins  v.  Dudley,  25  N.  Y. 
272,  82  Am.  Dec.  349. 

The  contention  of  the  defendant  rests  upon  a  misconception  of  the 
insurer's  contract,  and  as  to  the  insurable  interest  of  the  plaintiffs  in 
the  structures.  The  defendant,  by  its  contract,  undertook  to  insure  the 
plaintiffs  against  loss  by  fire,  not  exceeding  the  sum  specified,  to  the 
"described  property,"  the  loss  or  damage  to  be  ascertained  "accord- 
ing to  the  actual  cash  value"  of  the  property  at  the  time  of  the  fire. 
The  parties  by  this  contract  made  the  value  of  the  property  insured, 
within  the  limit,  the  measure  of  the  insurer's  liability.  It  is  an  un- 
doubted principle  in  fire  insurance  that  there  must  be  an  insurable  in- 
terest in  the  insured,  or  an  insurable  interest  which  he  represents 
in  the  subject  of  insurance,  existing  at  the  time  of  the  happening  of 
the  event  insured  against,  to  enable  him  to  maintain  an  action  on  a 
fire  policy.  This  flows  from  the  nature  of  the  contract  of  fire  insur- 
ance, which  is  a  contract  of  indemnity ;  and,  where  there  is  no  inter- 
est, there  is  no  room  for  indemnity.  The  plaintiffs  had  an  interest 
in  the  subject  of  insurance,  both  at  the  inception  of  the  contract  and 
at  the  time  of  the  fire.  They  owned  the  land  upon  which  the  struc- 
tures were  being  erected.  They  themselves  had  constructed  the  foun- 
dations of  the  buildings,  and,  in  describing  the  property  insured,  the 
foundations  were  specifically  named.  They  were  in  possession  of  the 
premises,  and  the  ownership  of  the  fee  of  the  land  on  which  the  con- 
tractors were  erecting  the  buildings  carried  with  it  the  ownership  of 
the  structures  as  they  progressed,  which,  according  to  the  general 
rule  of  law,  became  part  of  the  realty  by  annexation. 

It  is  not  claimed,  nor  could  it  upon  the  evidence  be  claimed,  that 
there  was  any  intention  either  on  the  part  of  the  owners  or  the  con- 
tractors to  sever  the  ownership  of  the  structures  from  the  ownership 
of  the  land  while  the  work  was  in  progress,  or  that  the  contractors 
should  retain  title  to  the  materials  put  into  the  buildings  until  their 
completion.  The  defendant  is  compelled  to  admit  that  the  loss  sued 
for  is  within  the  exact  terms  of  the  policy.  It  is  conceded  that  the 
recovery  does  not  exceed  the  property  loss  occasioned  by  the  fire,  and, 


108  SUBJECT-MATTER   OF   THE   CONTRACT  (Ch.  2 

if  counsel  can  be  deemed  to  have  denied  that  the  legal  ownership  of 
the  structures  was  in  the  owners  of  the  land  at  the  time  of  the  fire, 
the  denial  is  very  indistinct,  and  certainly  is  not  justified  by  the  facts 
or  the  law.  The  defense  comes  to  this :  That  as  the  plaintiffs,  by  their 
contract  with  third  persons,  have  imposed  upon  them  the  risk  and  ex- 
pense of  furnishing  complete  structures,  and  have  assumed  no  liabil- 
ity until  the  structures  are  completed,  they  had  no  insurable  interest, 
and  have  sustained  no  loss.  But  the  contract  relations  between  the 
plaintiffs  and  the  contractors  is  a  matter  in  which  the  defendant  has 
no  concern.  When  the  policy  was  issued,  it  could  not  be  known 
whether  the  contractors  would  perform  their  contract.  If  they  aban- 
doned it,  the  owners  would  derive  such  advantage  as  would  accrue 
from  the  partial  construction  of  the  buildings  prior  to  such  aban- 
donment. It  is  possible  that,  if  the  defendant  is  compelled  to  pay  the 
policy,  the  plaintiffs  may,  if  they  insist  upon  their  rights  against  the 
contractors,  get  double  compensation,  unless  they  should  be  adjudged 
to  hold  the  fund  recovered  for  the  contractors.  But,  however  this 
may  be,  the  owners  had  an  insurable  interest  to  the  whole  value  of 
the  buildings  on  their  land ;  and  the  defendants  neither  can  compel  the 
plaintiffs  to  put  the  loss  on  the  contractors,  nor  can  they  resort  to 
the  terms  of  the  building  contract  to  diminish  the  liability  for  an  ac- 
tual loss  within  the  terms  of  the  policy. 

The  fact  that  improvements  on  land  may  have  cost  the  owner  noth- 
ing, or  that,  if  destroyed  by  fire,  he  may  compel  another  person  to 
replace  them  without  expense  to  him,  or  that  he  may  recoup  his  loss 
by  resort  to  a  contract  liability  of  a  third  person,  in  no  way  affects 
the  liability  of  an  insurer,  in  the  absence  of  any  exemption  in  the  pol- 
icy. See  Clover  V.  Insurance  Co.,  101  N.  Y.  277,  4  N.  E.  724;  Ker- 
nochan  v.  Insurance  Co.,  17  N.  Y.  428;  Riggs  v.  Insurance  Co.,  125 
N.  Y.  7,  25  N.  E.  1058,  10  L.  R.  A.  684,  21  Am.  St.  Rep.  716;  Trust 
Co.  v.  Boardman,  149  Mass.  158,  21  N.  E.  239. 

The  judgment  should  be  affirmed.  All  concur,  except  Martin 
and  Vann,  JJ.,  not  sitting.    Judgment  affirmed.^^ 

31  Building  Condemned  by  Public  Authority. — "I  fail  to  find  in  the  able 
brief  submitted  by  the  learned  counsel  for  the  defendant  any  authoritj'  sup- 
porting their  contention  respecting  the  effect  upon  the  plaintiff's  insurable  in- 
terest in  the  buildings  of  the  proceedings  and  decrees  of  the  court  respecting 
the  character  of  the  building  known  as  the  'addition,'  and  adjudging  it  to 
be  a  public  nuisance.  If  the  building  had  been  actually  removed  before  the 
fire,  by  reason  of  its  having  been  adjudged  a  nuisance,  or  had  collapsed  or 
been  destroyed,  why,  then,  of  course,  it  follows  without  argument  that  there 
could  be  no  liability  under  the  insurance  policy ;  but,  until  there  was  actual 
physical  destruction  of  the  building,  the  defendant  continued  to  be  liable  for 
any  damage  done  by  fire,  so  long  as  its  policy  of  insurance  remained  in  force. 
In  other  words,  until  the  decree  of  the  court  was  actually  in  effect  by  the  de- 
struction or  removal  of  the  building  and  the  abatement  of  the  nuisance,  the 
structure  continued  to  be  the  property  of  the  plaintiff,  and  her  repeated 
promises  to  abate  the  nuisance  did  not  deprive  her  of  her  interest  therein 
as  owner,  so  long  as  it  remained  upon  her  land  and  was  undisturbed.  The 
principle  in  equity  that  the  law  will  consider  that  done  which  ought  to  have 
been  done  does  not  apply  in  this  action  at  law  against  this  defendant,  who 


Sec.  3)         INSURABLE  INTEREST — FIRE  INSURANCE  109 

GERMANIA  FIRE  INS.  CO.  v.  THOMPSON. 

(Supreme  Court  of  the  United  States.  1877.    95  U.  S.  547,  24  L.  Ed.  487.) 

Error  to  the  Circuit  Court  of  the  United  States  for  the  District  of 
Kentucky. 

The  facts  are  stated  in  the  opinion  of  the  court. 

Mr.  Justice  MillKr  delivered  tlie  opinion  of  the  court. 

The  defendants  in  error  recovered  in  the  Circuit  Court  of  the 
United  States  for  the  District  of  Kentucky  a  joint  judgment  for  $3,- 
317.58  on  a  poHcy  of  insurance  issued  by  the  Germania  Fire  Insur- 
ance Company,  the  Hanover  Fire  Insurance  Company,  the  Niagara 
Fire  Insurance  Company,  and  the  RepubHc  Fire  Insurance  Company, 
on  whiskey  in  a  distiller's  bonded  warehouse.  The  distillery  and  the 
warehouse  were  owned  and  conducted  by  George  H.  Dearen,  but  the 
spirits  were  distilled  for  and  owned  by  the  defendants  in  error  at 
the  time  the  policy  was  issued.  They  were  also  sureties  on  Dearen's 
distillery  bond  to  the  United  States,  and  as  such  were  liable  for  the 
tax  on  the  whiskey  if  not  paid  by  Dearen,  or  made  out  of  the  whiskey. 
It  will  be  thus  seen  that  Thompson  &  Walston  had  two  distinct  in- 
terests in  the  whiskey,  namely,  the  general  ownership  of  it,  and  their 
liability  for  the  tax  on  it  which  Dearen  had  assumed  to  pay,  and 
which,  if  he  did  not  pay,  might  fall  vipon  them  in  either  of  two  ways, 
to  wit,  by  a  seizure  and  sale  of  the  whiskey  for  the  tax  by  the  govern- 
ment, or  by  a  suit  on  the  bond  on  which  they  were  sureties.  The 
policy,  which  was  manifestly  designed  to  protect  both  these  interests 
of  the  assured  from  loss  or  damage  by  fire,  was  for  that  reason  pe- 
culiar and  special  in  its  provisions.  By  its  terms  the  companies  bind 
themselves  to  "insure  Messrs.  Thompson  &  Co.  against  loss  or  dam- 
age by  fire  to  the  amount  of  $8,000,  for  the  term  of  one  year,  upon 
whiskey,  their  own  or  held  by  them  on  a  commission,  including  gov- 
ernment tax  thereon  for  which  they  may  be  liable,  contained  in  the 
log  bonded  warehouse  of  G.  H.  Dearen." 

After  the  whiskey  was  burned,  these  companies  paid  their  share 
with  others  of  the  loss  on  the  value  of  the  whiskey  apart  from  the  tax ; 
but  by  the  receipt  which  they  took  it  was  stated  that  the  claim  for 
liability  on  account  of  tax  remained  undecided.  Thompson  &  Co. 
were  sued  on  their  bond  with  Dearen  for  this  tax ;  and  they  notified 
the  insurance  companies  of  the  suit,  and  asked  them  to  defend  it, 

was  not  a  party  in  either  of  the  other  proceedings  or  actions  affecting  this 
structure.  No  matter  how  many  judgments  or  decrees  of  the  court  there 
may  have  been  adjudging  the  'addition'  to  be  a  nuisance,  or  how  many  prom- 
ises the  owner  may  have  made  to  remove  the  structure  and  abate  the  nui- 
sance, it  nevertlieless  continued  to  be  her  property  until  it  was  actually  re- 
moved, or  in  some  substantial  manner  physically  disturbed,  and  so  long  as  it 
stood  upon  the  plaintiff's  land,  attached  to  and  a  part  of  her  main  building, 
she  had  an  insurable  interest  therein."  Irwin  v.  Westchester  Fire  Ins.  Co., 
58  Misc.  Rep.  441,  100  N.  Y.  Supp.  612  (1908). 

See  comment  on  this  case  in  21  Harv.  Law  Rev.  631. 


110  SUBJECT-MATTER   OF   THE  CONTRACT  (Ch.  2 

which  was  decHncd.  Judgments  were  obtained  in  each  case  on  the 
bonds,  and  Thompson  &  Co.  replevined  the  judgments.  By  this  is 
meant  that  they  gave  bail  which  operated  as  a  stay  of  execution  for 
the  period  which  the  law  of  Kentucky  allowed  in  such  cases.  The 
present  action  was  brought  by  Thompson  &  Walston  to  recover  the 
amount  of  these  judgments. 

On  the  trial,  evidence  was  given  tending  to  show  that  before  the 
fire  Walston  had  sold  to  his  partner,  Thompson,  all  his  interest  in 
the  partnership,  and  that  Hite  Thompson  had  become  interested  with 
the  other  Thompson  in  the  business  to  the  extent  of  one-fifth.  And, 
on  the  hypothesis  that  the  jury  believed  this,  the  counsel  for  the  com- 
panies asked  the  court  in  several  forms  to  instruct  the  jury  that  plain- 
tiffs could  not  recover.  This  proposition  was  based  on  a  provision 
in  the  policy  that  it  should  be  void  "if  the  property  be  sold,  or  trans- 
ferred, or  any  change  take  place  in  title  or  possession,  whether  by 
legal  process,  or  judicial  decree,  or  voluntary  transfer  or  conveyance." 

The  refusal  of  the  court  to  do  so,  and  the  charge  of  the  court  to 
the  effect  that  this  change  in  regard  to  the  ownership,  if  true,  did  not 
defeat  the  right  to  recover  the  amount  of  the  judgments  against 
plaintiffs  for  taxes,  are  the  errors  on  which  a  reversal  is  asked. 

The  argument  of  counsel  on  the  effect  of  a  mere  change  in  the  title 
by  one  partner  selling  to  another  his  interest  in  the  property  insured, 
and  the  authorities  presented  on  both  sides,  are  very  able  and  full, 
and  the  decisions  are  conflicting.  So,  also,  the  effect  of  the  intro- 
duction of  a  new  part  owner,  in  a  case  like  the  present,  where  the 
possession  and  care  of  the  goods  remain  unchanged,  are  well  con- 
sidered ;  but  in  the  view  we  take  of  the  case  it  is  not  necessary  that 
this  court  should  decide  these  questions. 

We  are  of  opinion  that  a  careful  consideration  of  the  facts  of  this 
case,  in  their  relation  to  some  of  the  most  elementary  principles  of 
the  contract  of  insurance,  will  enable  us  to  dispose  of  it  without  much 
difficulty. 

It  is  to  be  observed,  that,  whether  insurance  be  against  fire,  or  ma- 
rine loss,  or  loss  of  life,  it  is  neither  the  property  nor  the  life  that  is 
insured.  Nor  does  the  contract  propose  or  intend  to  say  that  there 
shall  be  no  destruction  of  the  property  or  loss  of  life.  In  point  of 
fact,  the  obligation  of  the  insurer  is  designed  to  come  into  operation 
after  the  loss  either  of  property  or  life  has  occurred,  and  to  give 
compensation  to  some  one  interested  in  the  life  or  the  property,  for 
the  loss  of  that  life  or  injury  to  the  property. 

In  regard  to  property  this  compensation  is  intended  by  the  funda- 
mental principles  of  insurance  to  bear  a  direct  relation  to  the  moneyed 
value  of  the  interest  which  the  party  insured  had  in  the  property. 
Where  the  only  interest  of  the  assured  is  the  full  and  prefect  owner- 
ship of  the  property,  that  is  the  interest  insured ;  and  the  amount  to 
be  recovered  on  the  policy  of  insurance  is  that  full  value  or  such  sum 
less  than  that  as  the  insurer  stipulates  to  be  liable  for. 


Sec.  3)         INSURABLE  INTEREST — FIRE  INSURANCE  111 

Pnit  it  often  occurs  that  the  interest  of  the  party  insured  is  not  that 
of  full  ownership.  His  interest  may  be  that  of  a  trustee,  or  executor, 
or  some  other  representative  character,  in  which  case  the  recovery 
will  be  in  accordance  with  the  nature  of  the  contract.  The  policy 
before  us  is  a  striking^  illustration  of  this.  The  interest  of  the  plain- 
tiffs in  the  whiskey  which  is  insured  in  threefold — their  own,  or  held 
on  a  commission,  and  the  government  tax,  for  which  they  may  be 
held  liable.  If  the  makers  of  this  policy  intended  to  insure  no  other 
interest  of  Thompson  &  Co.  in  the  whiskey  than  their  proprietary  in- 
terest, the  interest  which  at  the  time  of  the  loss  they  had  as  owners 
of  the  whiskey,  the  enumeration  of  the  two  other  interests  was  use- 
less and  misleading. 

The  facts  already  stated  show  that  they  had  another  interest ;  and 
since. they  insured  it,  it  must  be  presumed  that  it  was  known  to  the 
insurers.  The  whiskey  which  they  owned  was  liable  to  the  government 
for  a  tax ;  and  this  Dearen  was  primarily  liable  for  and  had  prom- 
ised to  pay,  but,  if  he  did  not,  the  whiskey  could  be  sold  for  it.  They 
had  also  become  bound  with  him  on  his  bond  for  the  payment  of  this 
tax.  In  the  event  of  the  whiskey  being  destroyed  by  fire,  the  danger 
of  their  personal  liability  was  greatly  increased.  They  were,  there- 
fore, right  in  wishing  to  be  secured  against  this  loss  also,  if  the 
whiskey  was  burnt.  It  is  impossible  to  give  any  other  construction 
to  the  policy  than  that  the  company  agreed  to  furnish  this  indemnity. 
The  language,  when  brought  into  relation  with  the  conceded  facts 
of  the  case,  admits  of  no  other. 

This  interest  was  an  insurable  interest,  as  much  as  freights  at  sea 
or  profits  in  an  adventure.  The  whiskey  stood  between  them  and  their 
loss.  The  whiskey  when  in  the  warehouse  was  loaded  with  this  tax. 
It  would  sell  for  as  much  less  as  the  tax,  unless  the  tax  was  paid.  So 
long  as  it  was  in  the  warehouse,  plaintififs  were  not  liable  for  the  tax. 
The  moment  it  was  lost  they  became  liable.  This  was  a  fair  subject  of 
insurance.  Fireman's  Fire  Insurance  Co.  v.  Powell,  13  B.  Mon.  (Ky.) 
311 ;  Gordon  v.  Massachusetts  Fire  &  Marine  Insurance  Co.,  2  Pick. 
(Mass.)  249;  Rohrbach  v.  Germania  Fire  Insurance  Co.,  62  N.  Y. 
47,  20  Am.  Rep.  45 1.^- 

In  regard  to  this  interest,  Walston  had  never  parted  with  it.  His 
sale  of  the  partnership  interest  did  not  release  him  from  his  liability 
on  Dearen's  bonds ;  nor  did  the  subsequent  purchase  of  Hite  Thomp- 
son of  one-fifth  interest  in  the  whiskey  have  thalt  effect,  or  destroy 
Walston's  interest  to  that  extent  in  the  whiskey.  As  to  him,  it  is 
very  clear  that  he  had  the  strongest  interest  that  the  whiskey  should 
be  secure  from  fire  until  the  tax  on  it  was  paid,  since  its  continued 
existence  was  his  best,  if  not  his  only,  security  against  hability  on  the 
bonds. 


3  2  See,  also.  Hanover  Fire  Ins.  Co.  v.  Bohn,  48  Neb.  743,  67  N.  W.  774.  58 
Am.  St.  Rep.  710  (1S96). 


112  SUBJECT-MATTER    OP    THE  CONTRACT  (Ch.  2 

It  is  to  be  observed  that  no  other  interest  of  Thompson  &  Co.  is  in 
issue  in  this  suit.  They  never  hold  the  whiskey  on  commission,  and 
the  loss  in  regard  to  the  proprietary  interest  had  been  paid  by  the 
companies.  This  was  another  and  a  different  interest  in  the  same 
property.  A  man  might  insure  his  interest  in  property  as  an  execu- 
tor, and  his  interest  as  a  legatee.  His  removal  from  the  office  of 
executor  by  the  proper  court  might,  within  the  terms  of  this  policy, 
prevent  his  recovering  in  that  character ;  but  if  his  interest  in  the 
property  as  legatee  was  one-sixth,  would  the  change  of  executorship 
bar  his  recovery  as  legatee  ?    This  would  hardly  be  asserted  by  any  one. 

It  is  objected  further  to  a  recovery  that  plaintiffs  have  not  actually 
paid  the  judgment.  The  answer  to  this,  if  any  were  necessary,  is  that 
by  the  law  of  Kentucky  the  replevin  bond  is  a  satisfaction  of  the 
judgment.  It  is  as  to  this  obligor  a  debt  discharged.  It  is  said  that, 
in  case  of  a  loss  like  this,  the  government  cannot  collect  the  tax  from 
the  bondsmen.  The  answer  is,  that  the  government  has  sued  and  ob- 
tained judgment  for  the  tax;  and  defendants  were  asked  to  defend 
that  suit,  and  declined  to  do  so. 

Judgment  affirmed. 


FARMERS'  MUT.  INS.  CO.  v.  NEW  HOLLAND  TURNPIKE 

ROAD  CO. 

(Supreme  Court  of  Pennsylvania,  1888.    122  Pa.  37,  15  Atl.  563.) 

Crimen,  J.  We  cannot  understand  upon  what  principle  evidence 
was  admitted  to  prove  loss  of  tools  on  the  turnpike  road  of  the  plain- 
tiff. The  contract  in  suit  was  a  policy  of  fire  insurance  on  a  bridge. 
The  bridge  having  been  destroyed  by  fire,  if  there  was  liability  on  the 
part  of  the  insurance  company,  the  measure  of  that  liability  would  be 
the  value  of  the  loss,  which  would  consist  of  the  injury  to  the  bridge. 
If  the  bridge  was  totally  destroyed,  the  loss  would  be  the  total  amount 
of  the  insurance;  but,  if  only  partially  destroyed,  it  would  be  the 
value  of  the  injury.  In  no  circumstances  can  there  be  a  legitimate 
measure  of  liability  on  a  fire  insurance  policy  which  represents  the 
loss  of  profits  of  a  business  which  might  be  carried  on  at  the  structure 
destroyed,  if  it  were  standing.  Such  is  not  the  contract  of  the  par- 
ties. Neither  is  there  any  liability,  as  for  rent  of  the  premises  de- 
stroyed, or  for  any  other  advantage  which  may  have  been  derived 
from  its  use.  If  a  period  of  time  elapses  before  the  building  is  re- 
stored, or  if  it  is  never  restored,  the  liability  of  the  insurer  is  not  for 
a  loss  of  the  use  or  rental  of  the  building,  but  for  the  value  of  the 
loss,  with  interest  on  the  same  until  payment  is  made.  These  funda- 
mental principles,  which  are  inherent  in  the  contract  of  insurance, 
were  disregarded  when  the  plaintiff  was  permitted  to  prove  the  loss 
of  tolls  for  non-user  of  the  bridge  while  it  was  being  rebuilt.  For  this 
reason  we  sustain  the  fourth  assignment  of  error. 


Sec.  3)         INSURABLE  INTEREST FIRE  INSURANCE  113 

We  think  it  was  also  error  to  permit  the  county  of  Lancaster  to  in- 
terplead as  a  claimant.  There  was  no  contract  of  insurance  with  the 
county,  and  after  intervening  there  could  be  no  recovery  as  for  any 
loss  sustained  by  the  county.  There  was  no  identity  of  interest  in 
the  bridge  as  between  the  turnpike  company  and  the  county.  If  the 
turnpike  company  had  any  interest  in  it,  it  was  that  interest  which  was 
represented  by  the  amount  of  its  contribution  to  the  cost  of  the 
bridge ;  but  in  that  contribution  the  county  necessarily  could  have 
no  interest.  The  whole  of  it  belonged  to  the  turnpike  company,  and 
no  part  of  it,  in  any  contingency,  belonged  to  the  county.  The  prin- 
ciple recognized  in  Miltenberger  v.  Beacom,  9  Pa.  198,  has  no  applica- 
tion.   We  therefore  sustain  the  tenth  assignment  of  error. 

The  more  important  question,  however,  is  whether  the  turnpike 
company  had  any  insurable  interest  in  the  bridge.  It  is  a  novel  ques- 
tion, but  perhaps  not  difficult  of  solution.  The  basis  upon  which  the 
insurable  interest  is  claimed  to  exist  is  the  fact  that  the  turnpike  com- 
pany contributed  $5,500  to  the  cost  of  erecting  the  bridge,  being  one- 
third  its  total  cost,  $16,500.  If  this  contribution  was  compulsory, — 
that  is,  legally  compulsory, — it  would  perhaps  have  to  be  admitted 
that  an  interest  in  the  bridge,  legal  or  equitable,  would  necessarily 
flow  from  it ;  for  it  cannot  be  supposed  that  the  law  would  oblige  any 
person  or  corporation  to  contribute  directly  to  the  cost  of  erecting  a 
structure,  without  conferring  an  interest  in  the  structure  which  the 
law  would  recognize  and  enforce.  While  saying  this,  we  do  not,  of 
course,  refer  to  that  kind  of  contribution  which  is  accomplished  by 
the  payment  of  taxes.  Such  contribution  is,  of  course,  for  public  use, 
and  confers  no  title  or  interest  upon  the  tax-payer  in  structures  which 
may  be  erected  with  public  funds.  But  in  this  case  there  is  no  pre- 
tense of  any  comp-ulsion  upon  the  turnpike  company.  The  evidence 
as  to  the  payment  of  the  money  is  barren  of  information,  except  as 
to  the  mere  fact  of  the  payment.  There  is  absolutely  no  testimony 
to  prove  why,  or  upon  what  consideration,  or  for  what  purpose  or 
reason,  the  turnpike  company  paid  any  part  of  the  cost  of  erecting 
the  bridge.  It  is  not  difficult  to  imagine  a  reason,  since,  as  the  com- 
pany's road  crossed  the  stream  over  which  the  bridge  was  erected,  it 
would  be  quite  desirable  for  them  to  have  a  bridge  over  which  per- 
sons using  the  road  could  travel.  But  while  that  might  be  a  reason 
for  the  company  building  a  bridge  of  its  own,  it  was  still  the  fact  that 
the  bridge  was  a  public  county  bridge,  free  to  all  travel,  built  many 
years  before  by  a  private  person,  who  transferred  it  to  the  county, 
and  hence  the  property  of  the  county  exclusively. 

Being  thus  a  free,  public  bridge,  there  could  not  possibly  be  any 
private  estate  or  ownership  in  it.  The  turnpike  company  could  charge 
no  tolls  for  passing  over  it.  They  could  exercise  no  acts  of  ownership 
over  it.  They  could  not  obstruct  it,  nor  take  it  down,  even  to  rebuild 
it,  without  the  consent  of  the  county,  and  perhaps  not  even  with  such 
Vance  Ins. — 8 


114  SUBJECT-MATTER   OF    THE  CONTRACT  (Ch.  2 

consent,  as  it  was  a  part  of  the  public  highway.  In  point  of  fact, 
while  the  turnpike  company  did  contribute  the  third  part  of  the  cost 
of  its  erection,  after  the  former  bridge  had  fallen  down,  the  county  at 
that  time  paid  the  other  two-thirds  of  the  cost,  and  re-erected  the 
bridge  in  discharge  of  its  undoubted  legal  obligation  to  do  so.  And  so 
after  its  destruction  by  fire,  in  1882,  it  was  again  rebuilt  by  the  county 
as  a  public  county  bridge,  in  obedience  to  a  general  law  of  this  com- 
monwealth, (Act  May  5,  1876,  P.  L.  112,)  and  the  decree  of  this  court, 
(Myers  v.  Com.,  110  Pa.  217,  1  Atl.  264.)  All  this  was  done  without  any 
cost  to  this  plaintifif,  who  now  enjoys  the  use  of  the  bridge  in  the  same 
manner  and  to  the  same  extent  as  before  the  fire.  The  only  injury 
the  plaintiff  has  sustained  by  the  fire  is  in  being  deprived  of  the  use  of 
the  bridge,  not  as  its  own,  but  as  a  part  of  the  public  highway,  during 
the  period  of  the  reconstruction  of  the  bridge.  But  for  that  injury 
the  defendant  was  not  responsible  in  any  sense,  and  it  never  assumed 
an  obligation  to  make  compensation  for  it.  The  county  was  legally 
charged  with  the  duty  of  rebuilding,  and,  however  an  argument  might 
be  made  against  the  county  for  not  performing  its  duty  in  that  regard 
with  promptness,  it  is  perfectly  manifest  that  the  breach  of  that  duty 
by  the  county  conferred  no  right  of  action  against  the  defendant  in- 
surance company. 

What,  then,  remains  to  impose  any  liability  upon  the  defendant? 
The  bridge  is  restored  without  any  expense  to  the  plaintiff.  Every 
right  which  the  plaintiff  enjoyed  before  the  lire  is  enjoyed  since,  so 
far  as  the  bridge  is  concerned,  without  any  additional  cost  to  the  plain- 
tiff. It  may  be  remarked,  in  passing,  that  the  right  of  the  plaintiff 
in  the  bridge  is  only  the  public  and  common  right  of  its  patrons,  as 
citizens,  to  use  the  bridge  as  a  part  of  the  public  highway.  It  is  there- 
fore not  a  right  peculiar  to  the  plaintiff  in  any  sense.  It  may  well  be 
questioned,  even  if  the  plaintiff  had  an  insurable  interest  in  the  bridge, 
whether  any  injury  has  been  sustained  to  that  interest,  sufficient  to 
impose  any  liability  upon  the  defendant  as  an  insurer.  Suppose  a  re- 
covery is  permitted,  and  the  plaintiff  recovers  the  amount  of  the  in- 
surance money.  As  they  are  not  obliged  to  expend  the  money  in  re- 
construction, and  yet  reconstruction  has  been  accomplished  without 
cost  to  them,  they  simply  get  back  and  keep  the  money  they  vol-' 
untarily  contributed  in  1868,  to  the  construction  of  the  bridge.  But 
if  the  bridge  had  not  burned  down,  that  money  could  not  have  been 
recovered.  How,  then,  were  they  injured  by  the  fire?  They  have 
the  bridge  as  they  had  it  before,  without  cost  to  them ;  and  the  dim- 
inution of  their  tolls,  during  the  period  of  reconstruction,  cannot  be 
compensated  in  an  action  on  the  policy.  For  this  reason,  therefore, 
if  for  no  other,  we  cannot  discover  any  cause  of  action  against  this 
defendant. 

But  independently  of  this  consideration,  all  the  definitions  of  an 
"insurable  interest"  import  an  interest  in  the  property  insured  which 
can  be  enforced  at  law  or  in  equity.    Thus  we  said  in  Miltenberger  v. 


Sec.  3)         INSURABLE  INTEREST FIRE  INSURANCE  115 

Beacom,  9  Pa.  199 :  "It  is  accordingly  recognized  as  a  rule,  in  this  de- 
partment of  the  law,  that  ahnost  any  quaUficd  property  in  the  thing 
insured,  or  any  reasonable  expectation  of  profit  or  advantage  to 
spring  from  it,  may  be  the  subject  of  this  species  of  contract,  pro- 
vided it  be  founded  in  some  legal  or  equitable  title."  In  1  Wood, 
Ins.  625,  626,  it  is  said :  "A  right,  too,  must  be  of  such  a  nature,  in 
order  to  constitute  an  interest,  as  the  law  will  recognize  and  enforce ; 
for  a  mere  moral  title  will  not  sustain  an  insurance."  Fland.  Ins. 
388 :  "A  mere  general  interest,  not  susceptible  of  enforcement,  which 
does  not  specifically  apply  either  in  terms  or  by  the  operation  of  law, 
is  not  insurable."  1  Wood,  Ins.  656:  "The  interest  must  be  enforce- 
able either  at  law  or  in  equity."  Wilson  v.  Insurance  Co.,  19  Pa.  374: 
"Interest  in  the  property  insured  is  an  essential  link  in  the  relation  of 
insurance."  Sweeny  v.  Insurance  Co.,  20  Pa.  342 :  "The  rule  is  val- 
uable and  well  founded  that  he  who  has  no  interest  can  have  no  in- 
surance. That  he  must  show  his  interest,  and  that  it  is  the  extreme 
measure  of  his  recovery,  are  the  corollaries  of  the  rule."  Insurance 
Co.  v.  Murray,  7Z  Pa.  28:  "Hence  the  court  was  correct  in  charging 
that  the  insurable  interest  of  the  lessees  was  to  the  extent  of  the 
value  of  the  property  which  they  were  bound  to  replace."  See,  also, 
Grevemeyer  v.  Insurance  Co.,  62  Pa.  340,  1  Am.  Rep.  420. 

It  is  unnecessary  to  multiply  citations.  There  was  clearly  no  in- 
terest in  the  bridge,  belonging  to  the  turnpike  company,  which,  could 
be  recognized  or  enforced,  either  at  law  or  in  equity.  There  could 
not  be  any  right  of  property  of  any  kind,  nor  of  possession  nor  of 
custody.  Even  the  use  of  it  was  not  a  use  by  the  plaintiff  in  its  cor- 
porate capacity,  but  a  mere  right  of  passage  over  it,  which  belonged 
to  all  citizens  in  common.  The  money  which  was  contributed  to  its 
construction  by  the  plaintiff  was  a  mere  gratuity,  which  it  was  not 
bound  to  give,  and  which  it  could  never  recover.  In  such  circum- 
stances, there  was  no  interest  or  property  in  the  bridge  as  a  structure, 
and  hence  no  insurable  interest  capable  of  protection  and  enforce- 
ment. 

We  sustain  the  first,  second,  and  third  assignments.  Judgment  re- 
versed. 


BASSETT  V.  FARMERS'  &  MERCHANTS'  INS.  CO. 

(Supreme  Court  of  Nebraska,  1909.     85  Neb.  85,  122  N.  W.  703,  19  Ann.  Cas. 

252.) 

Action  by  John  W.  Bassett  against  the  Farmers'  &  Merchants'  In- 
surance Company.  Judgment  for  plaintiff,  and  defendant  appeals. 
Reversed  and  remanded. 

Root,  J.  In  1902  John  W.  Bassett,  plaintifif  herein,  purchased 
a  farm  in  Otoe  county,  and  procured  the  conveyance  therefor  to  be 
made  to  his  wife.     In  1904  defendant  insured  plaintiff  for  five  vears 


116  SUBJECT-MATTER   OP    THE  CONTRACT  (Ch.  2 

against  loss  by  fire  of  the  dwelling  house  on  said  farm.  In  1906  the 
house  was  totally  destroyed  by  fire.  Defendant  denied  liability  upon  its 
policy,  and  returned  the  premium  received  by  it  from  plaintiff,  which 
he  retained  some  months,  and  then  sent  back  to  defendant.  Defend- 
ant tenders  plaintiff  the  amount  of  said  premium. 

1.  The  most  important  question  raised  by  the  defense  is  that  under 
the  facts  plaintiff  did  not  have  an  insurable  interest  in  the  property 
destroyed,  and  for  that  reason  catmot  recover.  Without  an  insurable 
interest,  plaintiff  ought  not  to  prevail.  Stanisics  v.  Hartford  Fire  Ins. 
Co.,  83  Neb.  768,  120  N.  W.  435.  At  the  time  the  policy  was  issued 
excepting  only  her  homestead,  a  married  woman  in  Nebraska  could 
dispose  of  her  real  estate  without  her  husband's  assent,  and  by  her 
sole  deed  convey  title  thereto  freed  from  his  interest  inchoate  or 
otherwise  therein.  The  farm  under  consideration  was  not  a  home- 
stead. Not  only  may  the  wife  thus  convey  her  real  estate,  but  dur- 
ing her  lifetime  the  husband  has  no  right  to  its  possession  or  control 
nor  to  any  part  of  the  rents  and  profits  issuing  therefrom.  Cases 
may  be  cited  to  sustain  the  proposition  that  the  husband's  estate  by 
the  curtesy  initiate  is  an  insurable  interest;  but  an  examination  of 
those  cases  will  disclose  that  they  are  based  upon  laws  giving  the  hus- 
band more  than  a  mere  expectancy  in  the  wife's  land.  In  jurisdictions 
where  the  lawmaking  power  has  completely  emancipated  a  married 
woman's  property  from  the  control  of  her  husband,  the  possibility 
that  he  will  receive  a  benefit  from  the  real  estate  of  which  she  may 
die  seised  is  not  considered  an  insurable  interest  during  her  lifetime. 
Clark  V.  Insurance  Co.,  81  Me.  373,  17  Atl.  303 ;  Traders'  Insurance. 
Co.  V.  Newman,  120  Ind.  554,  22  N.  E.  428;  Planters'  Ins.  Co.  v. 
Loyd,  71  Ark.  292,  75  S.  W.  725. 

Plaintiff  argues  that,  if  the  holder  of  the  property  insured  will  suffer 
a  loss  by  its  destruction,  he  has  an  insurable  interest  therein.  An  ex- 
amination of  the  cases  cited  upon  that  point  will  disclose  that  the 
assured  in  each  instance  had  some  substantial  interest  in  the  subject 
insured,  an  interest  that  would  be  recognized  and  protected  by  the 
courts.  If  plaintiff  were  enjoying  the  possession  of  a  house  rent  free 
without  any  contract  with  the  owner  and  under  such  circumstances 
that  the  latter  might  dispossess  the  former  any  time,  it  would  hardly 
be  contended  that  he  had  an  insurable  interest  in  the  dwelling.  So 
far  as  the  proof  goes,  plaintiff  holds  possession  of  the  farm  by  suffer- 
ance of  his  wife,  and  not  by  force  of  any  lawful  or  equitable  right. 

Counsel  argue  that  Mrs.  Bassett  has  only  a  dry,  naked,  legal  title 
to  the  farm,  and  that  the  beneficial  one  is  in  plaintiff,  but  the  difficulty 
is  that  the  proof  does  not  sustain  that  assumption.  Mrs.  Bassett  did 
not  testify,  nor  has  plaintiff  stated,  that  there  was  any  arrangement 
between  himself  and  wife,  oral  or  otherwise,  by  which  he  was  to  have 
a  life  estate  in  the  farm.  Nor  is  there  any  proof  that  the  deed  to  Mrs. 
Bassett  does  not  convey  the  title  in  just  such  form  as  plaintiff  desired. 

In  Redfield  v.  Holland  Purchase  Ins.  Co..  56  N.  Y.  354,  15  Am.  Rep. 


Sec.  3)         INSURABLE  INTEREST — FIRE  INSURANCE  117 

424,  cited  as  in  point,  the  wife  had  agreed  orally  that  her  husband 
should  have  the  use  during  his  natural  life  of  the  property  conveyed 
to  her  at  his  instance.  He  was  in  possession  of  the  land,  and  the 
court  held  that  there  had  been  complete  performance  by  the  hus- 
band of  the  oral  agreement  so  as  to  take  it  out  of  the  statute  of 
frauds,  and  that  he  had  an  equitable  title  to  the  real  estate.  But  in 
the  case  at  bar  the  proof  merely  discloses  that  plaintifif  purchased  the 
land  and  directed  the  vendor  to  convey  direct  to  his  wife,  and,  in  con- 
formity with  his  instructions,  she  received  a  warranty  deed  therefor. 
He  testified  that  he  desired  her  to  have  the  land  without  administra- 
tion if  she  survived  him,  and,  should  she  predecease  him,  he  would 
inherit  from  her. 

It  may  be  that  the  facts  will  justify  a  court  finding  that  there  was 
an  arrangement  between  the  husband  and  wife  entered  into  before  the 
deed  was  made  to  her  that  he  could  have  the  use  of  the  land  during  his 
lifetime,  but  there  is  no  evidence  in  the  record  of  those  facts.  Upon 
the  proof  plaintiff  is  in  the  same  situation  as  though  he  had  taken 
possession  of  his  wife's  separate  property  and  leased  it  for  his  own 
benefit.  The  wife  could  oust  him  any  time  she  saw  fit.  In  the  state 
of  the  record  there  is  a  failure  of  proof  upon  a  vital  fact  in  issue. 
Pope  V.  Glenns  Falls  Ins.  Co.,  136  Ala.  670,  34  South.  29.     *     *     *  ^-^ 

There  is  not  a  scintilla  of  evidence  to  indicate  that  the  fire  was  of 
incendiary  origin,  and  we  dislike  very  much  to  reverse  the  judgment 
before  us,  but  the  failure  of  proof  referred  to  is  clear  and  our  duty 
imperative.  The  judgment  of  the  district  court  is  reversed,  and  the 
cause  remanded  for  further  proceedings.** 

ReIESE,  C.  J.,  absent  and  not  sitting. 


LOYD  v.  PLANTERS'  MUT.  INS.  CO. 

(Supreme  Court  of  Arkansas.  1906.     80  Ark.  486,  97  S.  W.  658.) 

Action  by  T.  M.  Loyd  against  the  Planters'  Mutual  Insurance  Com- 
pany. From  a  judgment  in  favor  of  defendant,  plaintiff  appeals. 
Affirmed. 

HiLiv,  C.  J.  This  is  the  third  appearance  of  this  case  here.  See 
Planters'  Mutual  Ins.  Co.  v.  Loyd,  67  Ark.  584,  56  S.  W.  44,  11  Am.  St. 
Rep.  136,  and  Planters'  Mutual  Ins.  Co.  v.  Loyd,  71  Ark.  292,  75 
S.  W.  725.  On  the  third  trial  the  court  directed  a  verdict  for  the  in- 
surance company,  and  Loyd  appealed. 

3  3  Part  of  the  opinion,  not  relating  to  insurable  interest,  is  omitted. 

S4  The  cases  dealing  with  the  husband's  insurable  interest  in  his  wife's 
property,  real  and  personal,  are  collected  in  the  note  appended  to  the  report 
of  Tyree  v.  Ya.  F.  &  M.  Ins.  Co.,  .5.5  W.  Va.  6.S,  46  S.  E.  706,  104  Am.  St.  Kep. 
983,  2  Ann.  Cas.  30  (1904).  in  66  L.  R.  A.  657-662.  and  in  note  in  45  L.  R.  A. 
(N.  S.)  1131.  where  is  reported  Khidt  v.  German  Mut.  Fire  Ins.  Co..  152  Wis. 
637,  140  N.  W.  321,  45  L.  R.  A.  (N.  S.)  1131  (1913),  strongly  opposed  to  the 
conclusion  reached  in  the  principal  case. 


118  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

It  is  contended  that  facts  were  brought  out  on  the  last  trial,  not 
heretofore  in  the  record,  which  entitled  appellant  to  go  to  the  jury 
on  the  new  issues.  The  matters  relied  upon  are  these:  (1)  That 
Loyd  had  an  insurable  interest  in  the  property  by  virtue  of  being  surety 
on  a  bond  for  the  purchase  price  of  the  property ;  and  (2)  that  he 
had  an  insurable  interest  by  reason  of  an  estate  by  the  curtesy  initiate 
in  the  property. 

1.  The  facts  regarding  the  suretyship  brought  out  on  the  last  trial 
were  these:  Kiser  obtained  judgment  against  Loyd  for  $74  for  ma- 
terial going  into  the  construction  of  the  house  covered  by  the  in- 
surance policy  in  suit,  and  the  property  was  sold  under  it  on  22d  De- 
cember, 1896.  Loyd  bought  it  in  his  wife's  name,  and  he  and  Kins- 
worthy  went  on  the  bond  for  purchase  money.  On  January  25,  1897, 
this  insurance  policy  was  written  for  a  term  of  three  years,  $750  on 
the  house  and  $250  on  the  personalty,  and  on  March  2,  1897,  it  was 
destroyed  by  fire.  Kinsworthy  paid  the  bond,  whether  before  or  after 
the  fire  is  not  disclosed. 

The  contention  is  that  the  suretyship  on  this  bond  gave  Loyd  an 
insurable  interest  in  the  property  for  whose  purchase  it  was  given, 
in  that  he  could  be  subrogated  to  the  lien  of  the  payee  when  he  dis- 
charged it,  and,  the  policy  being  entire  and  a  valued  one,  the  insur- 
ance had  something  to  rest  upon  and  was  not  a  "wager  contract." 
Cases  are  cited  to  sustain  this  contention,  where  creditors,  sureties, 
and  guarantors  were,  under  the  facts  of  those  cases,  held  to  have  an 
insurable  interest  in  the  property  for  which  their  obligation  was  in- 
curred. These  cases  have  been  critically  examined,  but  none  has  been 
found  among  them,  nor  in  an  independent  research  into  the  subject, 
which  sustains  such  a  remote  and  uncertain  interest  in  the  property 
as  the  one  in  question  to  be  an  insurable  interest  which  will  support 
a  policy  asserting  ownership  in  the  assured. 

Here  there  is  a  bare  suretyship  for  a  debt  not  due  when  the  policy 
was  written,  and  the  debt  is  only  one-tenth  the  insured  value  of  the 
house ;  and  there  is  no  showing  of  any  necessity  to  resort  to  this  prop- 
erty for  indemnity  in  case  of  default  by  the  principal.  Neither  when 
the  policy  was  w^ritten  nor  when  the  fire  occurred  had  Loyd  expended 
one  cent  by  reason  of  his  suretyship,  nor  at  any  time  since,  as  the 
bond  was  paid  by  Kinsworthy,  the  other  surety.  Loyd  never  had  any 
lien  upon  the  property,  in  law  or  equity,  nor  any  control  or  custody 
of  it  as  security  for  his  liability.  Instances  where  sureties,  guarantors, 
and  indorsers  have  an  insurable  interest  in  the  subject-matter  for 
which  their  suretyship,  guaranty,  or  indorsement  was  given  may  be 
found  in  1  May  on  Ins.  §§  80-83,  and  notes.  The  facts  herein  do  not 
bring  Loyd  within  any  of  the  principles  which  give  sureties  an  in- 
surable interest  in  the  subject-matter  for  which  the  suretyship  was 
insured. 

2.  Proof  was  made  that  a  child  was  born  alive  of  the  marriage  of 
Dr.  and  Mrs.  Loyd,  and  it  is  argued  that  this  created  in  him  an  es- 


Sec.  3)         INSURABLE  INTEREST — FIRE  INSURANCE  119 

tate  by  the  curtesy  initiate  in  his  wife's  reahy.  At  common  law,  and 
in  this  state  until  the  adoption  of  the  Constitution  of  1874,  this  would 
have  created  such  estate  in  the  husband,  and  such  estate  is  an  insur- 
able interest.  1  May  on  Ins.  §  81,  and  authorities  cited.  It  was  held  in 
Neely  v.  Lancaster,  47  Ark.  175,  1  S.  W.  66,  58  Am.  Rep.  752,  and 
reiterated  in  Hampton  v.  Cook,  64  Ark.  353,  42  S.  W.  535,  62  Am. 
St.  Rep.  194,  that  the  Constitution  has  abolished  this  estate,  and 
only  left  the  possibility  of  the  estate  by  the  curtesy  consummate. 

Other  questions  were  pressed  in  oral  argument,  but  they  are  not 
open  to  the  court  now,  having  been  settled  in  former  appeals. 

Judgment  afifirmed.^^ 


SUN  INS.  OFFICE  OF  LONDON  v.  MERZ. 

(Court  of  Errors  and  Appeals  of  New  Jersey,   1900.     64  N.  J.  Law,  301,  45 
Atl.  785,  52  L.  R.  A.  330.) 

Error  to  supreme  court. 

Action  by  the  Sun  Insurance  OfTice  of  London  against  Henry 
Merz.    Judgment  for  defendant,  and  plaintiff  brings  error.     Reversed. 

GuMMERB,  J.  This  is  an  action  brought  by  the  plaintiff  in  error 
against  Merz  to  recover  upon  a  policy  of  insurance  by  the  terms  of 
which  Merz  and  24  other  persons  and  firms,  who  had  formed  an  organ- 
ization known  as  a  "Fire  Lloyd's,"  under  the  act  of  March  25,  1895  (2 
Gen:  St.  p.  1784),  agreed,  for  a  consideration  of  $3,000,  to  reinsure 
the  plaintiff  in  error  for  the  term  of  time  from  the  30th  day  of  Sep- 
tember, 1897,  at  midnight,  to  the  31st  day  of  December,  1897,  at 
midnight,  against  all  direct  loss  or  damage  by  fire,  to  an  amount  not 
exceeding  in  the  aggregate  the  sum  of  $25,000,  nor  exceeding  the 
interest  of  the  assured  in  said  property,  "to  the  following  described 
property,  to  wit,  reinsurance  of  the  Sun  Insurance  Office  of  London, 
being  a  reinsurance  of  the  liability  of  the  Sun  Insurance  Office  for 
claims  for  loss  and  damage  by  fire  or  lightning  occurring  in  the 
months  of  October,  November,  and  December,  1897,  destroying  and 
damaging  property  located  anywhere  in  the  United  States  and  ter- 
ritories. Said  property  must  be  damaged  or  destroyed  by  fire  be- 
tween midnight  of  September  30,  1897,  and  midnight  of  December 
31,  1897." 

The  questions  considered  and  determined  by  the  supreme  court, 
and  now  presented  here  for  review,  are :  First,  whether  wdiat  is  known 
as  the  "Fire  Lloyd's  statute  of  March  25,  1895,"  as  amended  by  the 
act  of  March  26,  1896  (P.  L.  1896,  p.  156),  prohibits  the  making  of  a 

s5  The  cases  involving  the  question  whether  a  surety  on  an  oblisration  has 
an  insurable  interest  in  property  primarily  charged  with  such  obligation  are 
collected  in  the  note  attached  to  Mahoney  .v.  State  Ins.  Co.,  133  Iowa,  570, 
110  N.  W.  1041  (1907),  in  9  L.  R.  A.  (N.  S.)  490. 


120  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

contract  of  reinsurance;  and,  second,  whether  the  contract  now  be- 
fore us  is  void  as  being  a  wag-erinjj^  policy.     *     *     * 

We  concur  in  the  construction  put  by  the  supreme  court  upon  this 
legislation,  and  in  the  conclusion  that  it  does  not  prohibit  the  mak- 
ing of  contracts  by  insurers  indemnifying  them  against  loss  upon 
policies  which  they  have  issued.  [See  same  case,  63  N.  J.  Law,  365, 
43  Atl.  693.  J 

The  supreme  court  further  concluded  that  the  contract  sued  on 
was  wholly  void,  because  it  stipulated  for  indemnity  against  losses 
upon  property  in  some  portion  of  which  the  plaintiff  then  had  no  in- 
surable interest.  The  ground  upon  which  this  conclusion  is  rested 
is  that,  where  an  insurable  interest  does  not  exist  at  the  time  of  mak- 
ing the  contract  of  indemnity,  such  contract  is  a  wagering  one,  and 
therefore  void  as  against  public  policy.  This  was  formerly  considered 
to  be  the  rule  with  relation  to  fire  policies,  and  was  so  declared  both 
by  text  writers  and  in  decided  cases,  although  a  contrary  view  was 
always  taken  in  construing  life  and  marine  insurance  policies.  Why 
any  such  variance  in  construction  existed  it  is  difficult  to  understand, 
for,  certainly,  if  a  contract  to  insure  after-acquired  property  against 
fire  is  a  wagering  contract,  and  therefore  void,  because  against  public 
policy,  a  contract  to  insure  such  property  against  marine  risks,  or  a 
contract  to  insure  the  life  of  a  person  in  favor  of  one  who,  at  the  time 
of  the  taking  out  of  the  policy,  has  no  interest  therein,  are  equally 
wagering  contracts,  and,  if  such  contracts  are  prohibited  by  public 
policy,  should  equally  be  considered  void. 

But,  although  the  earlier  cases  on  fire  insurance  laid  down  the  rule 
enunciated  by  the  supreme  court,  experience  has  taught  that  the  ne- 
cessities of  business  and  the  adequate  protection  of  property  require 
the  same  methods  of  insurance  against  loss  by  fire  as  have  always  ex- 
isted with  relation  to  losses  by  the  perils  of  the  seas ;  and  reflection  has 
led  to  the  conclusion  that  contracts  of  insurance  upon  property  in 
which  the  insured  has  no  interest  at  the  time  of  the  issuing  of  the  pol- 
icy are  not  wagers  if  he  acquires  an  interest  during  the  life  of  the 
policy,  and  retains  it  at  the  time  when  the  loss  occurs.  As  a  result 
of  the  application  of  this  later,  and,  as  it  seems  to  us,  better-judged 
doctrine,  it  has  been  held  that  a  policy  issued  to  a  merchant,  drawn, 
by  the  intention  of  the  parties  to  it,  to  cover  goods  which  should  be 
acquired  by  the  insured  from  time  to  time  during  the  continuance  of 
the  policy,  is  a  valid  contract  (Lane  v.  Insurance  Co.,  3  Fairf.  [12 
Me.]  44,  28  Am.  Dec.  150);  that  a  policy  issued  to  a  farmer,  cover- 
ing not  only  the  live  stock  then  owned  by  him,  but  that  to  be  subse- 
quently acquired  during  the  term  of  the  policy,  or  one  issued  to  him 
upon  crops  not  yet  planted,  but  which  the  parties  expected  would  be 
grown  before  the  expiration  of  the  policy,  is  legally  unobjectionable 
(Mills  V.  Insurance  Co.,  37  Iowa,  400;  Sawyer  v.  Insurance  Co.,  57 
Wis.  503) ;  that  insurance  upon  the  constantly  changing  contents  of 
an  oil  tank  is  not  prohibited  by  any  rule  of  public  policy,  and  entitles 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  121 

the  insured  to  recover  the  vahie  of  the  oil  which  happens  to  be  in  the 
tank  at  the  time  when  the  fire  occurred  whicli  destroys  it  (Western  & 
A.  Pipe  Lines  v.  Home  Ins.  Co.,  145  Pa.  346,  22  Atl.  665,  27  Am.  St. 
Rep.  703).  Other  cases  in  which  the  same  view  is  taken  of  the  effect 
to  be  given  to  pohcies  of  fire  insurance,  which,  by  the  agreement  of 
the  parties,  are  drawn  to  cover  property  which,  it  is  anticipated,  the 
insured  will  acquire  before  the  time  limited  therein  has  expired,  are 
Wood  V.  Insurance  Co.,  31  Vt.  552;  Hooper  v.  Insurance  Co.,  17  N. 
Y.  424;  Hoffman  v.  Insurance  Co.,  32  N.  Y.  405,  88  Am.  Dec.  337; 
Wolfe  V.  Insurance  Co.,  39  N.  Y.  49;  Lee  v.  Insurance  Co.,  11  Cush. 
(Mass.)  324. 

I'p  to  the  present  time  the  question  has  not  received  consideration 
at  the  hands  of  this  court.  An  examination  of  the  reasons  upon  which 
the  earlier  rule  rests  has  led  us  to  the  conclusion  that  they  are  not  well 
founded,  and  that  a  contract  by  which  the  parties  provide  for  in- 
demnity against  loss  by  fire  upon  property  to  be  subsequently  ac- 
quired by  the  party  indemnified  is  not  in  any  sense  a  gaming  contract, 
and  void  on  that  account;  in  other  words,  that  an  insurable  interest, 
subsisting  during  the  risk  and  at  the  time  of  the  loss,  is  sufficient  to 
support  a  policy  insuring  against  loss  by  fire.  The  judgment  of  the 
supreme  court  should  be  reversed.^^ 


SECTION  4.— WHAT  CONSTITUTES  INSURABLE  INTER- 
EST—LIFE INSURANCE 


DWYER  V.  EDIE. 

(Court  of  King's  Bench,  1788.     Park,  Ins.  [6th  Ed.]  574.) 

An  action  was  brought  on  a  policy  on  the  life  of  James  Russell 
from  the  1st  of  June,  1784,  to  the  1st  of  June,  1785.  Russell  was 
warranted  in  good  health,  and  by  a  memorandum  at  the  foot  of  the 
policy  it  was  declared  that  it  was  intended  to  cover  the  sum  of 
£5000.  due  from  Russell  to  the  plaintiff,  for  which  he  had  given 
his  note  payable  in  one  year  from  the  14th  of  May,  1784.  Two 
objections  were  made  on  the  part  of  the  defendant:    1st,  That  part 

36  "It  is  now,  liowever,  clearly  established  that  an  insurable  interest,  sub- 
sisting during  the  risk  and  at  the  time  of  loss,  is  sufficient,  and  that  the  as- 
sured need  not  also  allege  or  prove  that  he  was  interested  at  the  time  of  ef- 
fecting the  ix)licy."  1  Arnould,  Mar.  Ins.  (2d  Perkins'  Ed.)  232,  citing  Khind 
V.  Wilkinson,  2  Taunt.  2.37  (1810) ;  Lane  v.  Maine  Mut.  Fire  Ins.  Co.,  12  Me. 
44,  28  Am.  Dec.  150  (1835). 

"Sec.  2.552.  When  interest  must  exist.  An  interest  insured  must  exist  when 
the  insurance  takes  effect,  and  when  the  loss  occurs,  but  need  not  exist  in 
the  meantime."     Civil  Code  of  California. 

See  Bibend  v.  Insurance  Co.,  30  Cal.  78,  89  (1866),  and  Howard  v.  Insur- 
ance Co.,  11  Can,  Sup.  Ct.  92  (1885),  contra  to^  principal  case. 


122  SUBJECT-MATTER    OF    THE   CONTRACT  ,  (Ch.  2 

of  the  consideration  for  the  note  was  money  won  at  play:     2dly, 
That  Russell  at  the  time  he  gave  the  note  was  an  infant. 

Mr.  Justice  BullEr  nonsuited  the  plaintiff  upon  the  ground 
of  part  of  the  consideration  of  the  note  being  for  a  gaming  trans- 
action ;  and  therefore  there  was  a  want  of  interest  in  the  plaintiff. 
But  as  to  the  other  objection  on  account  of  infancy,  the  interest 
must  be  contingent,  for  Russell  might  or  might  not  avoid  his 
note ;  and  he  doubted  much  whether,  till  so  avoided,  the  note 
must  not  be  taken  against  a  third  person  to  be  the  note  of  an 
adult,  for  the  maker  of  the  note  only  could  take  the  objection. ^^ 


DALBY  V.  INDIA  &  LONDON  LIFE-ASSUR.  CO. 

(Exchequer  Clmmber,  1854.     15  C.  B.  365,  24  L.  J.  C.  P.  2-9,  18  Jur.  1024.) 

Parke,  B.^®  If  we  should,  upon  consideration,  think  that  the 
interest  must  be  a  continuing  interest,  as  my  Brother  Channell 
contends,  we  will  hear  the  matter  further  discussed  upon  the 
question  whether  the  facts  disclosed  upon  this  bill  of  exceptions 
shew  such  continuing  interest. 

Cur.  adv.  vult. 

Parke,  B.,  now  delivered  the  judgment  of  the  court: 

This  case  comes  before  us  on  a  bill  of  exceptions  to  the  ruling 
of  my  Brother  Cresswell  at  nisi  prius.  We  learn,  that,  on  the 
trial,  he  reserved  the  important  point  which  arose  in  it  for  the  con- 
sideration of  the  court  of  common  pleas ;  and  that,  where  it  came 
oh  for  discussion,  it  was  thought  right  to  put  it  on  the  record  in 
the  shape  of  a  bill  of  exceptions,  that  it  may  be  carried,  if  it  should 
be  thought  proper,  to  the  highest  tribunal ;  and  we  have  now, 
after  a  very  able  argument  on  both  sides,  to  dispose  of  it  in  this 
court  of  error. 

It  is  an  action  on  what  is  usually  termed  a  policy  of  life-assur- 
ance, brought  by  the  plaintiff  as  a  trustee  for  the  Anchor  Assur- 
ance Company,  on  a  policy  for  £  1000  on  the  life  of  his  late  royal 
highness,  the  Duke  of  Cambridge. 

The  Anchor  Life-Assurance  Company  had  insured  the  duke's 
life  in  four  separate  policies, — two  for  £1000,  and  two  for  £500 
each,  granted  by  that  company  to  one  Wright.  In  consequence  of 
a  resolution  of  their  directors,  they  determined  to  limit  their  in- 
surances to   £2000  on  one  life;    and,  this  insurance  exceeding  it, 

37  In  Anderson  v.  Edie,  Park,  Ins.  (6tli  Ed.)  575  (1795),  Lord  Kenyon  was 
of  opinion:  "That  this  debt  was  a  sufficient  interest;  and  said  that  it  was 
singular,  that  this  question  had  never  been  directly  decided  before.  That  a 
creditor  had  certainly  an  interest  in  the  life  of  his  debtor,  the  means  by  which 
he  was  to  be  satisfied  may  materially  depend  upon  it,  and  at  all  events  the 
death  must  in  all  cases  in  .some  degree  lessen  the  security." 

3  8  The  very  full  statement  of  facts  and  extensively  reported  arguments  of 
counsel  are  omitted. 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  123 

they  effected  a  policy  with  the  defendants  for  £1000  by  way  of 
counter-insurance. 

At  the  time  this  policy  was  subscribed  by  the  defendants,  the 
Anchor  Company  had  unquestionably  an  insurable  interest  to  the 
full  amount.  Afterwards,  an  arrangement  was  made  between  the 
office  and  Wright,  for  the  former  to  grant  an  annuity  to  Wright 
and  his  wife,  in  consideration  of  a  sum  of  money,  and  of  the  de- 
livery up  of  the  four  policies  to  be  cancelled,  which  was  done ; 
but  one  of  the  directors  kept  the  present  policy  on  foot,  by  the 
payment  of  the  premiums  till  the  duke's  death. 

It  may  be  conceded,  for  the  purpose  of  the  present  argument, 
that  these  transactions  between  Wright  and  the  office  totally  put 
an  end  to  that  interest  which  the  Anchor  Company  had  when 
the  policy  was  effected,  and  in  respect  of  which  it  was  effected : 
and  that,  at  the  time  of  the  duke's  death,  and  up  to  the  commence- 
ment of  the  suit,  the  plaintiff  had  no  interest  whatever.' 

This  raises  the  very  important  question,  whether,  under  these 
circumstances,  the  assurance  was  void,  and  nothing  could  be  re- 
covered thereon. 

If  the  court  had  thought  some  interest  at  the  time  of  the  duke's 
death  was  necessary  to  make  the  policy  valid,  the  facts  attending 
the  keeping  up  of  the  policy  would  have  undergone  further  discus- 
sion. 

There  is  the  usual  averment  in  the  declaration,  that,  at  the  time  of 
the  making  of  the  policy,  and  thence  until  the  death  of  the  duke,  the 
Anchor  Assurance  Company  was  interested  in  the  life  of  the  duke, 
and  a  plea,  that  they  were  not  interested  modo  et  forma, — which 
traverse  makes  it  unnecessary  to  prove  more  than  the  interest  at  the 
time  of  making  the  policy,  if  that  interest  was  sufficient  to  make  it 
valid  in  point  of  law.  Lush  v.  Russell,  5  Exch.  203.  We  are  all  of  opin- 
ion that  it  was  sufficient ;  and,  but  for  the  case  of  Godsall  v.  Boldero, 
9  East,  72,  should  have  felt  no  doubt  upon  the  question. 

The  contract  commonly  called  life-assurance,  when  properly  con- 
sidered, is  a  mere  contract  to  pay  a  certain  sum  of  money  on  the 
death  of  a  person,  in  consideration  of  the  due  payment  of  a  certain 
annuity  for  his  life, — the  amount  of  the  annuity  being  calculated,  in 
the  first  instance,  according  to  the  probable  duration  of  the  life :  and, 
when  once  fixed,  it  is  constant  and  invariable.  The  stipulated  amount 
of  annuity  is  to  be  uniformly  paid  on  one  side,  and  the  sum  to  be 
paid  in  the  event  of  death  is  always  (except  when  bonuses  have  been 
given  by  prosperous  offices)  the  same,  on  the  other.  This  species 
of  insurance  in  no  way  resembles  a  contract  of  indemnity. 

Policies  of  assurance  against  fire  and  against  marine  risks,  are  both 
properly  contracts  of  indemnity, — the  insurer  engaging  to  make  good, 
within  certain  limited  amounts,  the  losses  sustained  by  the  assured 
in  their  buildings,  ships,  and  effects.  Policies  on  maritime  risks  were 
afterwards  used  improperly,  and  made  mere  wagers  on  the  happen- 


124  SUBJECT-MATTER    OP    THE   CONTRACT  (Ch.  2 

ing  of  those  perils.  This  practice  was  Hmited  by  the  19  Geo.  II.  c. 
37,  and  put  an  end  to  in  all  except  a  few  cases.  But,  at  common  law, 
before  this  statute  with  respect  to  maritime  risks,  and  the  14  Geo.  III. 
c.  48,  as  to  insurance  on  lives,  it  is  perfectly  clear  that  all  contracts 
for  wager-policies,  and  wagers  which  were  not  contrary  to  the  policy 
of  the  law,  were  legal  contracts;  and  so  it  is  stated  by  the  court,  in 
Cousins  V.  Nantes,  3  Taunt.  315,  to  have  been  solemnly  determined 
in  the  case  of  Lucena  v.  Crawford,  2  Bos.  &  P.  324,  2  N.  R.  269, 
without  even  a  difference  of  opinion  among  all  the  judges.  To  the 
like  effect  was  the  decision  of  the  court  of  error  in  Ireland,  before  all 
the  judges  except  three,  in  Insurance  Co.  v.  Magee,  Cooke  &  A.  182. 
that  the  insurance  was  legal  at  common  law. 

The  contract,  therefore,  in  this  case,  to  pay  a  fixed  sum  of  £1000 
on  the  death  of  the  late  Duke  of  Cambridge,  would  have  been  un- 
questionably legal  at  common  law,  if  the  plaintiff  had  had  an  interest 
therein  or  not :  and  the  sole  question  is,  whether  this  policy  was  ren- 
dered illegal  and  void  by  the  provisions  of  the  statute  14  Geo.  III. 
c.  48.     This  depends  upon  its  true  construction. 

The  statute  recites,  that  the  making  insurances  on  lives  and  other 
events  wherein  the  assured  shall  have  no  interest,  hath  introduced  a 
mischievous  kind  of  gaming :  and,  for  the  remedy  thereof,  it  enacts 
"that  no  insurance  shall  be  made  by  any  one  on  the  life  or  lives  of 
any  person  or  persons,  or  on  any  other  events  whatsoever,  wherein 
the  person  or  persons  for  whose  use  and  benefit,  or  on  whose  ac- 
count, such  policy  shall  be  made,  shall  have  no  interest,  or  by  way  of 
gaming  or  wagering ;  and  that  every  assurance  made  contrary  to  the 
true  intent  and  meaning  hereof  shall  be  null  and  void  to  all  intents  and 
purposes  whatsoever." 

As  the  Anchor  Assurance  Company  had  unquestionably  an  interest 
in  the  continuance  of  the  life  of  the  Duke  of  Cambridge, — and  that 
to  the  amount  of  ilOOO,  because  they  had  bound  themselves  to  pay  a 
sum  of  ilOOO  to  Mr.  Wright  on  that  event, — the  policy  effected  by 
them  with  the  defendants  was  certainly  legal  and  valid,  and  the  plain- 
tiff, without  the  slighest  doubt,  could  have  recovered  the  full  amount, 
if  there  were  no  other  provisions  in  the  act. 

This  contract  is  good  at  common  law,  and  certainly  not  avoided 
by  the  1st  section  of  the  14  Geo.  III.  c.  48.  This  section,  it  is  to  be 
observed,  does  not  provide  for  any  particular  amount  of  interest. 
According  to  it,  if  there  was  any  interest,  however  small,  the  policy 
would  not  be  avoided. 

The  question  arises  on  the  third  clause.  It  is  as  follows :  "And  be 
it  further  enacted,  that,  in  all  cases  where  the  insured  hath  interest  in 
such  life  or  lives,  event  or  events,  no  greater  sum  shall  be  recovered 
or  received  from  the  insurer  or  insurers,  than  the  amount  or  value  of 
the  interest  of  the  assured  in  such  life  or  lives,  or  other  event  or 
events." 

Now,  what  is  the  meaning  of  this  provision? 


Sec.  4)  INSURABLE3   INTEREST — LIFE    INSURANCE  125 

On  the  part  of  the  plaintiff,  it  is  said,  it  means  only,  that,  in  all 
cases  in  which  the  party  insuring  has  an  interest  when  he  effects  the 
policy,  his  right  to  recover  and  receive  is  to  be  limited  to  that  amount ; 
otherwise,  under  colour  of  a  small  interest,  a  wagering  policy  might 
be  made  to  a  large  amount, — as  it  might  if  the  first  clause  stood  alone. 
The  right  to  recover,  therefore,  is  limited  to  the  amount  of  the  in- 
terest at  the  time  of  effecting  the  policy.  Upon  that  value,  the  as- 
sured must  have  the  amount  of  premium  calculated :  if  he  states  it 
truly,  no  difficulty  can  occur :  he  pays  in  the  annuity  for  life  the  fair 
value  of  the  sum  payable  at  death.  If  he  misre])resents,  by  over- 
rating the  value  of  the  interest,  it  is  his  own  fault,  in  paying  more 
in  the  way  of  annuity  than  he  ought;  and  he  can  recover  only  the 
true  value  of  the  interest  in  respect  of  which  he  effected  the  policy : 
but  that  value  he  can  recover.  Thus,  the  liability  of  the  assurer  be- 
comes constant  and  uniform,  to  pay  an  unvarying  sum  on  the  death  of 
the  cestui  que  vie,  in  consideration  of  an  unvarying  and  uniform 
premium  paid  by  the  assured.  The  bargain  is  fixed  as  to  the  amount 
on  both  sides. 

This  construction  is  effected  by  reading  the  word  "hath"  as  re- 
ferring to  the  time  of  effecting  the  policy.  By  the  1st  section,  the 
assured  is  prohibited  from  effecting  an  insurance  on  a  life  or  on  an 
event  wherein  he  "shall  have"  no  interest, — that  is,  at  the  time  of 
assuring :  and  then  the  3rd  section  requires  that  he  shall  cover  only 
the  interest  that  he  "hath."  If  he  has  an  interest  when  the  policy  is 
made,  he  is  not  wagering  or  gaming,  and  the  prohibition  of  the  stat- 
ute does  not  apply  to  his  case.  Had  the  3rd  section  provided  that 
no  more  than  the  amount  or  value  of  the  interest  should  be  insured, 
a  question  might  have  been  raised,  whether,  if  the  insurance  had 
been  for  a  larger  amount,  the  whole  would  not  have  been  void :  but 
the  prohibition  to  recover  or  receive  more  than  that  amount,  obviates 
any  difficulty  on  that  head. 

On  the  other  hand,  the  defendants  contend  that  the  meaning  of 
this  clause  is,  that  the  assured  shall  recover  no  more  than  the  value 
of  the  interest  which  he  has  at  the  time  of  the  recovery,  or  receive 
more  than  its  value  at  the  time  of  the  receipt. 

The  words  must  be  altered  materially,  to  limit  the  sum  to  be  re- 
covered to  the  value  at  the  time  of  the  death,  or  (if  payable  at  a  time 
after  death)  when  the  cause  of  action  accrues. 

But  there  is  the  most  serious  objection  to  any  of  these  construc- 
tions. It  is,  that  the  written  -contract,  which,  for  the  reasons  given 
before,  is  not  a  wagering  contract,  but  a  valid  one,  permitted  by  the 
statute,  and  very  clear  in  its  language,  is  by  this  mode  of  construc- 
tion completely  altered  in  its  terms  and  effect.  It  is  no  longer  a  con- 
tract to  pay  a  certain  sum  as  the  value  of  a  then-existing  interest,  in 
the  event  of  death,  in  consideration  of  a  fixed  annuity  calculated  with 
reference  to  that  sum :  but  a  contract  to  pay, — contrary  to  its  ex- 
press words, — a  varying  sum,  according  to  the  alteration  of  the  value 


12G  SUBJECT-MATTER    OF    THE   CONTRACT  (Cll.  2 

of  that  interest  at  the  time  of  the  death,  or  the  accrual  of  the  cause  of 
action,  or  the  time  of  the  verdict,  or  execution :  and  yet  the  price, 
or  the  premium  to  be  paid,  is  fixed,  calculated  on  the  original  fixed 
value,  and  is  unvarying:  so  that  the  assured  is  obliged  to  pay  a  cer- 
tain premium  every  year,  calculated  on  the  value  of  his  interest  at 
the  time  of  the  policy,  in  order  to  have  a  right  to  recover  an  uncer- 
tain sum,  viz.  that  which  happens  to  be  the  value  of  the  interest  at 
the  time  of  the  death,  or  afterwards,  or  at  the  time  of  the  verdict. 
He  has  not,  therefore,  a  sum  certain,  which  he  stipulated  for  and 
bought  with  a  certain  annuity ;  but  it  may  be  a  much  less  sum,  or 
even  none  at  all. 

This  seems  to  us  so  contrary  to  justice  and  fair  dealing  and  com- 
mon honesty,  that  this  construction  cannot,  we  think,  be  put  upon 
this  section.  We  should,  therefore,  have  no  hesitation,  if  the  ques- 
tion were  res  Integra,  in  putting  the  much  more  reasonable  construc- 
tion on  the  statute,  that,  if  there  is  an  interest  at  the  time  of  the  pol- 
icy, it  is  not  a  wagering  policy,  and  that  the  true  value  of  that  inter- 
est may  be  recovered,  in  exact  conformity  with  the  words  of  the  con- 
tract itself. 

The  only  effect  of  the  statute,  is,  to  make  the  assured  value  his  in- 
terest at  its  true  amount  when  he  makes  the  contract. 

But  it  is  said  that  the  case  of  Godsall  v.  Boldero,  9  East,  72,  has 
concluded  this  question. 

Upon  considering  this  case,  it  is  certain  that  Lord  Ellenborough 
decided  it  upon  the  assumption  that  a  life-policy  was  in  its  nature  a 
contract  of  indemnity,  as  policies  on  marine  risks,  and  against  fire, 
undoubtedly  are;  and  that  the  action  was,  in  point  of  law,  founded 
on  the  supposed  damnification,  occasioned  by  the  death  of  the  debtor, 
existing  at  the  time  of  the  action  brought :  and  his  lordship  relied 
upon  the  decision  of  Lord  Mansfield  in  Hamilton  v.  Mendes,  2  Bur- 
rows, 1270,  that  the  plaintifif's  demand  was  for  an  indemnity  only. 
Lord  Mansfield  was  speaking  of  a  policy  against  marine  risks,  which 
is  in  its  terms  a  contract  of  indemnity  only.  But  that  is  not  of  the 
nature  of  what  is  termed  an  assurance  for  life :  it  really  is  what  it 
is  on  the  face  of  it, — a  contract  to  pay  a  certain  sum  in  the  event  of 
death.  It  is  valid  at  common  law ;  and,  if  it  is  made  by  a  person 
having  an  interest  in  the  duration  of  the  life,  it  is  not  prohibited  by 
the  statute  14  Geo.  IIL  c.  48. 

But,  though  we  are  quite  satisfied  that  the  case  of  Godsall  v.  Bold- 
ero was  founded  on  a  mistaken  analogy,  and  wrong,  we  should  hes- 
itate to  overrule  it,  though  sitting  in  a  court  of  error,  if  it  had  been 
constantly  approved  and  followed,  and  not  questioned,  though  many 
opportunities  had  been  offered  to  question  it.  It  was  stated  that  it 
had  not  been  disputed  in  practice,  and  had  been  cited  by  several  emi- 
nent judges  as  established  law.  The  judgment  itself  was  not,  and 
could  not  be,  questioned  in  a  court  of  error :  for,  one  of  the  issues, 
nil  debet,  was  found  for  the  defendant. 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  127 

Since  that  case,  we  know  practically,  and  that  circumstance  is  men- 
tioned by  some  of  the  judges,  in  the  cases  hereinafter  referred  to,  that 
the  insurance-ofBces,  generally  speaking,  have  not  availed  themselves 
of  the  decision,  as  they  found  it  very  injurious  to  their  interest  to  do 
so.  They  have,  therefore,  generally  speaking,  paid  the  amount  of 
their  life-insurances,  so  that  the  number  of  cases  in  which  it  could 
be  questioned  is  probably  very  small  indeed.  And  it  may  truly  be 
said,  that  instead  of  the  decision  in  Godsall  v.  Boldero  being  uni- 
formly acquiesced  in,  and  acted  upon,  it  has  been  uniformly  disre- 
garded. 

Then,  as  to  the  cases.  There  is  no  case  at  law,  except  that  of  Barber 
V.  Morris,  1  Man.  &  R.  62,  in  which  the  case  of  Godsall  v.  Boldero 
was  accidentally  noticed  as  proving  it  to  be  necessary  that  the  in- 
terest should  continue  till  the  death  of  the  cestui  que  vie.  It  was 
proved  in  that  case  to  be  the  practice  of  the  particular  office  in  which 
that  assurance  was  made,  to  pay  the  sums  assured,  without  inquiry 
as  to  the  existence  of  an  insurable  interest :  and  on  that  account  it 
was  held  that  the  policy,  though  in  that  case  the  interest  had  ceased, 
was  a  valuable  policy,  and  the  plaintiff  could  not  recover,  on  the 
ground  that  the  defendant,  the  vendor  of  it,  was  guilty  of  fraudulent 
concealment,  in  not  disclosing  that  the  interest  had  ceased.  This 
was  the  point  of  the  case:  and,  though  there  was  a  dictum  of  Lord 
Tenterden,  that  the  payment  of  the  sum  insured  could  not  be  en- 
forced, it  was  not  at  all  necessary  to  the  decision  of  the  case. 

The  other  cases  cited  on  the  argument  in  this  case,  were  cases  in 
equity,  where  the  propriety  of  the  decision  of  Godsall  v.  Boldero  did 
not  come  in  question. 

The  questions  arose  as  to  the  right  of  the  creditor  and  debtor,  inter 
se,  where  the  ofBces  have  paid  the  value  of  a  policy,  in  Humphrey 
v.  Arabin,  2  Lloyd  &  G.  318;  Henson  v.  Blackwell,  4  Hare,  434,  cor. 
Sir  J.  Wigram,  V.  C. ;  Phillips  v.  Eastwood,  1  Lloyd  &  G.  t.  Sugd. 
281, — where  the  point  decided  was,  that  a  life-policy,  as  a  security 
for  a  debt,  passed  under  a  will  bequeathing  debts :  the  lord  chan- 
cellor stating  that  the  offices  found  it  not  for  their  benefit  to  act  on 
the  rigid  rule  of  Godsall  v.  Boldero.  In  these  cases,  the  different 
judges  concerned  in  them  do  not  dispute, — some,  indeed,  appear  to 
approve  of, — the  case  of  Godsall  v.  Boldero :  but  it  was  not  material 
in  any  to  controvert  it;  and  the  questions  to  be  decided  were  quite 
independent  of  the  authority  of  that  case. 

We  do  not  think  we  ought  to  feel  ourselves  bound,  sitting  in  a 
court  of  error,  by  the  authority  of  this  case,  which  itself  could  not 
be  questioned  by  writ  of  error;  and  as  so  few,  if  any,  subsequent 
cases  have  arisen  in  which  the  soundness  of  the  principle  there  relied 
upon  could  be  made  the  subject  of  judicial  inquiry;  and  as,  in  prac- 
tice, it  may  be  said  that  it  has  been  constantly  disregarded. 

Judgment  reversed,  and  venire  de  novo. 


128  SUBJECT-MATTER   OF    THE  CONTRACT  (CH.  2 

HEBDON  V.  WEST. 

(Court  of  Queen's   Bench,  1SG3.     3  Best    &  S.  079.) 

This  was  an  action  against  the  defendant,  one  of  the  directors  of 
the  International  Life  Assurance  Society. 

The  declaration  set  oiit  a  policy,  dated  the  7th  May,  1857,  by 
which  the  plaintiff  effected  an  assurance  with  the  Society,  in  the 
sum  of  £2500,  upon  the  life  of  Edward  Pedder,  of  Preston,  Lan- 
cashire, banker. 

The  defendant's  first  plea  denied  the  plaintiff's  interest  in  the  life 
of  Pedder.  His  second  plea,  in  bar  of  the  plaintiff's  action,  alleged 
the  receipt  of  £5000,  from  another  insurer  on  account  of  a  policy  on 
Pedder's  life,  and  that  that  sum  was  equal  to  plaintiff's  interest  in 
Pedder's  life.  The  third  plea,  to  the  indebitatus  counts,  was  never 
indebted.  The  plaintiff  demurred  to  the  second  plea,  and  took  is- 
sues on  the  first  and  third. 

On  the  trial,  before  Crompton,  J.,  at  the  Winter  Assizes  holden  at 
Liverpool,  in  1861,  it  appeared  that  the  plaintiff  had  been  for  twen- 
ty years  clerk  in  a  bank  at  Preston,  of  which  Edward  Pedder  was 
the  senior  and  managing  partner.  In  1855  there  was  an  intention 
to  make  the  plaintiff  a  partner;  but  that  was  not  carried  out,  and 
instead  thereof  his  salary  was  increased  from  £200.  a  year  to  £600., 
and  it  was  to  continue  at  that  amount  for  seven  years ;  he  was  also 
employed  by  Pedder  as  his  agent  in  collecting  rents,  for  which  he 
received  a  commission  of  £16.  a  year ;  but  there  was  no  contract 
to  continue  him  in  that  employment.  Before  this  period  the  plain- 
tiff had  been  engaged  in  unsuccessful  speculations,  and  had  been 
assisted  by  advances  from  the  bank  to  the  amount  of  about  £4700. 
In  the  course  of  conversations  between  the  plaintiff  and  Pedder 
upon  the  subject  of  this  debt,  Pedder  had  told  the  plaintiff  that, 
during  his  (Pedder's)  life,  he  should  never  be  called  upon  for  the 
money;  and  the  plaintiff,  being  desirous  to  secure  himself  in  the 
event  of  Pedder's  death,  requested  and  obtained  his  permission  to 
insure  his  life  to  provide  against  his  debt.  Accordingly,  the  plain- 
tiff effected  an  insurance  with  the  City  of  Glasgow  Life  Insurance 
Company,  dated  the  4th  April,  1856,  on  the  life  of  Pedder,  for  £5000. 
At  the  end  of  twelve  months  from  this  time,  the  plaintiff's  debt  to 
the  bank  having  increased  to  £6000.,  he  obtained  the  consent  of 
Pedder  to  his  effecting  another  insurance  upon  his  life ;  and  on  the 
7th  May,  1857,  he  effected  the  policy  upon  which  this  action  was 
brought.  Pedder  died  on  the  21st  March,  1861 ;  and  the  bank  stop- 
ped payment  in  the  same  year.  The  plaintiff  paid  the  sum  of  £5000. 
which  he  received  from  the  City  of  Glasgow  Life  Insurance  Com- 
pany, to  the  inspectors  appointed  for  winding  up  the  affairs  of  the 
bank. 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  129 

A  verdict  was  entered  for  the  plaintiff  for  £2500.  and  interest, 
leave  being  reserved  to  move  to  enter  a  nonsuit,  or  a  verdict  for  the 
defendant  on  the  first  and  second  pleas,  or  to  reduce  the  damages.^" 

WiGHTMAN,  J.,  delivered  the  judgment  of  the  Court. 

There  are  two  questions  in  this  case.  The  first,  is,  whether  Heb- 
don  had  any  insurable  interest  at  all  in  the  life  of  Tedder;  and  the 
second,  whether,  assuming  that  he  had  an  insurable  interest,  the 
payment  of  the  £5000.  by  the  Glasgow  Life  Insurance  Company,  as 
stated  in  the  second  plea,  is  an  answer  to  the  plaintiff's  claim. 

W'ith  respect  to  the  insurable  interest  of  the  plaintiff,  it  was 
determined,  in  the  case  of  Halford  v.  Kymer,  10  B.  &  C.  724  (E.  C. 
L.  R.  vol.  21),  that,  unless  the  insured  have  a  pecuniary  interest  in 
the  life  insured,  the  policy  is  void  by  the  14  G.  3,  c.  48,  s.  1.  In 
the  present  case  it  was  contended  for  the  plaintiff  that  he  had  two 
kinds  of  insurable  interest  in  the  life  of  Pedder, — one,  on  the 
ground  of  a  promise  that  Pedder  had  made  to  him  that  he  (Pedder) 
would  not  enforce  the  payment  of  any  debt  that  the  plaintiff  might 
owe  him  during  his  (Pedder's)  lifetime,  and  the  other,  on  the 
ground  that  the  plaintiff  was  in  the  employ  of  Pedder  at  a  salary 
of  £600.  a  year,  under  an  agreement  that  the  engagement  should 
last  for  seven  years.  We  do  not  think  that  the  first  kind  of  interest 
in  the  life  of  Pedder,  namely,  that  he  had  said  that  he  would  not 
enforce  payment  of  debts  due  to  him  from  the  plaintiff  during  his 
(Pedder's)  life,  without  any  consideration  or  any  circumstance  to 
make  such  a  promise  in  any  way  binding,  can  be  considered  as  a 
pecuniary  or  indeed  an  appreciable  interest  in  the  life  of  Pedder. 
The  other  kind  of  interest,  namely,  that  which  arises  from  the  en- 
gagement by  Pedder  to  employ  the  plaintiff  for  seven  years  at  a 
salary  of  £600.  a  year,  may,  we  think,  be  considered  as  a  pecuniary 
interest  in  the  life  of  Pedder,  to  the  extent  at  least  of  as  much  of 
the  period  of  seven  years  as  would  remain  at  the  time  the  policy 
was  effected,  which  appears  to  have  been  about  five  years.  This, 
at  the  rate  of  £600.  per  annum,  would  give  the  plaintiff'  a  pecuniary 
interest  in  the  life  of  Pedder  to  the  amount  of  £3000.,  which  would 
be  sufficient  to  sustain  the  present  policy,  which  is  for  £2500.  only. 

We  assume,  then,  that  the  plaintiff  had  a  pecuniary  interest  in 
the  life  of  Pedder  to  the  extent  of  £2500.  at  the  time  he  effected  the 
policy  with  the  defendant's  office.  If  that  be  so,  the  question  then 
arises  whether  payment,  after  the  death  of  Pedder,  of  £5000.  by 
another  life  insurance  company,  with  whom  the  plaintiff  had  also 
insured  Pedder's  life  to  that  amount,  is  a  bar  to  the  plaintiff's  claim 
by  virtue  of  the  3d  section  of  the  14  G.  3,  c.  48,  it  being  taken  as  a 
fact  that  the  £5000.  included  all  the  insurable  interest  that  the  plain- 
tiff had  at  the  time  of  making  both  policies ;  in  fact  that  the  interest 

39  The  statement  of  facts  is  abbreviated  and  the  arguments  of  counsel 
are  omitted. 

Vance  Ins. — 9 


130  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

of  tlie  plaiutifF  at  the  time  of  making  the  insurance  with  the  defend- 
ant was  the  same  as  tliat  which  he  had  when  he  made  tlie  insurance 
with  the  other  company. 

It  was  contended  for  the  defendant  that,  admitting  that  the  plain- 
tiff had  an  insurable  interest  in  the  life  of  Pedder  to  the  extent  of 
£5000.  at  the  times  when  both  the  policies  were  effected,  the  pay- 
ment of  the  £5000.  by  the  Glasgow  Company  was  a  bar  to  the  re- 
covery by  the  plaintiff  upon  the  policy  effected  with  the  defendant, 
by  the  terms  of  the  3d  section  of  the  before-mentioned  statute, 
which  provides  that  "no  greater  sum  shall  be  recovered  or  received 
from  the  insurer  or  insurers  than  the  amount  of  value  of  the  inter- 
est of  the  insured"  in  the  life  which  is  the  subject  of  the  insurance; 
and  that,  as  all  the  pecuniary  interest  of  the  plaintiff  in  the  life  of 
Pedder  was  recovered  from  the  Glasgow  Company,  he  was  not 
entitled  to  recover  from  another  set  of  insurers  the  amount  of  inter- 
est which  was  included  in  the  insurance  with  them.  It  was  said 
that,  if  this  were  otherwise,  the  object  of  the  statute  would  be  de- 
feated, as  a  small  amount  of  insurable  interest  might  be  made  the 
foundation  for  a  great  number  of  insurances,  each  to  the  amount  of 
the  whole  of  the  interest  of  the  insured;  and,  if  he  could  recover 
upon  each  of  these,  it  would  be  against  the  words  of  the  3d  section 
of  the  statute,  which  are,  that  the  insured  shall  only  recover  from 
the  insurer  or  insurers  the  amount  of  his  interest,  meaning  that, 
whether  there  is  one  or  many  insurers,  he  can  only  recover  from 
all  or  any  the  amount  or  value  of  his  interest. 

This  raises  a  question  which  does  not  appear  to  have  come  under 
the  consideration  of  the  courts  in  any  of  the  cases  which  were  cited, 
and  seems  to  depend  upon  the  meaning  of  the  Legislature  in  the 
use  of  the  words  "insurer  or  insurers"  in  the  3d  section  of  the  Act. 
It  was  said  that,  in  the  use  of  the  word  "insurers"  in  the  plural  as 
well  as  the  word  "insurer"  in  the  singular,  the  Legislature  may 
have  intended  that,  whether  there  were  many  insurances  or  only 
one,  the  person  insuring  should  only  receive  the  amount  of  his  in- 
terest in  the  life  insured;  on  the  other  hand  it  is  said  by  the  plain- 
tiff that  in  the  use  of  the  word  "insurers"  the  Legislature  must  be 
understood  to  have  contemplated  the  case  of  several  persons  being 
insurers  in  one  policy,  and  intended  that  the  insured  should  receive 
no  more  upon  any  policy  or  policies,  whether  granted  by  one  or 
more,  than  the  amount  of  his  insurable  interest. 

Looking  to  the  declared  object  of  the  Legislature,  we  are  of  opin- 
ion that  though,  upon  a  life  policy,  the  insurable  interest  at  the  time 
of  the  making  the  policy,  and  not  the  interest  at  the  time  of  the 
death,  is  to  be  considered,  it  was  intended  by  the  3d  section  of  the 
Act  that  the  insured  should  in  no  case  recover  or  receive  from  the  in- 
surers (whether  upon  one  policy  or  many)  more  than  the  insurable 
interest  which  the  person  making  the  insurance  had  at  the  time  he 
insured  the  life.    If  for  greater  security  he  thinks  fit  to  insure  with 


Sec.  4)  INSURABLE  INTEREST LIFE  INSURANCE  131 

many  persons  and  by  different  contracts  of  insurance,  and  to  pay 
the  premiums  upon  each  policy,  he  is  at  liberty  to  do  so,  but  he  can 
only  recover  or  receive  upon  the  whole  the  amount  of  his  insurable 
interest,  and  if  he  has  received  the  whole  amount  from  one  insurer 
he  is  precluded  by  the  terms  of  the  3d  section  of  the  statute  from 
recovering-  or  receiving  any  more  from  the  others.  Any  argument 
arising  from  the  supposed  hardship  of  allowing  the  insurers  in 
such  a  case  to  receive  and  retain  the  premiums  without  being 
obliged  to  pay  the  consideration  for  which  such  premiums  were 
paid,  would  be  equally  applicable  to  the  case  of  marine  insurances, 
upon  which,  however  many  policies  there  may  be,  the  underwriters 
are  only  liable  to  the  extent  of  the  value  insured. 

We  are,  therefore,  of  opinion  that  the  second  plea  is  good,  and 
that  it  was  proved  upon  the  trial,  and  that  the  defendant  is  entitled 
to  judgment  upon  the  demurrer,  and  also  to  have  the  verdict  en- 
tered for  him  upop  the  second  plea. 

Rule  absolute  to  enter  the  verdict  for  the  defendant  on  the  second 
plea.    Judgment  on  the  demurrer  for  the  defendant. 


WORTHINGTON  v.   CURTIS. 

(Court  of  Appeals,  1S75.     L.  R.  1  Ch.  Div.  419.) 

This  was  an  appeal  from  a  decision  of  Vice-Chancellor  Bacon. 

The  principal  question  in  the  suit  related  to  the  right  to  a  sum 
of  iSOO,  being  the  money  received  in  respect  of  a  policy  of  assurance 
in  the  Rock  Life  Assurance  Office  on  the  life  of  George  Curtis  the 
younger,  the  intestate,  whose  estate  was  being  administered  in  the 
suit. 

The  policy  was  eflfected  by  his  father,  George  Curtis  the  elder,  in 
the  year  1862.  The  circumstances  under  which  this  was  done  were 
set  forth  in  the  father's  affidavit.  He  stated  that  he  was  indebted  to 
his  son  in  a  sum  of  £400,  being  a  legacy  bequeathed  by  his  aunt, 
and  that,  on  his  offering  to  pay  the  sum,  his  son  demurred  to  receive 
it,  on  the  ground  that  his  father  had  been  at  great  expense  in  his 
education  and  advancement.  The  affidavit  proceeded  as  follows :  "It 
was  ultimately  arranged  between  my  said  son  and  me  that  I  should 
pay  to  him  the  said  sum  of  £400,  and  that  in  consideration  of  such 
payment  I  should  at  my  own  cost  and  for  my  own  benefit  effect  a 
policy  of  assurance  on  his  life  for  £500;  and  in  consequence  of  this 
arrangement  I  did,  in  the  said  month  of  April,  1862,  pay  to  him  the 
said  sum,  and  soon  afterwards  I  entered  into  correspondence  with 
the  actuary  of  the  Rock  Assurance  Company  for  a  policy  of  assur- 
ance on  the  life  of  my  said  son,  and  received  a  letter  from  him  which 
was  in  the  words  and  figures  following,"  etc. 

This  letter  was  dated  the  21st  of  July,  1862.    After  making  an  ap- 


132  SUBJECT-MATTER    OF    THE   COXTUACT  (Ch.  2 

pointnicnt  for  the  attendance  of  the  son  at  the  office,  it  contained 
the  following  sentence:  "I  enclose  you  a  proposal  on  own  life,  also 
nominee,  should  that  form  be  rcciuired,  and  if  you  will  kindly  return 
one  of  them  filled  up  to  mc  I  will  apply  to  his  referees,  neither  of 
which  is  required  to  be  of  the  medical  profession." 

Mrs.  Curtis,  the  wife  of  George  Curtis  the  father,  also  filed  an 
affidavit,  in  which  she  stated  that  she  was  present  at  the  conversa- 
tion between  her  husband  and  the  intestate  respecting  the  insurance 
of  his  life,  and  confirmed  the  account  given  of  it  by  her  husband. 

The  Rock  office  accepted  the  life  of  George  Curtis  the  son,  and  the 
policy  was  accordingly  effected  as  a  policy  in  favour  of  the  execu- 
tors and  administrators  of  the  son.  It  was  sent  direct  to  the  father, 
and  he  regularly  paid  the  premiums  out  of  his  own  money. 

George  Curtis  the  son  died  in  April,  1871,  intestate.  The  Rock 
office  required  letters  of  administration  to  the  son  to  be  taken  out. 
This  was  accordingly  done  by  his  father,  and  the  ^office  then  paid  the 
policy  to  the  father  and  took  his  receipt. 

The  plaintiffs  claimed  to  be  creditors  of  George  Curtis  the  son,  and 
filed  the  present  bill  against  George  Curtis  the  father  for  the  ad- 
ministration of  his  son's  estate.  The  Chief  Clerk  allowed  their  claim 
for  i550. 

When  the  suit  came  on  for  further  consideration  the  Vice-Chancel- 
lor  held  that  the  policy  moneys  belonged  to  the  father  for  his  own 
benefit,  and  from  this  decision  the  plaintiffs  appealed. 

The  defendant  gave  notice  that  at  the  hearing  of  the  appeal  he 
should  contend,  by  way  of  cross-appeal,  that  the  plaintiffs  had  not 
established  their  debt  against  the  intestate's  estate. 

MelIvISH,  L.  J.  This  is  an  appeal  from  part  of  an  order  of  Vice- 
Chancellor  Bacon,  by  which  he  declared  the  defendant  absolutely 
entitled  to  the  proceeds  of  a  policy  of  assurance  on  the  life  of  George 
Curtis  his  son,  the  intestate  in  the  cause.  There  has  been  a  notice 
by  way  of  cross-appeal,  in  which  our  judgment  is  asked  whether  the 
appellants,  who  are  creditors  of  the  intestate,  have  made  out  their 
debt.  Taking  this  question  first,  we  are  all  of  opinion  that  there  is 
no  reason  for  thinking  that  the  chief  clerk  came  to  a  wrong  conclu- 
sion. He  had  the  books  before  him,  and  found  that  the  debt  was 
established ;   and  we  see  no  reason  to  differ  from  him. 

That  being  so,  the  question  is,  whether  a  policy  of  assurance  which 
was  effected  by  the  father  on  the  life  of  his  son,  and  in  his  son's 
name,  was  the  son's  policy  or  the  policy  of  the  father,  who  is  his  ad- 
ministrator, and  claims  it,  not  as  administrator,  but  on  the  ground 
that  he  is  the  person,  as  between  himself  and  his  son,  who  is  entitled 
to  the  money. 

In  the  first  place,  we  must  consider  the  question  of  fact,  whether 
the  defendant  has  given  sufficient  evidence  that  as  between  himself 
and  his  son  it  was  really  intended  that  the  policy  should  be  for  the 
benefit  of  the  defendant.     On  that  point  we  have  the  defendant's  af- 


Sec.  4)  INSURABLE  INTEREST LIFE  INSURANCE  133 

fidavit  that  he  owed  £400  to  his  son  on  account  of  a  legacy  which 
the  defendant  had  received,  and  that  when  he  offered  to  pay  it  to  his 
son  his  son  demurred  to  receive  it,  on  account  of  the  expense  to 
which  his  father  had  been  put  in  his  education.  The  affidavit  then 
proceeds  to  state  that  an  arrangement  was  made  between  them  as  fol- 
lows:  [His  Lordship  read  the  passage  in  the  affidavit  set  forth 
above.]  Here  he  alleges  in  distinct  terms  that  the  policy  was  efifected 
for  his  own  benefit ;  and  this  statement  is  confirmed  by  his  wife.  If 
the  case  stood  on  probability,  I  should  have  been  of  opinion  that  the 
father  probably  intended  it  for  his  son's  benefit ;  and  that  is  the  pre- 
sumption of  law ;  but,  on  the  other  hand,  as  it  is  sworn  by  the  father 
that  he  effected  the  policy  on  his  own  account,  and  this  is  confirmed 
by  the  evidence  of  his  wife,  and  as  for  a  period  of  nearly  ten  years 
he  regularly  paid  the  premiums  and  kept  the  policy  in  his  own  pos- 
session, we  think  there  is  no  sufficient  reason  for  differing  from  the 
conclusions  arrived  at  by  the  Vice-Chancellor,  that  as  between  the 
father  and  the  son  the  policy  was  the  property  of  the  father. 

It  was,  however,  contended  on  behalf  of  the  appellants,  that,  as- 
suming the  policy  to  be  the  property  of  the  father,  it  would  follow 
that  it  was  an  illegal  policy  within  the  statute  of  14  Geo.  3,  c.  48, 
because,  although  it  was  made  in  the  name  of  the  son,  the  father, 
who  really  effected  it  for  his  own  benefit,  had  no  insurable  interest 
in  his  son's  life.  I  agree  that  even  if  the  story  told  by  the  father  is 
true  as  to  the  expense  to  which  he  had  been  put  in  his  son's  educa- 
tion, that  gave  him  no  such  interest  in  his  son's  life  as  would  support 
the  policy ;  and  I  am  therefore  of  opinion  that  the  insurance  com- 
pany would  have  had  a  good  defence  under  the  Act  if  an  action  had 
been  brought  against  them  on  the  policy.  But  although  the  com- 
pany had  sufficient  knowledge  of  the  circumstances  to  call  their  at- 
tention to  the  question,  they  acted  as  insurance  companies  usually 
do,  and  never  attempted  to  set  up  this  defence,  and  when  adminis- 
tration to  the  son  was  taken  out  by  the  father  they  paid  the  money 
without  further  dispute  to  him.  The  question,  then,  is,  whether  the 
money  having  been  so  paid,  it  is  part  of  the  intestate's  assets,  or  be- 
longs to  the  father. 

Now  the  creditors  are  claiming  under  the  son,  and  they  can  have 
no  greater  right  to  the  money  than  the  son  had  when  alive.  They 
claim  through  him  in  the  same  way  as  executors  or  trustees  in  bank- 
ruptcy, and  have  no  greater  right  than  the  testator  or  the  bankrupt 
in  ordinary  cases.  This  case,  therefore,  really  depends  on  the  ques- 
tion whether,  as  between  the  father  and  the  son,  the  policy  belonged 
to  the  one  or  the  other.  I  think  it  clearly  belonged  to  the  father. 
One  test  of  this  is  whether,  if  the  son  had  brought  an  action  of  detinue 
for  the  policy  against  the  father,  he  could  have  recovered  it  on  the 
ground  that  the  father  had  no  right  to  it  by  reason  of  the  statute  of 
Geo.  3?  Clearly  not.  It  did  not  belong  to  the  son  but  to  the  father, 
who  had  obtained  it  from  the  company,  and  had  paid  the  premiums 


J'^4  SUKJECT-MATTIOU    OF    TIIK   CONTRACT  (Cll.  2 

out  of  his  own  money.  Again,  if  the  father  had  wished  to  surrender 
it  to  the  company  for  a  vahiable  consideration,  could  the  son  have 
interfered  to  prevent  him  from  carrying  the  surrender  into  effect? 
Could  he  have  brought  an  action  for  money  had  and  received  to  re- 
cover the  amount  paid  by  the  company  on  such  a  surrender,  or  could 
he  have  maintained  a  suit  in  equity  to  restrain  the  transaction  from 
being'  coniplctrd?  Clearly  not.  lie  had  nothing  to  do  with  it;  both 
the  policy  and  the  value  of  it  belonged  to  the  father. 

Then  the  son  dies,  and  the  money  becomes  payable  on  the  policy. 
Assuming  that  a  creditor,  instead  of  the  father,  had  taken  out  admin- 
istration, could  he  have  maintained  an  action  of  detinue  against  the 
father  for  the  policy?  Certainly  not.  He  would  have  been  in  the 
same  position  as  the  son  before  his  death,  and  the  son  having  no 
property  in  the  policy  his  administrator  would  have  had  no  right  to 
it  either.  Then,  supposing  the  company  chooses  voluntarily,  and 
without  taking  advantage  of  the  statute,  to  pay  the  money  to  the 
father — I  say  voluntarily,  because  neither  party  could  have  main- 
tained an  action  against  the  company — could  the  administrator  of  the 
son  have  recovered  the  money  from  the  father?     Clearly  not. 

In  my  opinion,  therefore,  there  are  two  reasons  for  which  the  ap- 
peal must  fail.  First,  because  the  statute  is  a  defence  for  the  insur- 
ance company  only,  if  they  choose  to  avail  themselves  of  it.  If  they 
do  not,  the  question  who  is  entitled  to  the  money  must  be  deter- 
mined as  if  the  statute  did  not  exist.  The  contract  is  only  made  void 
as  between  the  company  and  the  insurer.  And,  secondly,  if  that  is 
not  so,  and  if  the  effect  of  the  statute  is  that  the  Court  will  give  no 
relief  to  any  party  because  of  the  illegality  of  the  transaction,  in  that 
case  the  maxim,  "mclior  est  conditio  possidentis,"  must  prevail,  and 
the  party  who  has  the  money  must  keep  it.  On  both  these  grounds, 
but  especially  on  the  first,  I  think  the  conclusion  of  the  Vice-Chan- 
cellor  was  right,  and  this  appeal  must  be  dismissed  with  costs. 

Jami';s,  L.  J.,  and  Bagc.ai.i.av,  J.  A.,  concurred. 


LORD  v.  BALL. 

(Snpromc  Judicial   Court  of  IMassacluisetts,    Suffolk,   1815.     12    Mass.    115,  7 

Am.  Dec.  38.) 

Assumpsit  on  a  policy  of  insurance,  made  for  $5000,  in  favor  of  the 
plaintiff,  upon  the  life  of  Jabez  Lord,  her  brother,  aged  thirty-three 
years,  bound  on  a  voyage  to  South  America,  or  any  other  place  he 
might  proceed  to  from  Boston,  commencing  the  risk  on  the  16th  of 
December,  1809,  at  noon,  and  to  continue  until  the  16th  of  July,  1810, 
at  noon ;  for  a  premium  of  seven  per  cent.  The  defendant  under- 
wrote the  sum  of  $500. 

At -the  trial  of  the  cause  upon  the  general  issue,  at  the  last  Novem- 
ber term,  before  the  chief  justice,  it  was  proved,  that  the  said  Jabez 


Sec.  4)  INSURABLE  INTEREST LIFE  INSURANCE  135 

had  (lied,  on  the  coast  of  Africa,  before  the  expiration  of  the  time 
for  which  his  hfe  was  insured,  and  not  from  any  of  the  causes  ex- 
cepted from  the  risk. 

It  was  also  proved  that  the  said  Jabez  sailed  from  Boston,  after 
the  making  of  the  policy,  to  Fayal,  as  supercargo  of  a  vessel  called 
the  Mount  ^'Etna,  at  which  place  she  was  converted  into  a  Portu- 
guese vessel,  called  the  Vincidero,  still  belonging  to  the  former  own- 
ers, but  sailing  with  Portuguese  papers,  and  under  Portuguese  colors. 
From  Fayal  the  vessel  sailed  to  Madeira,  and  from  thence  to  the 
coast  of  Africa,  for  the  purpose  of  procuring  slaves,  with  intention 
to  carry  them  to  South  America ;  the  said  Jabez  acting  as  super- 
cargo, and  having  purchased  some  of  the  slaves  himself. 

The  objections  made  at  the  trial  to  the  plaintiff's  recovery  were, 

1.  That  she  had  no  insurable  interest  in  the  life  of  the  said  Jabez. 
But,  it  being  in  evidence  that  she  was  a  person  of  no  property  at  the 
time,  depending  altogether  upon  the  said  Jabez  for  her  support  and 
education,  and  he  having  for  several  years  paid  her  board,  provided 
her  with  clothing,  and  paid  for  her  education ;  all  which  he  con- 
tinued to  do  at  the  time  the  policy  was  effected ;  this  objection  was 
overruled,  but  reserved  for  the  consideration  of  the  whole  court. 

2.  That  there  was  a  concealment  of  the  intention  of  the  said  Jabez 
to  go  to  the  coast  of  Africa.  This  was  left  to  the  jury,  with  direc- 
tions, if  they  were  satisfied  that  there  had  been  such  concealment,  to 
find  for  the  defendant. 

3.  The  third  objection  was,  that  the  policy  was  void,  it  being  to 
secure  the  life  of  the  said  Jabez,  while  in  the  execution  of  an  unlaw- 
ful enterprise. 

It  was  not  made  certain,  whether  the  said  Jabez  originally  designed 
to  go  to  the  coast  of  Africa,  or  whether  that  voyage  was  conceived 
after  the  vessel  left  Boston.  The  jury  were  instructed,  that,  if  they 
believed  that  he  had  such  intention  originally,  and  knew  that  the  ves- 
sel was  so  bound,  there  could  be  no  doubt,  from  the  evidence  in  the 
case,  that  such  intention  and  knowledge  were  concealed.  The  ques- 
tion, therefore,  which  the  judge  states  to  be  reserved  for  the  consid- 
eration of  this  objection,  was,  whether  the  actual  going  upon  a  voy- 
age for  the  purposes  aforesaid,  by  the  party  whose  life  is  insured, 
avoids  the  policy. 

The  said  Jabez  Lord  gave  his  note  for  the  premium;  and  there 
was  no  evidence  that  the  plaintiff  knew  where  the  said  Jabez  was 
bound. 

If  the  court  should  be  of  opinion  that  the  plaintiff  had  not  an  in- 
surable interest,  or  that  the  policy  was  void  on  account  of  the  illegal- 
ity of  the  voyage,  the  verdict  returned  for  the  plaintiff  was  to  be  set 
aside,  and  she  was  to  become  nonsuit;  otherwise,  judgment  was  to 
be  rendered  on  the  verdict. 

Parker,  C.  J.  It  has  been  a  question  in  the  argument,  whether 
a  policy  of  assurance  upon  a  life  is  a  contract,  which  can  be  enforced 


136  SUBJECT-MATTKU    OF    THE   CONTRACT  (Ch.  2 

by  the  laws  of  this  state;  the  law  of  Kn^j^land,  as  it  is  sufj^p^ested,  ap- 
plicable to  such  contracts,  never  having  been  adoptctl  and  practised 
upon  in  this  country. 

It  is  true,  that  no  precedent  has  been  produced  from  our  own  rec- 
ords, of  an  action  upon  a  policy  of  this  nature.  But  whether  this 
has  happened  from  the  infrequency  of  disputes  which  have  arisen  it 
being  a  subject  of  much  less  doubt  and  difBculty  than  marine  insur- 
ances, or  from  the  infrequency  of  such  contracts,  it  is  not  possible 
for  us  to  decide.  By  the  common  principles  of  law,  however,  all  con- 
tracts fairly  made,  upon  a  valuable  consideration,  which  infringe  no 
law,  and  are  not  repugnant  to  the  general  policy  of  the  laws,  or  to 
good  morals,  are  valid,  and  may  be  enforced,  or  damages  recovered 
for  the  breach  of  them. 

It  seems  that  these  insurances  are  not  favored  in  any  of  the  com- 
mercial nations  of  Europe,  except  England ;  several  of  them  having 
expressly  forbidden  them,  for  what  reasons,  however,  does  not  ap- 
pear ;  unless  the  reason  given  in  France  is  the  prevailing  one,  namely, 
"that  it  is  indecorous  to  set  a  price  upon  the  life  of  a  man,  and  es- 
pecially a  freeman,  which,  as  they  say,  is  above  all  price."  It  is  not 
a  little  singular,  that  such  a  reason  should  be  advanced  for  prohibit- 
ing these  policies  in  France,  where  freedom  has  never  been  known  to 
exist,  and  that  it  never  should  have  been  thought  of  in  England, 
which  for  several  centuries  has  been  the  country  of  established  and 
regulated  liberty. 

This  is  a  contract  fairly  made ;  the  premium  is  a  sufificient  con- 
sideration ;  there  is  nothing  on  the  face  of  it,  which  leads  to  the  viola- 
tion of  law;  nor  any  thing  objectionable  on  the  score  of  policy  or 
morals.  It  must,  then,  be  valid  to  support  an  action,  until  something 
is  shown  by  the  party  refusing  to  perform  it,  in  excuse  of  his  non- 
performance. 

It  is  said,  that,  being  a  contract  of  assurance,  the  law  on  the  sub- 
ject of  marine  insurance  is  applicable  to  it;  and,  therefore,  unless 
the  assured  had  an  interest  in  the  subject-matter  insured,  he  is  not 
entitled  to  his  action. 

This  position  we  agree  to ;  for,  otherwise,  it  would  be  a  mere 
wager-policy,  which  we  think  would  be  contrary  to  the  general  pol- 
icy of  our  laws,  and  therefore  void.  Had,  then,  the  plaintiff  an  inter- 
est in  the  life  of  her  brother,  which  was  insured? 

The  report  states  the  facts,  upon  which  that  interest  was  supposed 
at  the  trial  to  exist.  The  plaintiff,  a  young  female  without  property, 
was,  and  had  been  for  several  years,  supported  and  educated  at  the 
expense  of  her  brother,  who  stood  towards  her  in  loco  parentis. 
Nothing  could  show  a  stronger  affection  of  a  brother  towards  his 
sister,  than  that  he  should  be  willing  to  give  so  large  a  sum  to  secure 
her  against  the  contingency  of  his  death,  which  would  otherwise  have 
left  her  in  absolute  want.     One  per  cent,  per  month  upon  $5000, 


Sec.  4)  INSURABLE  INTEREST — LIFE  INSURANCE  137 

taken  on  the  life  of  a  man  of  thirty-three  years  of  age,  in  good  health 
at  the  time,  was  a  sufficient  inducement  to  the  underwriter  to  take 
at  least  common  chances,  and  proved  the  strong  disposition  of  the 
brother  to  secure  his  sister  against  the  melancholy  consequence  to 
her  of  his  death.  In  common  understanding  no  one  would  hesitate 
to  say,  that  in  the  life  of  such  a  brother  the  sister  had  an  interest ; 
and  few  would  limit  that  interest  to  the  sum  of  $5000. 

But,  it  is  said,  the  interest  must  be  a  pecuniary,  legal  interest,  to 
make  the  contract  valid ;  one  that  can  be  noticed  and  protected  by 
the  law;  such  as  the  interest  which  a  creditor  has  in  the  life  of  his 
debtor,  a  child  in  that  of  his  parent,  &c.  The  former  case,  indeed, 
of  the  creditor  would  leave  no  room  for  doubt.  But  with  respect  to  a 
child,  for  whose  benefit  a  policy  may  be  effected  on  the  life  of  the 
parent,  the  interest,  except  the  insurable  one  which  may  result  from 
the  legal  obligation  of  the  parent  to  save  the  child  from  public  char- 
ity, is  as  precarious  as  that  of  a  sister  in  the  life  of  an  affectionate 
brother.  For,  if  the  brother  may  withdraw  all  support,  so  may  the 
father,  except  as  before  stated.  And  yet  a  policy  effected  by  a  child 
upon  the  life  of  a  father,  who  depended  on  some  fund  terminable  by 
his  death  to  support  the  child,  would  never  be  questioned ;  although 
much  more  should  be  secured  than  the  legal  interest  which  the  child 
had  in  the  protection  of  his  father.  Indeed  we  are  well  satisfied  that 
the  interest  of  the  plaintiff  in  the  life  of  her  brother  is  of  a  nature  to 
entitle  her  to  insure  it.  Nor  can  it  be  easily  discerned,  why  the  un- 
derwriters should  make  this  a  question  after  a  loss  has  taken  place, 
when  it  does  not  appear  that  any  doubts  existed  when  the  contract 
was  made;  although  the  same  subject  was  then  in  their  contempla- 
tion. 

As  to  the  other  objection,  that  the  life  insured  was  employed,  dur- 
ing the  continuance  of  the  contract,  in  an  illegal  traffic,  we  do  not 
think  it  can  prevail  to  the  prejudice  of  the  plaintiff,  who  did  not  par- 
ticipate in  the  illegal  employment,  and,  indeed,  does  not  appear  to 
have  known  of  it. 

The  imderwriters  insure  the  life  of  Jabez  Lord,  for  the  benefit  of 
the  plaintiff',  for  the  term  of  seven  months ;  and  he  is  described  in 
the  policy  as  being  about  thirty-three  years  of  age,  "and  bound  on  a 
voyage  to  South  America  or  elsewhere,  and  any  other  place  he  may 
proceed  to  from  Boston."  This  gave  the  utmost  latitude  to  Jabez 
Lord,  to  go  where  he  pleased  at  all  times,  and  imposed  no  restric- 
tion whatever  upon  him,  as  to  the  place  where  he  should  exercise  his 
industry  and  enterprise.  Possibly,  if  he  secretly  intended,  at  the  time 
the  policy  was  subscribed,  to  visit  some  portion  of  the  globe,  where 
his  life  would  be  exposed  to  more  than  common  hazard,  and  kept 
that  intention  concealed  from  the  underwriters ;  had  he  been  inter- 
ested himself  in  the  policy,  or  had  his  sister  been  privy  to  his  inten- 
tions, and  aided  him  in  concealing  them,  such  conduct  might  have 


138  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

been  considered  in  the  light  of  a  fraudulent  concealment ;  and,  if  the 
fact  were  material,  the  contract  might  have  been  avoided. 

But  the  jury  have  found,  that  there  was  no  such  concealment;  and 
the  objection  now  rests  entirely  upon  the  supposed  illegality  of  the 
enterprise  in  which  he  was  engaged. 

It  is  a  sufficient  answer  to  this  objection,  that,  whatever  the  law 
may  be  as  to  an  insurance  upon  an  illicit  voyage,  between  the  parties 
to  the  contract,  the  present  plaintifif,  being  ignorant  of  any  intended 
violation  of  the  law,  ought  not  to  be  afifected  by  such  illegality.  Had 
the  policy  been  effected  for  Jabez  Lord  himself,  it  might  be  question- 
able, as  the  underwriters  had  excepted  no  particular  employment  in 
which  he  might  be  engaged,  and  no  cause  of  death  but  suicide  and 
forfeiture  of  life  for  crime,  whether  his  engagement  in  any  traf^c 
prohibited  by  law  would  have  discharged  their  liability.  If  it  would, 
it  must  be  only  because  it  might  be  thought  just  and  legal  to  discour- 
age contracts,  which  might  tend  to  uphold  enterprises  forbidden  by 
the  laws. 

It  would  be  difficult,  however,  to  maintain,  that  the  executors  of  a 
man,  whose  life  was  insured  for  the  benefit  of  his  children,  should 
be  deprived  of  their  right  to  enforce  the  contract  because  he  had 
pursued  a  course  of  smuggling  or  counterfeiting ;  neither  of  these 
acts  being  excepted  in  the  policy,  and  the  party  having  died  within 
the  time,  from  a  cause  which  was  clearly  at  the  risk  of  the  under- 
writers. A  policy  made  for  the  purpose  of  enabling  a  man  to  com- 
mit crimes  would  undoubtedly  be  void.  But  one  honestly  made  would 
seem  not  to  be  affected  by  the  moral  conduct  of  the  party  who  had 
procured  it. 

Perceiving  nothing  in  this  contract  unfriendly  to  the  morals  or  in- 
terests of  the  community ;  and  no  knowledge  of  an  illegal  intention 
being  imputed  to  the  plaintiff ;  we  see  no  reason  for  setting  aside  the 
verdict.    Judgment  will  therefore  be  entered  upon  it.'*'* 


BARNES   V.   LONDON,    EDINBURGH    &    GLASGOW    LIFE 

INS.  CO. 

(High  Court  of  Justice,  Queen's  Bench  Division,  1892.     1  Q.  B.  864.) 

Appeal  from  a  decision  of  the  judge  of  the  Leeds  County  Court. 
The  action  was  brought  to  recover  £21.  10s.,  the  amount  of  a  policy 
of  insurance  effected  by  the  plaintifif  upon  the  life  of  her  step-sister. 
The  insurance  was  effected  in  November,  1889,  when  the  child  was  ten 
years  old;  the  child  died  in  May,  1891.    At  the  trial  before  the  learn- 

»o  See,  in  accord,  ^tna  Life  Ins.  Co.  v.  France,  94  U.  S.  561,  24  L.  Ed.  287 
(1876),  Phillips'  Estate,  238  Pa.  423,  86  Atl.  289,  45  L.  R.  A.  (N.  S.)  9S2  (1913), 
and  comment  in  26  Harvard  L.  Rev.  756. 


Sec.  4)  INSURABLE  INTEREST LIFE  INSURANCE  139 

ed  county  court  judge,  the  plaintifif  stated  in  her  evidence  that  she  had 
promised  the  child's  mother  before  she  died  that  she  would  take  care 
of  the  child,  and  help  to  maintain  her,  and  no  evidence  was  called  to 
contradict  this  statement.  It  was  also  stated  that  after  her  mother's 
death  the  child  lived  near,  but  not  with,  the  plaintiff.  No  objection 
was  taken  that  the  plaintiff  had  not  in  fact  spent  any  money  upon  the 
child,  or  as  to  the  amount  (if  any)  expended  by  her ;  and  the  learned 
judge  held  that  the  plaintiff  had  an  insurable  interest  in  the  child's 
life,  and  was  entitled  to  recover  the  amount  of  the  policy.  Other 
points,  including  misrepresentation  on  the  part  of  the  plaintiff  as  to 
the  state  of  the  child's  health  and  misrepresentation  by  the  defend- 
ants' agent,  were  taken,  and  decided  in  favour  of  the  plaintiff ;  but 
it  is  unnecessary  in  this  report  to  state  the  facts  upon  these  points, 
as  the  question  of  insurable  interest  was  the  sole  question  of  law  raised 
upon  the  appeal. 

Lord  CoLF-RiDCr;,  C.  J.  I  am  of  opinion  that  this  appeal  must 
be  dismissed.  The  facts  are  simple.  The  person  insured  was  a  little 
girl  of  ten,  and  the  plaintiff,  who  effected  the  insurance  for  her  own 
benefit,  was  her  step-sister ;  the  child  had  no  mother,  although  her 
father  was  apparently  alive ;  this,  however,  is  not  clear  upon  the  evi- 
dence. The  evidence  of  the  plaintiff  was  to  the  effect  that  she  had 
promised  her  mother  that  she  would  maintain  and  keep  the  child ; 
and  there  was  evidence  that  she  had  undertaken  that  burden.  That 
was  a  duty  not  cast  upon  her  by  law,  but  was  wholly  self-imposed ; 
and  in  carrying  out  her  undertaking  the  plaintiff  might  have  had  to 
pay  for  the  education  and  maintenance  of  the  child,  possibly  also  for 
its  burial.  In  that  state  of  circumstances  it  is  said  that  the  plaintiff 
had  no  insurable  interest  in  the  child's  life.  Now,  I  agree  that  the 
insurable  interest  must  be  a  pecuniary  interest,  and  that  the  interest 
must  be  in  existence  at  the  time  wlien  the  policy  is  effected ;  that  is 
perfectly  clear  upon  the  authorities.  Is  there  such  pecuniary  insur- 
able interest  here  ?  I  think  there  is.  The  expenses  to  which  the  plain- 
tiff undertook  to  put  herself  for  the  maintenance  of  the  child  were, 
as  I  have  said,  not  expenses  which  she  was  bound  to  incur ;  and  in 
my  judgment  the  plaintiff  undoubtedly  had  an  insurable  interest  in 
the  child's  life  so  far  as  to  secure  the  repayment  of  the  expenses  in- 
curred by  her. 

I  cannot  find  that  anything  has  been  said  in  any  case  to  a  contrary 
effect.  Taking  the  ordinary  course  of  business  as  the  guide  to  de- 
termine the  law,  I  should  have  thought  that  it  was  a  matter  of  com- 
mon knowledge  that  obligations  of  this  sort  were  obligations  the 
repayment  of  which  was  habitually  secured  in  this  way.  In  my  judg- 
ment the  plaintiff  had  an  insurable  interest  in  the  child's  life,  at  least 
up  to  the  amount  of  the  payments  actually  made  by  her  on  the  child's 
account.  No  point  was  taken  before  the  county  court  as  to  whether 
any  money  had  been  paid  by  the  plaintiff,  or  as  to  the  amount,  if  any, 


140  SUBJECT-MATTER    OF   THE  CONTRACT  (Ch.  2 

paid  by  her.  The  question  of  amount  is,  therefore,  not  before  us  ;  and 
on  the  point  of  law  we  must  uphold  the  judgment  of  the  county  court 
judge.*^ 

Appeal  dismissed.*^ 


SCHWERDT  V.  SCHWERDT. 

(Supreme  Court  of  Illinois,  1908.     235  111.  38G,  85  N.  E.  613.) 

Appeal  from  Appellate  Court,  Second  District,  on  Appeal  from  Cir- 
cuit Court,  Lake  County;   A.  H.  Frost,  Judge. 

Action  by  John  C.  Schwerdt  against  John  H.  Schwerdt.  From  a 
judgment  for  defendant  on  demurrer,  plaintiff  appealed  to  the  Ap- 
pellate Court,  where  the  judgment  was  affirmed,  and  plaintiff  ap- 
pealed on  a  certificate  of  importance,  the  amount  involved  being  less 
than  $1,000.     Affirmed. ^^ 

The  declaration  sets  forth  a  written  contract  wherein  the  defendant 
promised  to  pay  a  certain  sum  weekly  toward  the  maintenance  of 
his  father,  the  plaintiff,  and  alleges  a  breach  of  this  contract,  with 
damages  of  $765.  The  consideration  alleged  for  the  defendant's 
promise  was  the  permission  given  by  the  plaintiff  to  the  defendant 
to  insure  the  life  of  plaintiff's  wife,  who  was  defendant's  mother,  in 
the  sum  of  $5,000.  Such  a  policy  was  taken  out  by  the  defendant, 
and,  upon  the  death  of  his  mother,  paid  in  full  to  him. 

Scott,  J.  The  circuit  court  and  the  Appellate  Court  regarded 
the  declaration  herein  as  obnoxious  to  a  demurrer,  for  the  reason 
that  it  appeared  upon  the  face  of  the  pleading  that  the  undertaking 
of  the  son  was  without  consideration.  The  declaration  expressly 
avers  that  the  consideration  for  the  promises  of  the  son  was  a  mutual 
agreement  entered  into  between  father  and  son  about  15  years  prior 
to  the  beginning  of  this  action.  This  agreement  provided  that  the 
son  should  take  out  a  policy  of  life  insurance  on  the  life  of  his  mother, 
the  proceeds  of  the  policy,  when  collected,  in  case  the  father  survived 
the  mother,  to  be  used  towards  the  support  of  the  father  during  the 
remainder  of  his  life,  and  it  was  further  averred  that  the  agreement 
in  reference  to  the  policy  was  carried  out,  and  that  about  one  year 
after  its  issuance  the  mother  died  and  the  son  received  the  proceeds 
of  that  policy  and  retained  the  same  for  his  own  use. 

The  father  and  son  agree  in  this  action  that  the  son  had  no  in- 
surable interest  in  the  life  of  the  mother.    The  father  contends,  how- 

41  The  concurring  opinion  of  A.  L.   Smith,  J,,  is  omitted. 

4  2  See  Harse  v.  Pearl  Life  Assurance  [1903]  2  K.  B.  92,  96  (S.  C,  [1904] 
1  K.  B.  558),  explaining  the  principal  case;  also  Thomas  v.  National  Benefit 
Ass'n,  84  N.  J.  Law.  281,  8©  Atl.  375,  46  L.  R.  A.  (K.  S.)  779  (1913).  in  which 
it  was  held  that  the  plaintiff  had  an  insurable  interest  in  the  life  of  her 
adult  foster  daughter. 

43  The  statement  of  facts  is  much  abbreviated. 


Sec.  4)  INSrUAHLE   interest — LIFE    INSURANCE  141 

ever,  that  as  the  son  had  no  insurable  interest  in  the  hfe  of  the  moth- 
er, and  that  as  the  father  had  an  insurable  interest  in  her  life,  the  son, 
by  the  agreement  in  reference  to  the  policy,  received  from  the  father  a 
valuable  insurable  interest  in  the  life  of  the  mother,  which  was  a  suffi- 
cient consideration  for  the  agreement.  That  agreement  between  the 
father  and  son  vested  no  insurable  interest  in  the  life  of  the  mother  in 
the  son,  and  left  in  the  father  all  the  insurable  interest  in  the  life  of  the 
mother  that  he  had  before  the  agreement  was  made.  Under  these 
circumstances,  it  is  apparent  that  the  agreement  between  the  father 
and  son  as  to  taking  the  insurance  policy  conferred  no  benefit  of  any 
character  upon  the  son  and  did  not  visit  any  injury  or  disadvantage 
upon  the  father  or  fasten  any  liability  upon  him.  That  agreement 
did  not  aid  or  assist  the  son  in  securing  the  policy,  and  the  father 
did  not  forego  any  right  possessed  by  him.  That  agreement,  there- 
fore, afforded  no  consideration  for  the  undertaking  of  the  son  upon 
which  this  action  was  brought.  The  question  of  the  son's  right  to 
the  insurance  money  was  one  for  the  son  and  the  insurance  company, 
and  did  not  concern  the  father.    Johnson  v.  Van  Epps,  110  111.  551. 

It  is  then  urged  that  the  liability  of  a  son  to  support  an  indigent 
parent,  as  fixed  by  section  1,  c.  107.  Kurd's  Rev.  St.  1905,  afYords  a 
sufficient  consideration  for  the  undertaking  declared  upon.  To  this 
there  are  at  least  two  insuperable  objections:  First,  it  affirmatively 
appears  from  the  declaration  that  such  was  not  the  consideration  for 
this  undertaking;  and,  second,  it  does  not  appear  from  the  declara- 
tion that  at  the  time  the  undertaking  was  entered  into  by  the  son 
the  father  was  a  poor  person  or  a  pauper.  For  aught  that  is  averred, 
"he  may  at  that  time  have  been  the  owner  of  a  competence. 

It  is  then  said  that  this  contract  is  sufficiently  supported  by  a  moral 
consideration,  viz.,  the  agreement  in  reference  to  the  insurance  policy 
and  the  receipt  by  the  son  of  large  benefits  from  that  policy.  The  only 
moral  obligation  which  afTords  consideration  for  a  promise  is  one 
which  has  at  some  time  been  a  legal  duty.  No  such  moral  obligation 
here  appears. 

The  judgment  of  the  Appellate  Court  will  be  affirmed.  Judgment 
affirmed. 


WOODS  et  al.  v.  WOODS'  ADM'R. 

(Court  of  Appeals  of  Kentucky,  1908.     l.SO  Ky.  162,  113  S.  AV.  79,  19  L.  R.  A. 

[N.  S.]  2.';3.) 

Appeal  from  Circuit  Court,  Shelby  County. 

Petition  by  H.  C.  Riner,  administrator  of  Sarah  E.  Woods  for 
advice  as  to  the  distribution  of  the  proceeds  of  her  life  policy,  to 
which  Joe  Woods  and  another  filed  a  counterclaim  and  cross-peti- 
tion. From  a  judgment  awarding  cross-petitioners  insufficient  re- 
lief, they  appeal.     Reversed  and  remanded,  with  directions. 


142  SUBJECT-MATTER    OP    THE   CONTRACT  (Ch.  2 

Clay,  C.  Sarah  E.  Woods  died  intestate  on  the  14th  of  March, 
1907,  leaving  as  her  heirs  at  law  the  appellants,  Joe  Woods  and 
Sam  Woods,  and  the  appellees,  Oad  Woods,  Arthur  Woods,  Mary 
Woods,  and  others.  In  the  year  1901  she  had  her  life  insured  in 
the  Equitable  Life  Assurance  Society  in  the  sum  of  $10,000.  At 
the  time  she  obtained  the  policy  of  insurance  she  entered  into  a 
contract  with  appellants,  Joe  Woods  and  Sam  Woods,  by  which  it 
was  agreed  that  they  should  pay  the  insurance  premiums  on  the 
policy,  and  in  consideration  thereof  they  should  be  entitled  to  the 
proceeds  at  her  death.  At  the  same  time  they  entered  into  an 
agreement  with  George  T.  Woods,  a  nephew  of  Sarah  E.  Woods, 
by  which  he  agreed  to  furnish  appellants  one-third  of  the  premiums 
due  on  the  policy,  and  in  consideration  thereof  was  to  share  in  one- 
third  of  the  proceeds. 

Upon  the  death  of  Sarah  E.  Woods  the  Equitable  Life  Assurance 
Society  paid  the  $10,000  to  H.  C.  Riner,  who  had  qualified  as  her 
administrator.  He  instituted  this  action  in  the  Shelby  circuit  court 
for  the  purpose  of  obtaining  the  advice  and  direction  of  the  court 
as  to  how  the  fund  should  be  distributed  and  to  whom  paid.  To  this 
petition  Joe  Woods  and  Sam  Woods  by  answer,  counterclaim,  and 
cross-petition  set  up  the  agreement  above  referred  to,  alleged  that 
they  had  paid  the  annual  premium  of  $579.50  for  the  years  1900, 
1901,  1902,  1903,  1904,  1905,  and  1906,  and  asserted  claim  to  the 
entire  proceeds  of  the  policy  of  $10,000.  To  this  a  reply  was  filed 
by  the  other  heirs,  the  appellees  herein,  in  which  they  claimed  that 
the  agreement  between  appellants  and  their  mother  was  procured 
by  fraud,  that  she  was  not  mentally  capable  of  entering  into  an 
agreement,  and  that  appellants  had  no  insurable  interest  in  the 
life  of  their  mother. 

On  submission  of  the  case  the  trial  court  rendered  an  opinion 
and  judgment  based  thereon,  by  which  it  was  held  that  the  policy 
was  issued  on  the  life  of  Sarah  E.  Woods,  payable  by  its  terms  at 
her  death  to  her  estate ;  that  a  written  contract  was  entered  into 
between  her  and  two  of  her  sons,  the  appellants,  by  which  they 
were  to  pay  the  yearly  premiums,  and  be  the  beneficiaries  of  the 
policy;  that  these  sons  made  an  agreement  with  George  T.  Woods, 
by  which  he  was  to  receive  one-third  of  the  proceeds  of  the  policy, 
upon  paying  to  them  one-third  of  the  premiums ;  that  the  premiums 
were  all  paid  by  the  appellants ;  that  George  T.  Woods,  and  his  ad- 
ministrator after  his  death,  paid  to  the  appellants  one-third  of  the 
premiums.  The  court  then  directed  that  the  administrator  pay  to 
the  appellants  the  premiums  paid  by  them  on  the  policy,  with  in- 
terest thereon  from  the  dates  of  the  respective  payments  until  paid ; 
that  the  balance  of  the  $10,000  was  a  part  of  the  estate  of  Sarah  E. 
Woods,  and  was  ordered  to  be  held  and  so  accounted  for  by  the 
administrator.  From  the  judgment  so  entered,  this  appeal  is  pros- 
ecuted. 


Sec.  4)  INSURABLE  INTEREST LIFE  INSURANCE  143 

The  trial  court  seems  to  have  disregarded  the  plea  of  fraud  and 
of  mental  incapacity,  and  we  think  properly  so.  The  evidence  in 
this  case  conduces  to  show  that  Sarah  E.  Woods  was  a  woman  of 
fine  common  sense,  and  that  she  knew  how  to  attend  to  and  manage 
her  own  afifairs.  When  she  took  out  the  policy  she  understood 
perfectly  well  the  nature  of  the  contract  which  she  had  made  with 
appellants.  There  is  also  evidence  to  the  effect  that  the  same 
privilege,  of  taking  out  insurance  on  her  life,  was  accorded  to  her 
other  children,  but  that  they  failed  to  avail  themselves  of  it.  All 
along  they  knew  of  the  existence  of  the  policy  in  question  and  of 
the  fact  that  appellants  were  paying  the  premiums  thereon  in  pur- 
suance of  the  contract  by  the  terms  of  which  they  expected  to  se- 
cure the  proceeds.  However,  the  trial  court  held  that  appellants, 
who  were  the  sons  of  Sarah  E.  Woods,  had  no  insurable  interest 
in  the  life  of  their  mother.  The  court  seems  to  have  proceeded 
upon  the  idea  that  some  other  element,  such  as  that  of  support  or 
a  pecuniary  interest  in  the  life  of  the  mother,  was  necessary  in 
addition  to  the  relationship  which  existed  between  the  mother  and 
her  sons. 

Appellees  below  seem  to  have  relied,  and  the  court  itself  appears 
to  have  based  its  opinion  upon  the  doctrine  laid  down  in  the  case 
of  Life  Insurance  Company  v.  O'Neill,  106  Fed.  800,  45  C.  C.  A. 
641,  54  L.  R.  A.  225.  In  that  case  it  was  decided  by  the  Circuit 
Court  of  Appeals  that  "an  adult  son  has  not,  from  the  bare  fact 
of  relationship,  an  insurable  interest  in  the  life  of  his  father."  This 
case  followed  the  English  doctrine.  The  latter  doctrine,  however, 
was  based  upon  the  statute  14  Geo.  Ill,  c.  48,  which  provided  that, 
to  support  insurance  on  the  life  of  another,  there  must  have  been  a 
pecuniary  interest  on  the  part  of  the  insured  in  the  life  of  the  assured, 
and  the  interest  ordinarily  growing  out  of  relationship  or  consan- 
guinity is  not  alone  sufficient.  Although  having  no  similar  statute, 
the  courts  of  several  states  have  adopted  the  English  doctrine. 
With  all  due  deference  to  the  courts  thus  holding,  we  are  of  the 
opinion  that  the  rule  announced  by  them  does  not  accord  with  the 
weight  of  authority,  and  is  not  based  upon  sound  reasoning. 

In  the  recent  case  of  Hess'  Adm'r  v.  Segenfelter,  etc.,  127  Kv. 
348,  105  S.  W.  476,  32  Ky.  Law  Rep.  225,  14  L.  R.  A.  (N.  S.)  1172, 
128  Am.  St.  Rep.  343,  this  court,  in  discussing  the  question  of  in- 
surable interest,  said : 

"It  has  been  held  a  son  has  an  insurable  interest  in  the  life  of 
his  father  (Reserve  Mutual  Life  Ins.  Co.  v.  Kane,  81  Pa.  154,  22 
Am.  Rep.  741)  ;  a  father  has  an  insurable  interest  in  the  life  of 
his  child  (Williams  v.  Washington  Life  Ins.  Co.,  31  Iowa,  541)  ; 
sisters  and  brothers  have  an  insurable  interest  in  the  life  of  each 
other  (May  on  Insurance,  §  107)  ;  a  wife  has  an  insurable  interest 
in  the  life  of  her  husband,  and  a  husband  in  the  life  of  his  wife 
(Currier  v.  Continental  Life  Ins.  Co.,  d7  Vt.  496,  52  Am.  Rep.  134; 


144  SUBJECT-MATTER    OF    THE   CONTRACT  (Cll.  2 

Ky.  St.  1003,  §  654)  ;  a  person  dependent  upon  the  life  of  another 
has  an  insurable  interest  in  that  life  (Lord  v.  Dall,  12  Mass.  115, 
7  Am.  Dec.  38)  ;  a  granddaughter  has  not  an  insurable  interest  in 
the  life  of  her  grandfather,  nor  has  a  nephew,  as  such,  an  insurable 
interest  in  the  life  of  an  aunt,  nor  a  son-in-law  an  insurable  interest 
in  the  life  of  his  mother-in-law  (May  on  Insurance,  §  107).  In 
Singleton  v.  St.  Louis  Ins.  Co.,  66  Mo.  63,  27  Am.  Rep.  321,  an 
uncle  was  held  not  to  have  an  insurable  interest  in  the  life  of  his 
nephew.  In  Burton  v.  Connecticut  Mut.  Life  Ins.  Co.,  119  Ind. 
207,  21  N.  E.  746,  12  Am.  St.  Rep.  405,  the  court  held  that  a  grand- 
child had  no  insurable  interest  in  the  life  of  his  grandfather.  A 
stepson  has  no  insurable  interest  in  the  life  of  his  stepfather,  where 
he  has  a  separate  home  and  family  of  his  own.  United  Brethren 
Mutual  Aid  Society  v.  McDonald,  122  Pa.  324,  15  Atl.  439,  1  L. 
R.  A.  238,  9  Am.  St.  Rep.  HI. 

"These  authorities  illustrate  the  limitations  that  have  been  placed 
on  insurable  interest,  and  the  extent  to  which  the  courts  have  gone 
in  an  effort  to  prevent  wagering  and  speculative  contracts  of  in- 
surance. Although  an  examination  of  them  will  show  various  rea- 
sons for  the  conclusion  reached,  it  may  safely  be  said  that  the  rela- 
tionship of  creditor  and  debtor  must  exist,  or  that  the  beneficiary 
must  have  or  expect  some  pecuniary  relief,  benefit,  or  advantage 
from  the  continuance  of  the  life  of  the  insured,  or  the  relationship 
growing  out  of  ties  of  blood  or  marriage  must  be  so  close  as  to 
justify  the  well-founded  belief  that  loss  or  disadvantage  would 
naturally  and  probably  arise  to  the  party  in  whose  favor  the  policy 
is  written  from  the  death  of  the  person  whose  life  is  insured.  Gen- 
erally, the  courts  have  endeavored  to  make  insurable  interest  de- 
pendent on  the  question  that  pecuniary  loss  would  presumably 
result  to  the  beneficiary  from  the  death  of  the  insured ;  but,  where 
the  relationship,  as  in  the  case  of  husband  and  wife,  parent  and 
child,  sister  and  brother,  is  so  close  as  to  preclude  the  probability 
that  mercenary  motives  would  induce  the  sacrifice  of  life  to  gain 
the  insurance,  the  element  of  pecuniary  consideration  is  not  deemed 
essential  to  sustain  the  validity  of  the  policy." 

Prior  to  the  above  opinion  the  doctrine  that  a  son  had  an  insur- 
able interest  in  the  life  of  his  parent  was  recognized  in  Beard  v. 
Sharp,  100  Ky.  606,  38  S.  W.  1057.  In  Warnock  v.  Davis,  104  U. 
S.  779,  26  L.  Ed.  926,  the  rule  is  thus  stated :  "It  is  not  necessary 
that  the  expectation  of  advantage  or  benefit  should  be  always  capa- 
ble of  pecuniary  estimation;  for  a  parent  has  an  insurable  interest 
in  the  life  of  his  child,  and  a  child  in  the  life  of  his  parent,  a  husband 
in  the  life  of  his  wife,  and  a  wife  in  the  life  of  her  husband.  The 
natural  affection  in  cases  of  this  kind  is  considered  as  more  power- 
ful— as  operating  more  efificaciously — to  protect  the  life  of  the  in- 
sured than  any  other  consideration." 

In  25  Cyc.  p.  704,  the  doctrine  is  thus  laid  down :   "It  has  some- 


Sec.  4)  INSURABLE  INTEREST LIFE  INSURANCE  145 

times  been  said  in  definite  terms  that  the  relationship  of  parent 
and  child,  without  right  or  liability  as  to  support,  and  without  other 
direct  pecuniary  interest,  is  not  sufficient  to  sustain  a  policy  taken 
by  one  on  the  life  of  the  other.  But  a  more  liberal  rule  seems  to 
be  supported  by  many  authorities,  in  accordance  with  which  such 
relationship  is  sufficient  in  itself  to  show  such  interest  as  will  sup- 
port a  policy  by  the  one  on  the  life  of  the  other." 

Among  the  cases  recognizing  this  doctrine  may  be  cited  the  fol- 
lowing: Valley  Mutual  Life  Association  v.  Teewalt,  79  Va.  423; 
Reserve  Mutual  Insurance  Co.  v.  Kane,  81  Pa.  154,  22  Am.  Rep. 
741 ;  Equitable  Life  Insurance  Co.  v.  Hazelwood,  75  Tex.  338,  12 
S.  W.  621,  7  L.  R.  A.  217,  16  Am.  St.  Rep.  893;  Tucker  v.  Mutual 
Benefit  Life  Co.,  121  N.  Y.  718,  24  N.  E.  1102;  Trenton  Mutual  Life 
Insurance  Co.  v.  Johnson,  24  N.  J.  Law,  576;  Hilliard  v.  Sandford, 
4  Ohio  N.  P.  363. 

In  speaking  of  the  duties  due  from  children  to  their  parents, 
Blackstone  (1  Lewis'  Ed.  p.  428)  says:  "The  duties  of  children  to 
their  parents  arise  from  a  principle  of  natural  justice  and  retribu- 
tion;  for  to  those  who  gave  us  existence  we  naturally  owe  subjec- 
tion and  obedience  during  our  minority,  and  honor  and  reverence 
ever  after.  They  who  protected  the  weakness  of  our  infancy  are 
entitled  to  our  protection  in  the  infirmity  of  their  age.  They  who 
by  sustenance  and  education  have  enabled  the  offspring  to  prosper 
ought  in  return  to  be  supported  by  that  offspring  in  case  they  stand 
in  need  of  assistance.  Upon  this  principle  proceed  all  the  duties  of 
children  to  their  parents,  which  are  enjoined  by  positive  laws." 

It  may  be  safely  said  that  no  relationship  in  life,  arising  from  ties 
of  blood,  is  more  sacred  or  more  binding  than  that  of  parent  and 
child.  As  the  mother  looks  into  the  eyes  of  her  child  and  uses 
every  effort  to  guard  it  from  harm  and  prolong  its  life,  so  the  child 
as  maturity  comes  raises  a  strong  arm  to  protect  her  in  her  old 
age,  and  looks  with  fear  to  the  time  when  she  will  be  taken  away. 
Thus  every  common  instinct,  to  say  nothing  of  love  and  affection, 
makes  each  interested  in  the  long  life  of  the  other.  With  such  a  tie 
uniting  parent  and  child,  we  cannot  accede  to  the  doctrine  that 
some  pecuniary  loss  or  disadvantage  must  result  to  the  son  from 
the  death  of  his  mother  in  order  that  he  may  be  interested  in  the 
continuation  of  her  life.  We,  therefore,  conclude  that  the  relation- 
ship between  parent  and  child  is  of  itself  sufficient  to  give  either 
an  insurable  interest  in  the  life  of  the  other,  and  that  no  other  ele- 
ment is  required. 

Nor  do  we  think  the  fact  that  appellants  entered  into  a  contract 
with  George  T.  Woods,  by  which  he  was  to  furnish  one-third  of 
the  premiums  and  to  share  in  one-third  of  the  proceeds  of  the  pol- 
icy, had  the  effect  of  invalidating  the  policy  so  far  as  the  appel- 
lants are  concerned.  This  precise  question  was  before  this 
Vance  Ins. — 10 


146  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch,  2 

court  in  the  case  of  Beard  v.  Sharp,  supra.  There  the  son 
had  for  a  number  of  years  paid  the  premium  on  the  policy 
of  insurance  on  the  life  of  his  mother  issued  for  his  benefit.  After 
paying  several  premiums  he  caused  a  new  certificate  to  be  issued, 
making  himself  and  a  stranger  joint  beneficiaries,  the  stranger 
agreeing  to  pay  the  premiums.  This  court  held  that  the  son  was 
entitled  to  the  whole  amount  of  the  proceeds  of  the  policy,  less  the 
premiums  paid  by  the  stranger,  with  the  interest  thereon,  and  fur- 
ther held  that  the  insurance  was  not  invalidated  by  the  designation 
of  a  person  prohibited  by  law  from  being  a  beneficiary.  Indeed,  it 
may  be  said  to  be  the  general  rule  that  a  contract  of  insurance  is 
not  invalidated  by  the  designation  of  a  person  prohibited  by  law  to 
be  a  beneficiary.  Caudell  v.  Woodward,  96  Ky.  646,  29  S.  W.  614; 
Weigelman  v.  Bronger,  96  Ky.  132,  28  S.  W.  334;  Warnock  v. 
Davis,  104  U.  S.  775,  26  L.  Ed.  924. 

Being  of  the  opinion  that  Sarah  E.  Woods  was  mentally  capable 
of  contracting,  and  that  no  fraud  was  practiced,  either  upon  her  or 
appellees  herein,  in  securing  the  contract  of  insurance,  that  the 
subsequent  contract  made  by  appellants  with  George  T.  Woods 
did  not  affect  the  validity  of  the  policy,  or  appellant's  interest  there- 
in, and  that  the  relationship  existing  between  appellants  and  their 
mother  was  sufficient,  in  and  of  itself,  to  give  them  an  insurable 
interest  in  her  life,  we  therefore  conclude  that  appellants  are  en- 
titled to  the  whole  proceeds  of  the  policy. 

For  the  reasons  given,  the  judgment  is  reversed,  and  cause  re- 
manded, with  directions  to  enter  judgment  in  conformity  with  this 
opinion.** 

4  4  The  general  rule  undoubtedly  is  that  an  adult  child  has  no  insurable 
interest  in  the  life  of  a  parent,  even  though  the  moral  burden  of  support  and 
bui'ial  rests  upon  such  child.  See  Harse  v.  Pearl  Life  Assur.  Co.  [18931  2 
K.  B.  92,  reversed  on  another  point,  (C.  A.)  [1S94]  1  K.  B.  558,  and  extensive 
note,  54  L.  R.  A.  225. 

"It  is  next  insisted  that  Norman  S.  Hahn,  a  brother  of  Isaiah  Hahn,  had 
no  insurable  interest  in  the  life  of  the  latter.  It  is  well  settled  in  this  state 
that  an  insurable  interest  may  arise  from  blood  relationship,  without  regard 
to  whether  or  not  the  beneficiary  has  any  pecuniary  interest  in  the  life  of 
the  insured,  or  is  dependent  upon  the  latter.  Basye  v.  Adams,  81  Ky.  368 
(1883).  It  is  true  that  under  the  English  rule  blood  relationship  alone  is  not 
sufficient,  but  that  rule  is  based  upon  a  statute  which  is  not  in  force  in  this 
state,  nor,  as  a  matter  of  fact,  in  force  in  many  of  the  states  which  follov/ 
the  English  rule.  If  blood  relationship  in  and  of  itself  constitutes  an  insur- 
able interest,  certainly  the  relationship  of  one  brother  to  another  is  suffi- 
ciently close  for  that  purpose."  Hahn  v.  Supreme  Lodge,  136  Ky.  823,  125 
S.  W.  259  (1910).  This  statement,  however,  was  not  really  necessary  to  the 
decision  of  the  case,  since  the  policy  was  taken  out  by  the  insured  upon  his 
own  life.  Dicta  to  the  same  effect  may  also  be  found  in  Neal  v.  Shirley,  137 
Ky.  818,  127  S.  W.  471  (1910),  and  Buckler  v.  Supreme  Council,  143  Ky.  618, 
136  S.  W.  1006   (1911). 

The  peculiar  doctrine  obtaining  in  Pennsylvania,  whereby  a  son  has  an 
insurable  interest  in  the  life  of  his  aged  parent,  whom  he  is  legally  bound  to 
support,  is  set  forth  in  Reserve  Mut.  Ins.  Co.  v.  Kane,  81  Pa.  154,  22  Am. 
Rep.  741  (1876).  See,  contra.  Life  Ins.  Co.  v.  O'Neill,  106  Fed.  800,  45  C.  C.  A. 
641,  54  L.  R.  A.  225  (18—). 


Sec.  4)  INSURABLE  INTEREST LIFE  INSURANCE  147 


HESS'  ADM'R  V.  SEGENFELTER  et  al. 

(Court  of  Appeals  of  Kentucky,  1907.     127  Ky.  348,  105  S.  W.  476,  14  L.  R.  A. 
[N.  S.]  1172,  128  Am.  St.  Rep.  343.) 

Appeal  from  Circuit  Court,  IMcCracken  County. 

Controversy  between  Mary  E.  Morg-an,  administratrix,  and 
James  W.  Scgenfelter  and  others,  to  determine  right  to  the  pro- 
ceeds of  a  benefit  certificate  issued  by  the  Knights  of  Honor. 
From  a  judgment  for  James  Scgenfelter  and  others,  Mary  E. 
Morgan  appeals.     Reversed. 

Carroll,  J.*^  C.  F.  Hess  died  in  1904,  a  member  in  good  stand- 
ing of  the  Knights  of  Honor,  a  corporation  created  under  the  laws 
of  the  state  of  Missouri  "to  promote  benevolence  and  charity  by 
establishing  a  widows'  and  orphans'  fund  from  which,  on  satis- 
factory evidence  of  the  death  of  a  member  of  the  order  who  had 
complied  with  all  its  lawful  requirements,  and  who  is  at  the  time 
of  his  death  in  good  standing  according  to  the  laws  of  the  order, 
a  sum  not  exceeding  two  thousand  dollars  shall  be  paid  to  said 
member  or  members  of  his  family,  blood  relatives,  or  person  or 
persons  dependent  on  him,  as  he  may  direct  or  designate  by 
name,  to  be  paid  as  provided  by  general  law;  provided,  however, 
any  member  desiring  to  have  afterborn  children  to  participate  in 
his  certificate  may  so  designate  without  doing  so  by  name" — 
the  constitution  also  providing  that  "a  member  desiring  to  change 
his  beneficiary  may  at  any  time  while  in  good  standing  surrender 
his  benefit  certificate  and  obtain  a  new  one  in  lieu  thereof,  pay- 
able as  he  shall  have  directed  within  the  limitations  prescribed  by 
the  laws  of  the  order."  In  1901  Hess  surrendered  the  certificate 
he  then  held  in  this  order,  payable  to  his  aunt,  and  upon  his 
request  there  was  issued  a  certificate  for  $2,000  payable  to  the 
appellees,  who  are  his  first  cousins. 

This  controversy  is  between  the  appellees  and  the  appellant, 
Mary  E.  Morgan,  the  only  surviving  sister  of  Hess,  who  asserts 
claim  to  the  fund  by  reason  of  her  relationship  and  also  as  admin- 
istratrix of  his  estate.  The  Knights  of  Honor  paid  the  money 
into  court,  and  upon  hearing  the  case  the  circuit  court  adjudged 
that  the  appellees  were  entitled  to  the  fund  in  controversy,  and 
a  reversal  of  this  judgment  is  sought. 

For  appellant  it  is  urged  that  appellees  had  no  insurable  inter- 
est in  the  life  of  Hess,  and  therefore  are  not  entitled  to  the  insur- 
ance upon  his  life  under  the  certificate  issued  to  him  by  this 
fraternal  organization.  The  appellees  contend  that,  being  blood 
relatives  of  Hess,  he  had  the  right  under  the  provisions  of  the 
charter  before  quoted  to  designate  them  as  the  beneficiaries   of 

4  5  Part  of  the  opinion  is  omitted. 


148  SUBJECT-MATTER    OF    THK   (.'OXTRACT  (Ch.  2 

the  fund,  and  the  circuit  court  properly  adjudged  them  entitled 
to  it. 

Whether  or  not  a  member  of  a  fraternal  or  benevolent  organi- 
zation who  obtains  insurance  upon  his  own  life  and  himself  pays 
the  premiums  can  designate  as  a  beneficiary  a  person  who  has  not 
what  is  generally  known  as  an  insurable  interest  in  his  life,  but  who 
is  permitted  to  be  made  a  beneficiary  by  the  charter  of  the  order, 
presents  a  most  interesting  question,  and  one  that  has  attracted 
a  great  deal  of  attention  from  courts  as  well  as  text-writers.  If 
we  did  not  feel  constrained  to  follow  the  provisions  of  the  stat- 
ute that  will  be  hereafter  noticed,  we  would  announce  the  prin- 
ciple that  the  question  of  insurable  interest  was  not  involved, 
when  a  member  of  a  fraternal  or  benevolent  association  in  good 
faith  obtained  insurance  upon  his  own  life,  and  himself  paid  the 
premium,  and  there  was  no  fact  or  circumstance  connected  with 
the  transaction  tending  to  show  that  it  had  any  of  the  elements 
of  a  wagering  or  speculative  contract,  and  that  a  person  obtain- 
ing such  insurance  might  designate  any  person  as  a  beneficiary 
within  the  limits  prescribed  by  the  rules  of  the  order.  All  the 
courts  of  last  resort,  with  possibly  one  exception,  and  the  text- 
writers  on  insurance  generally,  are  agreed  that  a  person  may 
take  out  insurance  upon  his  own  life  and  designate  whom  he 
pleases  as  the  beneficiary. 

This  doctrine  is  based  upon  the  sound  and  sensible  theory  that 
it  is  not  reasonable  to  suppose  that  a  person  will  insure  his  own 
life  for  the  purpose  of  speculation,  or  be  tempted  to  take  his  own 
life  in  order  to  secure  the  payment  of  money  to  another,  or  des- 
ignate as  the  beneficiary  a  person  interested  in  the  destruction 
and  not  in  the  continuance  of  his  own  life.  Vance  on  Insurance, 
§  49;  Heinlein  v.  Imperial  Ins.  Co.,  101  Mich.  250,  59  N.  W.  615, 
25  L.  R.  A.  627,  45  Am.  St.  Rep.  409;  Morrell  v.  Trenton  Mutual 
Life  Ins.  Co.,  10  Cush.  (Mass.)  282,  57  Am.  Dec.  92;  Connecticut 
Mutual  Life  Ins.  Co.  v.  Schaefer,  94  U.  S.  457,  24  L.  Ed.  251; 
May  on  Insurance,  §  112;  Bliss  on  Insurance,  §  76;  Bacon  on 
Insurance,  §  729;  Beach  on  Insurance,  §  861;  Joyce  on  Insur- 
ance, §  729;  Bloomington  Mutual  Benefit  Association  v.  Blue,  120 
111.  121,  11  N.  E.  331,  60  Am.  Rep.  558;  Union  Fraternal  League  v. 
Walton,  109  Ga.  1,  34  S.  E.  317,  46  L.  R.  A.  424,  77  Am.  St.  Rep. 
350;  Prudential  Ins.  Co.  v.  Hunn,  21  Ind.  App.  525,  52  N.  E.  772, 
69  Am.  St.  Rep.  380;  N.  W.  Masonic  Aid  Ass'n  v.  Jones,  154  Pa. 
99,  26  Atl.  253,  35  Am.  St.  Rep.  810;  Albert  v.  Mutual  Life  Ins. 
Co.,  122  N.  C.  92,  30  S.  E.  327,  65  Am.  St.  Rep.  693. 

On  the  other  hand,  what  is  known  as  "wagering  or  gambling 
insurance"  is  universally  condemned,  and  our  court,  in  harmony 
with  the  doctrine  generally  prevailing,  is  strongly  committed  to 
the  principle  that  a  person  cannot  himself  procure  insurance  upon 
a  life  in  which  he  has  not  an  insurable  interest,  growing  out  of 


Sec.  4)  INSURABLE   INTIOUKST — LIFK    INSURANCE  149 

kinship,   dependency,   or  the   relation  of  debtor  and   creditor,  nor 
obtain    an   assig:;nment   of   such   insurance ;    nor   will   a  person   be 
permitted  to  insure  his  own  life  for  the  benefit  of  another,  if  that 
other  induces  him  to  procure  the  insurance  and  pays  the  premi- 
ums thereon,  or  there  is  any  evidence  tending-  to  show   that  the 
insurance  was  obtained   with  a  view  to  avoid   or  evade  the   law 
against  speculative  insurance.     Griffin's  Adm'r  v.  Equitable  Assur- 
ance Society,  119  Ky.  856,  84  S.  W.  1164,  27  Ky.  Law  Rep.  313 
Brombley  v.  Washington  Life  Ins.  Co.,  122  Ky.  402,  92  S.  W.  17 
28  Ky.  Law  Rep.  1300,  5  L.  R.  A.  (N.  S.)  747,  121  Am.  St.  Rep 
467,  12  Ann.  Cas.  685 ;  Beard  v.  Sharp,  100  Ky.  606,  38  S.  W.  1057 
New  York  Life  Ins.  Co.  v.  Brown,  66  S.  W.  613,  23  Ky.  Law  Rep 
2070;    Baldwin  v.  Haydon,  70  S.  W.  300,  24  Ky.  Law  Rep.  900 
Wrather  v.  Stacey,  82  S.   W.  420,  26  Ky.   Law   Rep.  683;    Lee 
v.  Mutual  Life  Insurance  Company,  82  S.  W.  258,  26  Ky.  Law 
Rep.  577;    Barbour  v.  Larue,  106  Ky.  546,  51  S.  W.  5 ;    Basye  v. 
Adams,  81   Ky.  368;    Lockett  v.  Lockett,  80  S.  W.   1152,  26  Ky. 
Law  Rep.  300;    Scott  v.  Scott.  77  S.  W.   1122,  25  Ky.  Law  Rep. 
1356;    Adams  v.  Reed,  38  S.  W.  420,   18  Ky.  Law  Rep.  858,  35 
L.  R.  A.  692;    Bramblett  v.  Hargis,  94  S.  W.  20,  29  Ky.   Law 
Rep.  610. 

Such  insurance  has  a  tendency  to  create  a  desire  to  destroy  the 
life  of  the  insured  to  obtain  the  insurance,  there  being  no  tie  of 
blood,  or  kindred,  or  interest,  to  wish  its  prolongation;  and  a 
person  who  procures  for  his  benefit  insurance  upon  the  life  of 
another,  when  he  is  not  connected  with  that  life  by  ties  of  kin- 
dred or  dependency,  or  interested  in  its  continuance  from  business 
motives,  may  be  actuated  solely  by  a  purpose  to  derive  profit  from, 
its  destruction,  and  be  rewarded  by  wagering  against  the  amount 
pavable  at  his  death  the  sums  expected  in  premiums  during  his 
life. 

In  subdivision  3-,  art.  4,  c.  32,  of  the  Kentucky  Statutes  of  1903, 
relating  to  assessment  and  co-operative  life  insurance  companies, 
it  is  provided,  in  section  678,  that  "no  corporation  doing  business 
under  this  law  shall  issue  a  certificate  or  policy  upon  the  life  of 
any  person  more  than  sixty  years  of  age,  nor  upon  any  life  in 
wdiich  the  beneficiary  named  has  no  interest."  And,  by  section 
680,  an  insurance  company  organized  under  the  laws  of  any  other 
state  for  the  purpose  of  furnishing  life  or  accident  insurance  upon 
the  assessment  plan  shall  not  be  authorized  to  do  business  in 
this  state  until  it  has  filed  with  the  commissioner  of  insurance 
a  certificate  showing,  among  other  things,  that  "its  certificates  or 
policies  are  payable  only  to  beneficiaries  having  a  legal  insurable 
interest  in  the  life  of  the  member  or  insured."  And  this  court 
in  Supreme  Commandery  of  Golden  Cross  v.  Hughes,  114  Ky.  175, 
70  S.  W.  405;  Ancient  Order  of  United  Workmen  v.  Edwards, 
85  S.  W.  701,  27  Ky.  Law  Rep.  469;    Supreme  Lodge  of  K.  P. 


150  subject-mattp:r  of  the  contract  (Ch.  2 

V.  Hunziker,  87  S.  W.  1134,  27  Ky.  Law  Rep.  1201,  and  American 
Guild  V.  Wyatt,  100  S.  W.  266,  30  Ky.  Law  Rep.  632,  held  that 
section  679  of  the  subdivision  supra  applied  to  fraternal  and  benev- 
olent associations. 

Under  the  authority  of  these  cases  we  see  no  escape  from  the 
conclusion  that  sections  678  and  680,  supra,  also  apply  to  them. 
This  being  true,  at  the  time  this  contract  of  insurance  was  made, 
and  when  the  insured  died,  it  was  contrary  to  the  statute  for  these 
associations  to  issue  certificates  unless  the  beneficiary  named 
therein  had  a  legal  insurable  interest  in  the  life  of  the  insured. 
The'  Legislature  in  1906,  by  an  act  which  became  a  law  March 
24,  1906  (Laws  1906,  p.  481,  c.  142),  exempted  from  the  operation 
of  the  subdivision  in  question  "fraternal  societies,  lodges  or  coun- 
cils, which  are  under  the  supervision  of  a  grand  or  supreme  body, 
and  securing  members  through  the  lodge  system  exclusively,  and 
paying  no  commissions,  nor  employing  any  agents  except  in  the 
organization  and  supervision  of  the  work  of  local  subordinate 
lodges  or  councils."  So  that,  hereafter,  members  in  fraternal  and 
benevolent  associations  such  as  the  Supreme  Lodge  of  the  Knights 
of  Honor  will  not  be  limited  by  statute  in  the  designation  of  bene- 
ficiaries to  persons  who  have  an  insurable  interest  in  their  lives; 
but  this  statute  has  no  application  to  the  case  before  us.  The 
rights  of  the  parties  must  be  adjudged  by  the  laws  in  force  at 
the  time  the  certificate  was  issued. 

The  only  remaining  question  is:  Did  appellees,  who  were  first 
cousins  of  the  insured,  have,  in  the  meaning  of  the  statute,  an 
insurable  interest  in  his  life?  It  will  be  observed  that  the  stat- 
ute does  not  undertake  to  define  "insurable  interest,"  and  we  are 
left  to  ascertain  its  meaning  by  our  own  conceptions  of  what  is 
the  proper  definition  of  the  words,  guided  by  the  opinions  of  courts 
of  last  resort  and  text-writers  dealing  with  the  question.     *     *     * 

And  in  Connecticut  Mutual  Life  Ins.  Co.  v.  Schaefer,  94  U.  S. 
457,  24  L.  Ed.  251,  the  court  said:  "It  is  well  settled  that  a  man 
has  an  insurable  interest  in  his  own  life  and  that  of  his  wife  and 
children,  a  woman  in  the  life  of  her  husband,  and  a  creditor  in 
the  life  of  his  debtor.  Indeed,  it  may  be  said  generally  that  any 
reasonable  expectation  of  pecuniary  benefit  or  advantage  from 
the  continued  life  of  another  creates  an  insurable  interest  in  such 
life." 

It  has  been  held  a  son  has  an  insurable  interest  in  the  life  of 
his  father.  Reserve  Mutual  Life  Ins.  Co.  v.  Kane,  81  Pa.  154,  22 
Am.  Rep.  741.  A  father  has  an  insurable  interest  in  the  life  of 
his  child.  Williams  v.  Washington  Life  Ins.  Co.,  31  Iowa,  541. 
Sisters  and  brothers  have  an  insurable  interest  in  the  life  of  each 
other.  May  on  Insurance,  §  107.  A  wife  has  an  insurable  interest 
in  the  life  of  her  husband,  and  a  husband  in  the  life  of  his  wife. 
Currier  v.   Continental   Life   Ins.   Co.,    57  Vt.   496,   52  Am.    Rep. 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  151 

134;  Ky.  St.  1903,  §  654.  A  person  dependent  upon  the  life  of 
another  has  an  insurable  interest  in  that  life.  Lord  v.  Dall,  12 
Mass.  115,  7  Am.  Dec.  38.  A  granddaughter  has  not  an  insurable 
interest  in  the  life  of  her  grandfather,  nor  has  a  nephew,  as  such, 
an  insurable  interest  in  the  life  of  an  aunt,  nor  a  son-in-law  an 
insurable  interest  in  the  life  of  his  mother-in-law.  May  on  Insur- 
ance, §  107. 

In  Singleton  v.  St.  Louis  Ins.  Co.,  66  Mo.  63,  27  Am.  Rep.  321, 
an  uncle  was  held  not  to  have  an  insurable  interest  in  the  life  of 
his  nephew.  In  Burton  v.  Conn.  Mut.  Life  Ins.  Co.,  119  Ind.  207, 
21  N.  E.  746,  12  Am.  St.  Rep.  405,  the  court  held  that  a  grand- 
child had  no  insurable  interest  in  the  life  of  his  grandfather.  A 
stepson  has  no  insurable  interest  in  the  life  of  his  stepfather,  where 
he  has  a  separate  home  and  family  of  his  own.  United  Brethren 
Mutual  Aid  Society  v.  McDonald,  122  Pa.  324,  15  Atl.  439,  1  L.  R. 
A.  238,  9  Am.  St.  Rep.  111. 

These  authorities  illustrate  the  limitations  that  have  been  placed 
on  insurable  interest,  and  the  extent  to  which  the  courts  have 
gone  in  an  effort  to  prevent  wagering  and  speculative  contracts  of 
insurance.  Although  an  examination  of  them  will  show  various 
reasons  for  the  conclusion  reached,  it  may  safely  be  said  that  the 
relationship  of  creditor  and  debtor  must  exist,  or  that  the  bene- 
ficiary must  have  or  expect  some  pecuniary  relief,  benefit,  or  ad- 
vantage from  the  continuance  of  the  life  of  the  insured,  or  the 
relationship  growing  out  of  ties  of  blood  or  marriage  must  be  so 
close  as  to  justify  the  well-founded  belief  that  loss  or  disadvantage 
would  naturally  and  probably  arise  to  the  party  in  whose  favor 
the  policy  is  written  from  the  death  of  the  person  whose  life  is 
insured. 

Generally  the  courts  have  endeavored  to  make  insurable  interest 
dependent  on  the  question  that  pecuniary  loss  would  presumably 
result  to  the  beneficiary  from  the  death  of  the  insured;  but  where 
the  relationship,  as  in  the  case  of  husband  and  wife,  parent  and 
child,  sister  and  brother,  is  so  close  as  to  preclude  the  probability 
that  mercenary  motives  would  induce  the  sacrifice  of  life  to 
gain  the  insurance,  the  element  of  pecuniary  consideration  is  not 
deemed  essential  to  sustain  the  validity  of  the  policy.  Looking 
at  the  question  from  any  standpoint,  cousins,  who  are  not  depend- 
ent on  or  creditors  of  the  insured,  cannot  fairly  be  said  to  have 
an  insurable  interest  in  his  life. 

Wherefore  the  judgment  is  reversed,  with  directions  to  enter  a 
judgment  giving  to  appellant  the  insurance. 


152  SUBJECT-MATTER    OF    THE   CONTRACT  (Cll.  2 

WESTERN  &  SOUTHERN  LIFE  INS.  CO.  v.  GRIMES' 

ADM'R. 

(Court  of  Appeals  of  Kentucky,  1910.     138  Ky.  338,  128  S.  W.  G5.) 

Appeal  from  Circuit  Court,  Jefferson  County,  Common  Pleas 
Branch,  Second  Division. 

Action  by  Sallie  Grimes'  administrator  against  the  Western  & 
Southern  Life  Insurance  Company  on  a  policy  issued  to  plaintiff's 
intestate.  From  a  judgment  for  plaintiff,  defendant  appeals.  Re- 
versed, with  instructions  to  dismiss  the  petition. 

James  Quarles  and  Johnson  &  Levy,  for  appellant.  Bradford 
Webster,  Samuel  L.  Trusty,  J.  Reginald  Clements,  and  Popham, 
Webster  &  Trusty,  for  appellee. 

Lassing,  J.  On  January  19,  1906,  Sallie  Grimes,  a  girl  about 
18  years  old,  in  the  employ  of  Jacob  Gross,  in  the  city  of  Louisville, 
took  out  a  policy  of  insurance  on  her  life  in  the  Western  &  South- 
ern Life  Insurance  Company,  and  named  Dora  Gross,  wife  of  her 
employer,  as  beneficiary.  She  had  been  living  in  the  family  for 
about  three  years,  and  previous  to  that  time  had  been  living  with 
the  mother  of  Mrs.  Gross  since  she  was  about  5  years  old.  She  was 
evidently  warmly  attached  to  IMrs.  Gross,  and,  although  working 
for  wages,  was  treated  as  one  of  the  family.  After  the  policy  was 
delivered  to  her,  she  paid  the  premiums  regularly  each  week  out 
of  her  wages  until  some  time  in  the  fall  of  1907,  when  she  ceased  to 
work  for  the  Gross  family,  and  sought  employment  elsewhere. 
When  she  left  the  Gross  home,  she  took  with  her  the  policy  and  the 
book  in  which  the  entries  of  her  weekly  payments  were  kept. 
Shortly  thereafter  the  collector  for  the  company  called  at  the  Gross 
home,  as  was  his  custom,  to  collect  the  premium.  He  was  then  in- 
formed by  Mr.  Gross  that  the  insured  no  longer  lived  there,  and  di- 
rected where  he  would  likely  find  her.  The  agent  looked  her  up  and 
was  informed  by  her  that  she  no  longer  desired  to  keep  the  policy 
in  force  and  would  not  pay  the  premiums.  Thereupon  he  returned 
to  see  Mr.  Gross  in  an  effort  to  induce  him  to  pay  the  premiums  and 
keep  up  the  policy  on  account  of  his  wife,  who  was  named  as  bene- 
ficiary. 

After  some  deliberation  this  suggestion  was  adopted,  and  it  was 
agreed  between  Gross  and  the  agent  of  the  company  that  the  com- 
pany would  furnish  a  duplicate  policy  to  be  held  by  Gross,  so  that 
he  would  have  something  to  show  for  the  money  which  he  was 
paying.  This  was  in  time  done,  and  under  this  agreement  and  ar- 
rangement the  premiums  were  regularly  paid  by  Gross  for  his  wife 
until  in  the  fall  of  1908,  when  the  insured  died.  Proofs  of  loss  were 
made  out  by  Gross  and  delivered  to  the  company,  and  a  few  days 
thereafter  the  company  paid  to  him  for  his  wife  the  full  amount  of 


Sec.  4)  INSUUAHLE  INTEREST — LIFE  INSURANCE  153 

the  policy,  to  wit,  $275.40.  In  due  time  an  administrator  was  ap- 
pointed for  her,  and  through  his  attorney  he  demanded  payment  of 
the  policy  of  the  company.  This  was  refused,  upon  the  idea  that 
Mrs.  Gross,  the  named  beneficiary,  was  lawfully  entitled  to  the  pro- 
ceeds of  the  policy,  and  the  company,  having  paid  her,  declined  to 
pay  the  administrator. 

Thereupon  this  suit  was  instituted  upon  the  original  policy;  the 
duplicate  which  was  in  the  possession  of  Mrs.  Gross  having  been 
surrendered  to  the  company  without  ever  having  been  in  the  posses- 
sion of  the  insured.  The  company  defended  upon  two  grounds : 
First,  it  denied  that  it  had  denied  payment  or  refused  to  pay  the 
lawful  beneficiary ;  and,  second,  it  pleaded  the  payment  to  Mrs. 
Gross  as  foster  mother  under  the  belief  that  she  had  an  insurable 
interest  in  the  life  of  deceased  and  as  she  was  named  as  beneficiary 
in  the  policy.  It  asked  that  Mrs.  Gross  be  made  to  pay  and  com- 
pelled to  respond  to  any  judgment  that  might  be  rendered  against 
it.  Later  defendant  sought  to  have  a  rule  issued  against  Mrs.  Gross 
requiring  her  to  pay  the  money  which  she  had  received  from  it  into 
court. 

The  court  refused  to  issue  this  rule,  and  upon  defendant's  motion 
its  cross-petition,  as  to  Mrs.  Gross,  was  dismissed  without  prej- 
udice. Issue  was  joined  upon  the  question  of  liability,  the  case  pre- 
pared, and  finally  submitted  to  the  court,  without  the  intervention  of 
a  jury,  for  judgment  upon  the  pleadings,  exhibits,  and  proof.  The 
court  was  of  opinion  that  the  contract  sued  on  was  a  binding  obliga- 
tion on  the  part  of  the  company,  that  Dora  Gross  had  no  insurable 
interest  in  the  life  of  the  insured,  that  the  company  knew  this  when 
it  paid  her  the  proceeds  of  the  policy,  and  that  such  payment  did 
not  discharge  its  obligation  to  the  lawful  claimant.  Accordingly, 
judgment  was  entered  in  favor  of  plaintiff,  and  the  company  ap- 
peals. 

Several  grounds  are  relied  upon  for  reversal,  but  we  will  consider 
only  such  as,  from  the  conclusion  which  we  have  reached,  are  ma- 
terial and  vital  to  the  determination  of  the  case.  In  Hess'  Adm'r  v. 
Segenfelter,  127  Ky.  348,  105  S.  W.  476,  Z2  Ky.  Law  Rep.  225,  14 
L.  R.  A.  (N.  S.)  1172,  128  Am.  St.  Rep.  343,  and  Rupp  v.  West.  In- 
demnity Co.  (decided  April  26,  1910)  138  Ky.  18,  127  S.  AV.  490,  29 
L.  R.  A.  (N.  S.)  675,  it  is  held  that  one  having  no  insurable  inter- 
est whatever  in  the  life  of  the  insured  may  be  made  the  beneficiary 
in  a  policy  where  it  is  applied  for  by  the  insured  free  from  any  in- 
fluence exercised  by  the  named  beneficiary  over  the  insured  to  have 
the  insurance  taken,  and  where  the  premiums  are  thereafter  paid 
by  the  insured.  As  the  policy  in  the  case  under  consideration  is 
shown  to  have  been  issued  to  the  insured  at  her  request  and  with- 
out the  knowledge  of  Mrs.  Gross,  and  the  premiums  were  paid 
thereon  by  the  insured  up  to  the  time  of  her  quitting  the  employ  of 


154  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch,  2 

Mr.  Gross,  Mrs.  Gross,  the  beneficiary  named  therein,  was  clearly 
entitled  to  receive  the  proceeds  of  this  policy,  unless  the  acts  and 
conduct  of  Mr.  Gross,  as  husband  and  agent  of  his  wife,  coupled 
with  those  of  the  agent  for  the  company,  in  having  the  duplicate 
policy  issued  and  the  premiums  thereon  paid  by  Mrs.  Gross,  or  Mr. 
Gross  for  Mrs.  Gross,  after  it  had  become  known  to  them  that  the 
insured  did  not  intend  to  continue  the  policy  longer  in  force,  oper- 
ated to  bring  this  case  within  the  rule  announced  in  Bromley's 
Adm'r  v.  Washington  Life  Insurance  Co.,  122  Kv.  402,  92  S.  W.  17, 
28  Ky.  Law  Rep.  1300,  5  L.  R.  A.  (N.  S.)  747,  121  Am.  St.  Rep.  467, 
12  Ann.  Cas.  685.     [The  court's  discussion  of  this  case  is  omitted.] 

In  the  case  under  consideration,  the  insured,  after  carrying  the 
policy  for  something  over  a  year,  notified  both  the  beneficiary  nam- 
ed therein  and  the  agent  of  the  company  that  she  would  no  longer 
continue  the  policy.  They  each  understood  that  she  intended  to 
lapse  or  drop  it.  Her  relations  with  the  Gross  family  had  changed. 
She  was  no  longer  in  their  employ,  and  the  inducement  for  her  to 
keep  up  the  policy  was  wanting.  Although  j^ossessed  of  the  knowl- 
edge that  the  insured  would  make  no  more  payments  on  the  policy, 
the  agent  of  the  company  set  about  to  induce  Mr.  and  Mrs.  Gross  to 
take  up  the  payment  of  the  premiums  and  continue  the  policy  in 
force,  in  order  that  Mrs.  Gross  might  get  the  money.  Gross,  acting 
upon  this  suggestion  of  the  agent,  paid  the  premiums  thereafter 
until  the  death  of  the  insured.  On  an  application  purporting  to 
have  been  signed  by  the  insured,  though  not  satisfactorily  shown 
to  have  been  so  signed,  the  company  issued  a  duplicate  policy, 
which  was  held  by  Gross.  This  was  done  at  the  instance  of  Gross 
that  he  might  have  something  to  show  for  the  money  which  he  was 
paying  out.  The  whole  business,  in  every  particular,  was  engineered 
and  controlled  by  the  husband  of  the  named  beneficiary,  acting  for 
his  wife,  and  the  agent  of  the  company,  without  the  knowledge, 
acquiescence,  or  consent  of  the  insured. 

Where  one  has  no  insurable  interest  in  the  life  of  another,  the  law 
will  not  permit  him  to  take  out  insurance  on  such  life,  and,  if  he 
does  so,  will  not  lend  its  aid  to  the  enforcement  of  such  contract 
because  against  public  policy,  and  the  fact  that  the  insured  lends 
his  consent  to  the  transaction  adds  nothing  whatever  to  its  validity. 
So  it  becomes  immaterial,  for  the  purposes  of  the  case  under  con- 
sideration, whether  or  not  the  insured  consented  to  the  issual  of 
the  duplicate  policy.  And  certainly,  if  validity  could  not  be  given 
to  the  contract  with  her  consent,  there  would  be  less  merit  in  the 
claim  if  the  transaction  was  done  without  her  knowledge  or  con- 
sent. 

This  case  cannot  be  distinguished  in  principle  from  the  Bromley 
Case.  No  distinction  can  be  drawn  between  taking  out  a  policy 
with  the  consent  of  the  insured  and  continuing  one  in  force  after  it 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  155 

has  been  repudiated,  abandoned,  and  dropped  by  the  insured/®  In 
fact,  there  is  less  of  merit  in  the  case  under  consideration  than  there 
was  in  the  Bromley  Case,  for  Bromley  really  received  $75  in  cash 
as  an  inducement  to  enter  into  the  arrangement;  whereas,  under 
the  most  favorable  light  in  which  the  present  case  can  be  consider- 
ed, the  insured  merely  consented  that  Mrs.  Gross  might  carry  the 
insurance  on  her  life.  The  contract  is  void  and  unenforceable  as 
against  public  policy;  and  this  applies  alike  to  the  representative 
of  the  insured  and  the  beneficiary  named  in  the  original  policy. 

Of  this  finding  appellee  is  in  no  position  to  complain,  for  he  occu- 
pies no  better  position  than  the  insured — stands  in  her  stead — and 
she  elected  to  drop  the  policy,  and  by  nonpayment  of  dues  caused  it 
to  lapse.  Having  accomplished  her  purpose  and  lapsed  the  policy, 
she  could  not  thereafter  successfully  claim  that  the  policy  was  alive 
and  in  force  by  virtue  of  the  act  of  Mrs.  Gross  in  making  payments 
to  the  company,  for  these  payments  were  made,  not  for  the  benefit 
of  the  insured,  or  at  her  instance  or  request,  but  solely  for  the  pur- 
pose of  keeping  the  insurance  in  force  for  the  benefit  of  Mrs.  Gross. 

Upon  this  showing  the  chancellor  should  have  held  that  the  con- 
tract of  insurance  was  absolutely  void  as  to  all  parties  concerned, 
and  for  his  failure  so  to  do  the  judgment  is  reversed,  and  cause  re- 
manded, with  instructions  to  dismiss  the  petition. 


REED  V.   PROVIDENT  SAVINGS   LIFE  ASSUR.   SOCIETY 
OF  NEW  YORK  (REED  et  al.  Interveners). 

(Court  of  Appeals  of  New  York,  1907.     190  N.  Y.  Ill,  82  N.  E.  734.) 

Appeal  from  Supreme  Court,  Appellate  Division,  Second  Depart- 
ment. 

Action  by  Theodore  F.  Reed  against  the  Provident  Savings  Life 
Assurance  Society  of  New  York,  in  which  John  O.  Reed  and  others 
intervene.  From  a  judgment  of  the  Appellate  Division  (112  App. 
Div.  922,  98  N.  Y.  Suppi.  1111),  affirming  the  judgment  of  the  Spe- 
cial Term,  plaintiff  and  defendant  society  appeal.  Modified  and  af- 
firmed. 

Gray,  J.*^  The  facts  in  dispute  have  been  finally  settled  by 
the  unanimous  affirmance  of  the  judgment.  The  situation,  as  pre- 
sented, is  one  where  the  interests  of  the  parties  are  evident,  and  but 

46  That  tlie  beneficiary  has  a  right  to  pay  premiums  due.  and  thus  preserve 
the  policy,  see  Manhattan  Life  Ins.  Co.  v.  Smith,  44  Ohio  St.  150.  5  N.  E. 
417,  58  Am.  Rep.  SOG  (1S86) ;  Mnt.  Life  Ins.  Co.  v.  Schaefer,  94  U.  S.  457,  24 
L  Ed.  251  (1876) ;  McQuillan  v.  Mut.  Reserve  Fund  Ass'n,  112  Wis.  665,  87  N. 
W.  10€9,  56  L.  R.  A.  23.3,  88  Am.  St.  Rep.  986  (1902). 

4  7  The  facts  sufficiently  appearing  in  the  opinion,  the  reporter's  statement 
of  facts  is  omitted. 


156  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

few  questions  of  law  of  any  importance  have  survived  the  disposi- 
tion made  below  of  this  case.  In  1887  a  contract  was  made  by  the 
plaintiff  with  Benjamin  F.  Reed  and  his  children,  pursuant  to  which 
policies  of  insurance,  to  the  aggrei^ate  amount  of  $25,000,  were  to  be 
taken  out  upon  Reed's  life,  of  which  his  children  were  to  be  the  prin- 
cipal beneficiaries  and  they  were  to  be  named,  as  such,  in  the  policies. 
These  policies  were  to  be  kept  in  force  until  the  death  of  the  assured, 
and  the  plaintiff  agreed  to  pay  all  the  premiums  and  assessments. 
From  the  proceeds  of  the  insurance  he  was  to  be  reimbursed  the 
amount  advanced  by  him,  with  10  per  cent,  interest  (the  legal  rate 
in  the  state  of  Michigan,  where  the  contract  was  made),  and,  in  ad- 
dition, he  was  to  receive  the  sum  of  $5,000;  the  remainder  of  the 
insurance  moneys  being  payable  to  the  children  of  the  assured.  This 
contract  was  so  far  carried  out  that,  upon  applications  signed  by  the 
deceased,  the  plaintiff  procured  the  issuance  of  four  policies,  aggre- 
gating in  amount  $25,000,  by  the  Massachusetts  Benefit  Association, 
the  National  Benefit  Society,  and  the  Equitable  Reserve  Fund  Life 
Association ;  the  children  being  alone  named  as  beneficiaries  in  two 
policies  issued  by  the  first-named  company,  and,  in  those  issued  by 
the  two  latter  companies,  being  jointly  named  with  the  plaintiff,  who 
was  described  as  nephew  and  creditor. 

The  plaintiff  performed  his  agreement  to  keep  the  policies  in  force 
by  the  payment  of  all  premiums,  or  assessments,  and,  when  the  two 
last-named  insurance  companies  failed  in  1889,  he  procured  to  be  is- 
sued, still  carrying  out  the  contract,  two  other  policies  in  their  place, 
one  of  which,  for  $10,000,  is  the  one  involved  in  this  action.  In  re- 
newing, however,  that  particular  insurance,  the  policy  was  made  pay- 
able to  the  plaintiff,  or  his  assigns.  At  the  death  of  the  assured,  the 
policies  of  life  insurance  were  in  force,  and  $15,000  of  their  amount 
have  been  paid  over  by  the  other  two  insurance  companies.  The 
plaintiff  collected  $5,000,  the  amount  of  one  of  the  other  policies,  and 
from  the  proceeds  of  the  other  policy  for  $10,000  he  has  received 
with  the  assent  of,  or  from,  the  Reed  children  a  sum  of  money  suf^- 
cient  to  reimburse  him  for  his  payments  of  premiums  upon  the  in- 
surance policies,  other  than  the  one  in  question.  The  Reed  children 
being  in  this  action  as  parties,  the  judgment  distributed  between  them 
and  the  plaintiff  the  amount  found  due  upon  this  policy,  giving  to  the 
latter  so  much  of  it  as  would  reimburse  him  for  what  pr'.'miums,  or 
assessments,  he  has  advanced  thereon. 

It  is  argued  for  the  appellant  company  that  the  plaintiff  had  no  in- 
surable interest  in  the  life  of  the  assured,  and  that  the  policy  issued 
by  it  was  therefore  void.  As  nephew  of  the  deceased  he  certainly  had 
no  insurable  interest ;  but  he  represented  in  himself  other  interests. 
The  application  for  the  policy  represented  him  to  be  a  creditor  of 
the  applicant  upon  whose  life  the  insurance  was  solicited.  Whether, 
if  this  had  been  the  mere  contract  of  the  assured  with  the  company. 


Sec.  4)  INSl'UARLE    INTKUKST LIFK    INSIJRANCK  ,    157 

the  policy,  in  such  case,  would  have  been  valid  without  reference  to 
the  insurable  interest  of  the  appointee,  or  payee,  in  the  life  assured, 
presents  a  question  not  difficult  to  answer,  upon  authority  or  upon 
principle.  A  life  insurance  policy  is  not  a  contract  of  indemnity.  It 
is  a  contract  to  pay  a  sum  of  money  upon  the  death  of  the  assured, 
in  consideration  of  certain  payments  being  duly  made  at  fixed  periods 
during  his  life.  If  the  insurance  is  made  upon  the  application  of  one 
who  has  no  insurable  interest  whatever  in  the  life  insured,  it  is  a 
wager  policy — that  is  to  say,  a  speculative  contract — which  the  law 
condemns.  But  a  person  may  insure  his  own  life  and  provide  in  the 
contract  of  insurance  that  the  money  shall  be  payable  to  any  one 
whom  he  may  appoint,  or  assign  the  policy  to.  What  will  distinguish 
the  one  contract  from  the  other  is  the  fact  as  to  the  party  actually 
contracting  with  the  insurer  and  the  distinction  is  substanial  and  con- 
trolling accordingly.  See  Rawls  v.  American  Mut.  L.  Ins.  Co.,  27 
N.  Y.  282-287,  84  Am.  Dec.  280;  Valton  v.  Nat.  Fund  L.  Assur.  Co., 
20  N.  Y.  32-38;  Olmsted  v.  Keyes,  85  N.  Y.  593-598;  Dalby  v. 
India,  etc..  Assurance  Co.,  15  C.  B.  365. 

In  this  case  I  think  we  must  hold,  upon  the  facts  as  they  have  been 
found,  that  the  insurance  was  applied  for  and  was  elTected  by  the 
plaintiff ;  but,  also,  that  he  had  an  insurable  interest  in  the  life  to  be 
insured.  In  the  first  place,  it  appears  that  all  of  the  insurance  was 
procured  in  pursuance  of  the  contract  between  the  plaintiff,  the  as- 
sured, and  his  children.  It  was  to  be  maintained  by  the  plaintiff  for 
their  benefit  and  they  were  to  be  named  as  the  beneficiaries ;  but 
the  plaintiff  was  to  be  compensated  by  the  repayment  from  the  pro- 
ceeds of  the  policies  of  the  amount  of  his  advances  of  premiums,  or 
assessments,  with  interest,  and  by  the  payment  of  a  substantial  sum  in 
addition.  This  and  the  other  policies,  therefore,  were  based  upon  the 
insurable  interest  of  Reed's  children,  who  were  represented,  and  finan- 
cially assisted,  by  the  plaintiff.  By  their  agreement,  he  acted  for 
them  and  he  could  be  held  to  the  performance  of  the  contract,  if 
necessary,  as  their  trustee.  In  causing  the  present  policy  to  be  issued 
in  his  name  alone,  the  fact  of  the  insurable  interest  was  in  no  wise 
affected ;  for  the  finding  is  that  it  was  procured  in  pursuance  of  the 
contract. 

In  the  second  place,  however,  the  plaintiff  personally  did  have  an 
insurable  interest  as  a  creditor  of  the  assured  when  this  policy  issued. 
It  is  the  fact,  and  it  is  so  found,  that  at  the  time  he  had  already 
advanced  and  paid  the  premiums,  or  assessments,  upon  the  $25,000 
of  life  insurance,  taken  out  some  two  years  previously.  To  the  extent 
of  his  payments,  he  was,  under  the  contract,  a  creditor  of  the  assured. 
It  did  not  affect  the  fact  of  the  personal  indebtedness  that  the  plain- 
tiff might  be  repaid  from  the  proceeds  of  the  insurance.  The  as- 
sured was  a  debtor  for  the  premiums  paid  by  the  plaintiff  to  main- 
tain the  insurance  on  his  life.     If  there  was  an  insurable  interest  in 


158  SUBJECT-MATTER    OP    THE   CONTUACT  (Ch.  2 

the  plaintiff  when  this  policy  issued,  the  legal  liability  of  the  company 
is  established,  and  it  is  of  no  consequence  that  the  plaintiff's  interest, 
as  a  creditor,  was  less  than  the  amount  of  the  policy.*^  See  Olmsted 
V.  Keves,  supra;  Wright  v.  Mutual  Ben.  Life  Association,  118  N.  Y. 
237,  23  N.  E.  186,  6  L.  R.  A.  731,  16  Am.  St.  Rep.  749. 

The  Reed  children  have  been  brought  into  the  action  (and  this  upon 
the  express  consent  of  the  company),  and  their  rights  could  be,  and 
they  were,  adjusted,  without  prejudice  to  the  company.  Wright  v. 
Mutual  Ben.  Life  Association,  supra.  The  policy  having  been  validly 
issued  and  the  plaintiff  having  procured  it  pursuant  to  the  agreement 
that  he  should  do  so  for  the  benefit  of  the  Reed  children,  the  insurer 
is  not  in  a  position  to  complain  that  others  than  the  payee  named  are 
entitled  to  some  of  the  insurance  moneys.  If  the  Reed  children  had 
not  been  brought  into  the  action,  the  plaintiff  could  have  collected 
the  insurance  moneys,  and  he,  then,  would  have  held  their  portion  as 
a  trustee.  On  this  phase  of  the  case,  I  find  no  reason  for  disturbing 
the  judgment  below. 

It  is  contended  that  the  policy  lapsed  by  reason  of  the  nonpayment 
of  certain  premiums.  The  trial  court  has  found  that  the  plaintiff 
paid  all  the  premiums,  or  assessments,  down  to  January  12,  1895, 
about  a  year  before  the  death  of  the  assured  and  that  the  company 
refused  to  accept  the  premium  which  was  due,  and  which  was  ten- 
dered to  it,  on  that  date.  It  seems  that  the  refusal  of  the  company 
was  upon  the  ground  that  the  tender  of  the  premium  was  made  too 
late ;  but  the  finding,  as  to  that  fact,  is  that  it  was  duly  tendered.  It 
is  argued,  however,  that  the  subsequent  premiums  should  have  been 
paid,  or  tendered,  and  that  the  failure  to  do  so  caused  the  policy  to 
lapse.  The  refusal  of  the  company  to  accept  the  premium  due  in 
January,  1895,  was  a  perfectly  good  reason  for  not  offering  to  pay 
subsequent  premiums.  If  the  company's  refusal  had  a  legal  basis, 
the  contract  of  insurance  was  at  an  end  by  reason  of  the  violation 
of  the  terms  of  the  contract.  Its  attitude  was,  and  has  continued  to 
be,  one  of  repudiation  of  its  obligation  to  the  plaintiff.  After  its  re- 
fusal, he  was  not  required  to  perform  the  vain  and  useless  act  of  mak- 
ing further  tenders  on  recurring  premium  dates.  Shaw  v.  Republic 
Life  Ins.  Co.,  69  N.  Y.  286-293 ;  Hayner  v.  Am.  Popular  Life  Ins. 
Co.,  69  N.  Y.  435-439;  Miesell  v.  Globe  Mut.  Life  Ins.  Co.,  76  N. 
Y.  115,  120.  Provision  was  sufficiently  made  in  the  jvidgment  for  the 
deduction  of  unpaid  premiums,  with  interest  thereon  to  the  date  of 
the  death  of  the  assured,  from  the  amount  of  the  policy.  Meyer  v. 
Knickerbocker  Life  Ins.  Co.,  1Z  N.  Y.  516,  528,  29  Am.  Rep.  200. 
[The  court  here  determines  a  question  relating  to  costs.] 

I  advise  that  the  judgment  appealed  from  should  be  modified  by 
striking  therefrom  the  award  of  costs  and  of  an  allowance  to  the  de- 

4  8  Compare  decision  in  Hebdon  v.  West.  3  Best  &  S.  579  (1S63),  reported 
ante,  p.  vis.  under  St,  14  Geo.  Ill,  c.  48,  §  3. 


Sec.  4)  INSURABLE   INTEREST LIFE    INSURANCE  159 

fendants  Reed  and  Davidson,  and  that,  as  so  modified,  the  judgment 
should  be  affirmed,  without  costs  in  this  court  to  either  party  as 
against  the  other. 

CuLLKN,  C.  J.,  and  O'Brii^n,  Willard  Bartlh;tt,  and  Chase, 
JJ.,  concur.    Vann,  J.,  concurs  in  result.    WJiUNUU,  J.,  absent. 

Judgment  accordingly. 


AMERICAN  EMPLOYERS'  LIABILITY  INS.  CO.  v.  BARR. 

(Circuit  Court   of  Appeals  of  the  United   States,   Eiglith  Circuit,   1895.     68 
Fed.  873,  16  C.   C.  A.  51.) 

In  Error  to  the  Circuit  Court  of  the  United  States  for  the  District 
of  Colorado. 

This  was  an  action  by  William  P.  Barr  against  the  American 
Employers'  Liability  Insurance  Company  on  a  policy  of  insurance. 
The  plaintiff  recovered  judgment  in  the  circuit  court.  Defendant 
brings  error.    Affirmed. 

Before  Caldwell,  Sanborn,  and  Thayer,  Circuit  Judges. 

Thayer,  Circuit  Judge. *^  *  *  *  ^^^^  insured  sustained  cer- 
tain injuries  on  May  20,  1892,  by  falling  from  a  platform  in  a 
building  which  was  in  process  of  construction  in  the  city  of  Denver, 
and  died  four  days  thereafter,  as  it  is  claimed,  from  injuries  result- 
ing from  such  fall.  A  suit  was  brought  on  the  policy  by  William 
P.  Barr,  the  defendant  in  error,  to  whom,  under  the  aforesaid  provi- 
sions of  the  policy,  the  same  was  made  payable  in  the  event  of  the 
death  of  the  assured,  and  a  judgment  was  recovered  against  the  de- 
fendant company  for  the  sum  of  $5,626.58.     *     *     * 

The  remaining  assignment  which  we  deem  it  necessary  to  notice 
relates  to  a  portion  of  the  charge  whereby  the  court  instructed  the 
jury,  in  substance,  that  the  plaintiff,  William  P.  Barr,  had  the  right 
to  recover  on  the  policy  without  proof  of  an  insurable  interest  in 
the  life  of  his  deceased  uncle.  It  will  be  observed  that  the  policy  in 
suit  was  taken  out  by  Cousley,  that  the  premium  was  paid  by  him, 
and  that  the  indemnity  promised  in  case  of  injuries  not  resulting 
in  death  was  made  payable  to  Cousley  ;  in  other  words,  the  contract 
was  made  by  Cousley  with  the  insurance  company  for  his  own  bene- 
fit. Barr  was  named  as  the  person  to  receive  and  receipt  for  the 
amount  due  on  the  policy  only  in  the  event  that  the  assured  sustain- 
ed injuries  which  resulted  in  his  death.  Whether  Barr  was  a  cred- 
itor of  his  uncle,  or  whether  the  deceased  intended  that  Barr  should 
receive  and  retain  the  amount  paid  on  the  policy  as  a  gratuity,  or 
should  collect  it  as  trustee,  for  the  benefit  of  the  assured's  wife  and 
children,  w^as  not  expressly  stated  in  the  policy,  and  was  not  proven 
on  the  trial. 

*9  Ouly  that  pa  :t  of  the  opinion  relating  to  insurable  interest  is  printed. 


IGO  SUBJECT-MATTER    OF    TOE   CONTRACT  (Ch.  2 

We  are  of  the  opinion,  however,  that  it  was  not  necessary  to  al- 
leg-e  or  prove  either  of  these  facts.  The  insurance  was  obtained  by 
the  deceased  on  his  own  life,  obviously  for  his  own  benefit.  He  had 
the  right  to  designate  the  person  to  whom  the  indemnity  should  be 
paid  in  case  of  an  injury  resulting  in  death,  and  having  done  so, 
and  the  company  having  agreed  to  pay  the  indemnity  to  the  person 
thus  designated,  it  cannot  now  insist  that  such  person  shall  prove 
an  insurable  interest  in  the  life  of  the  deceased,  as  a  condition  pre- 
cedent to  a  recovery.  The  policy  sued  upon  is  not  a  wager  contract, 
but  was  valid  when  made,  and  is  still  valid,  even  if  it  be  true  that 
Barr  is  not  a  creditor  of  the  deceased.  Olmsted  v.  Keyes,  85  N.  Y. 
593,  and  cases  there  cited. 

The  record  in  the  case  discloses  no  error,  and  the  judgment  of 
the  circuit  court  is  therefore  affirmed,' ° 


FERGUSON  V.  MASSACHUSETTS  MUT.  LIFE  INS.  CO. 

(Supreme  Court  of  New  York,  1SS4.     32  Hun,  306.)  5i 

*  *  *  March  23,  1867,  Amos  S.  Ferguson  made  his  note  for 
$6,000  to  the  order  of  the  plaintiff  and  John  W.  Bridenbecker,  and 
they  indorsed  it  for  the  accommodation  of  the  maker.  It  was  pro- 
tested at  maturity  and  the  plaintiff  took  it  up  by  paying  it  to  the 
National  Mohawk  Valley  Bank.  The  plaintiff  became  the  owner 
of  the  note,  and  held  it  when  the  policy  was  issued  in  January,  1870, 
and  the  plaintiff  at  that  time  also  held  a  debt  against  Amos  for 

50  The  beneficiary  in  a  policy  taken  out  by  the  insured  need  have  no  inter- 
est. Pollock  V.  Household  of  Ruth,  150  N.  C.  211.  63  S.  E.  940  (1009) :  Al- 
bert V.  Insurance  Co.,  122  N.  C.  92,  ,30  S.  E.  ,327.  6.5  Am.  St.  Rep.  693  (1898) ; 
Union  Fraternal  League  v.  Walton,  109  Ga.  1,  34  S.  E.  317,  46  L.  R,  A.  424, 
77  Am.  St.  Rep.  350  (1899). 

"Mrs.  Downey  had  an  insurable  interest  in  her  own  life,  and  had  the  right, 
as  between  herself  and  the  company,  when  a  policy  was  issued  on  her  ap- 
plication, to  name  the  person  to  whom  the  policy  should  be  paid,  regardless 
of  insurable  interest  in  her  life  being  possessed  by  such  person.  The  fact 
that  the  premium  was  paid  by  the  beneficiary  does  not  give  to  the  contract 
the  character  of  a  wagering  contract;  nor  does  the  fact  that  the  beneficiary 
has  no  insurable  interest  in  the  life  of  the  assured  render  the  policy  void 
as  against  public  policy.  The  courts  will  treat  the  person  named  as  bene- 
ficiary, having  no  insurable  interest,  as  a  trustee  appointed  to  collect  the  poli- 
cy for  the  benefit  of  those  legally  entitled,  thereby  enforcing  the  contract  by 
which  the  company  has  solemnly  bound  itself,  and  at  the  same  time  conserv- 
ing public  policy  by  preventing  the  stranger  from  gambling  on  the  life  of 
his  fellow,  or  profiting  by  his  death.  Insurance  Co.  v.  Williams,  79  Tex.  633 
[15  S.  W.  478  (1891)];  Insurance  Co.  v.  Ilazlewood,  75  Tex.  351  [12  S.  W. 
621,  7  L.  R.  A.  217.  16  Am.  St.  Rep.  893  (1889)];  Insurance  Co.  v.  Baum,  29 
Ind.  236  [1867];  Langdon  v.  Insurance  Co.  [C.  C]  14  Fed.  272  [1882];  Curtiss 
V.  Ins.  Co.  [90  Cal.  245]  27  Pac.  [211,  25  Am.  St.  Rep.  114  (1894)] ;  Mayher  v. 
Insurance  Co.,  decided  by  this  court  at  present  term  [87  Tex.  169,  27  S.  W. 
124  (1894)]."  Mutual  Life  Ins.  Co.  v.  Blodgett,  8  Tex.  Civ.  App.  45,  43,  27 
S.  W.  286,  287   (1894). 

61  The  statement  of  facts  is  abbreviated. 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  161 

$419.37.  March  27,  1868,  the  plaintiff  and  Bridenbecker  recovered  a 
judgment  for  $6,464.64  against  Amos  S.  Ferguson  on  the  indebted- 
ness of  $6,000,  as  aforesaid.  Amos  S.  Ferguson  died  on  the  15th 
of  May,  1877. 

In  the  application  for  the  policy,  which  was  made  and  dated  Jan- 
uary 27,  1870,  the  plaintiff  declared  that  he  had  an  interest  in  the 
life  of  Amos  S.  Ferguson,  "to  the  full  amount  of  the  said  sum  of 
five  thousand  dollars."  The  annual  premium  was  $206.50,  and  the 
plaintiff  produced  receipts  therefor  up  to  the  time  of  the  death, 
which  premiums  were  paid  by  him.  The  court  held  that  if  the 
plaintiff  had  "an  insurable  interest  at  the  issuing  of  the  policy,  that 
is  sufficient."  The  defendant  excepted.  The  defendant  offered  to 
show  "that  at  the  time  of  the  death  the  plaintiff  had  no  insurable 
interest."  The  offer  was  objected  to  and  excluded,  and  the  defend- 
ant excepted.  The  defendant  offered  in  evidence  the  discharge  of 
Amos  S.  Ferguson  in  bankruptcy,  dated  the  28th  day  of  April,  1868 ; 
this  was  objected  to  as  immaterial,  and  on  the  ground  that  the  dis- 
charge was  not  pleaded.  The  court  sustained  the  objections,  and 
the  defendant  excepted. 

At  the  close  of  the  evidence  the  defendant  moved  for  a  nonsuit 
upon  the  grounds,  First.  There  was  breach  of  warranty  as  to  the 
health  of  Amos  S.  Ferguson.  Second.  That  plaintiff  had  no  insur- 
able interest  in  the  life  of  Amos  S.  Ferguson,  "either  at  the  time 
the  policy  was  issued,  or  at  the  time  of  his  death ;"  it  also  offered 
to  return  the  premiums.  The  motion  was  denied  and  the  defendant 
excepted. 

The  court  then  ruled  and  decided  that  under  the  policy  the  plain- 
tiff must  have  had  an  insurable  interest  of  $5,000  when  the  policy 
was  issued,  and  that  the  jury  must  so  find ;  if  his  insurable  interest 
was  less  than  that  sum,  the  policy  would  be  vitiated.  The  case  was 
submitted  to  the  jury. 

Hardin,  J.  [after  deciding  that  the  verdict  of  the  jury  to  the 
effect  that  at  the  time  the  policy  was  taken  out  plaintiff  had  an  in- 
surable interest  in  the  life  of  his  debtor,  Amos  Ferguson,  was  not 
to  be  disturbed].  Second.  We  now  come  to  the  questions  made  at 
the  trial,  as  to  the  effect  of  a  partial  payment  of  the  indebtedness  in 
the  lifetime  of  Amos,  to  the  eft'ect  of  his  discharge  in  bankruptcy 
and  to  the  effect  of  an  actual  payment  of  the  indebtedness  in  the 
lifetime  of  Amos,  and  to  the  position  of  defendant  that  the  plaintiff 
cannot  recover  if  he  did  not  at  the  time  of  the  death  of  Amos  have 
an  insurable  interest  in  the  life  of  Amos.  It  is  insisted  in  behalf  of 
the  defendant  that  on  a  former  appeal  (22  Hun,  325)  the  latter 
branch  of  the  position  was  determined  by  the  court  in  favor  of  the 
position  of  defendant.  We  do  not  think  so;  though  it  must  be  ad- 
mitted that  such  a  dictum  appears  in  the  opinion  of  Presiding  Jus- 
tice Talcott,  who  spoke  for  the  court  on  that  occasion.  The  cases 
Vance  Ins. — 11 


162  SUBJECT-MATTER   OF   THE  CONTRACT  (Ch,  2 

referred  to  by  him  in  connection  with  that  dictum  do  not  bear  out 
the  expression.  He  referred  to  Shotwell  v.  Jefferson  Insurance 
Company,  5  Bosw.  247;  Murdock  v.  Chenango  Insurance  Company, 
2  N.  Y.  210;  Fowler  v.  New  York  Insurance  Company,  26  N.  Y. 
422;  Freeman  v.  Fulton  Fire  Insurance  Company,  14  Abb.  Prac. 
398;   Mutual  Life  Insurance  Company  v.  Wager,  27  Barb.  359. 

They  were  cases  relating  to  fire  insurance  policies,  and  do  not  at 
all  support  the  dictum  as  a])plied  to  this  case.  That  the  question 
now  here  was  not  decided  by  the  court  in  the  former  appeal,  appears 
by  a  careful  examination  of  the  presiding  justice's  opinion.  To- 
wards the  close  of  it  he  says,  viz. :  "We  think  the  verdict  was  erro- 
neously directed  for  the  reason  that  the  judgment  in  the  former  ac- 
tion was  received  as  an  absolute  bar,  and  an  estoppel  against  the 
defendant's  defense,  not  only  of  a  want  of  interest  in  the  plaintiff  in 
the  life  insured  by  the  policy,  but  also  as  a  bar  to  the  defense  of  a 
breach  of  warranty." 

"But  in  so  holding  we  do  not  mean  to  be  understood  as  deciding 
but  what  the  subsequent  payment  and  receipt  of  the  premiums, 
with  notice  to  the  company  of  the  facts  which  are  set  up  as  breach- 
es of  the  warranties,  may  have  estopped  it  from  setting  up  those  de- 
fenses ;  but  only  that  the  verdict  was  directed  on  erroneous  grounds, 
and  because  there  may  be  questions  of  fact  as  well  as  law  to  be  dis- 
posed of  on  another  trial." 

We  are  at  liberty  to  consider  as  open  for  decision  in  this  court, 
the  questions  which  we  have  alluded  to,  relating  to  the  question  of 
plaintiff's  interest  in  the  life  of  Amos,  when  the  death  occurred.  In 
considering  this  question  it  must  be  borne  in  mind  that  the  premi- 
ums were  all  paid  by  the  plaintiff  with  his  own  money,  and  that 
he  was  in  no  sense  acting  for  Amos  in  such  payments.  He  had  no 
right  to  charge  them  to  Amos,  nor  did  he  attempt  to  do  so.  Plain- 
tiff's application  for  the  policy  was  independent  of  Amos.  It  was 
bargained  for  by  plaintiff,  without  any  agreement  whatever  with 
Amos  in  regard  to  it.  It  is  inferable  that  the  plaintiff  paid  in  pre- 
miums just  as  much  as  the  defendant  would  have  charged  Amos  for  a 
policy  on  his  own  life.  In  either  case  it  is  the  usual  practice  of  in- 
surance companies  to  fix  the  amount  of  premium  to  be  exacted,  in 
reliance  upon  tables  made  up  by  considering  the  probabilities  of  the 
duration  of  the  life  upon  which  the  policy  runs.  Besides,  the  stipu- 
lations of  the  policy  have  no  reference  to  the  creditor's  claim  upon 
the  debtor.  The  policy  is  not  in  terms  made  collateral  to  the  credi- 
tor's debt,  as  is  the  case  in  respect  to  fire  insurance  policies.  But  it 
contains  as  absolute  contract  to  pay  a  stated  sum  upon  the  happen- 
ing of  a  specified  event,  namely,  the  close  of  the  life  named  in  the 
policy. 

There  being  a  debt  at  the  time  the  policy  is  issued,  it  is  then  valid. 
It  contains  no  condition  referring  to  the  continuance  of  the  indebt- 
edness.   But,  on  the  contrary,  the  policy  evidences  a  flat  and  posi- 


Sec.  4)  INSURABLE  INTEREST LIFE  INSURANCE  163 

tive  promise  to  pay  a  given  sum  at  the  termination  of  the  life  nam- 
ed. Death  removes  the  last  condition  precedent  except,  perhaps,  the 
delivery  of  proofs  of  the  death.  Then  the  holder  becomes  entitled  to 
demand  the  sum  named  in  the  promise.  Of  course,  in  fire  policies, 
the  nature  of  the  promise  is  different.  That  is  a  contract  of  indemni- 
ty against  loss.  The  nature  and  extent  of  the  loss  must  be  shown, 
and  only  to  the  making  good  of  the  loss  is  the  insurer  bound  in  the 
very  terms  of  his  contract.  No  statute  has  gone  so  far  as  to  declare 
that  a  life  policy,  valid  in  its  inception  because  of  a  creditor's  in- 
terest in  the  life  of  his  debtor,  shall  be  invalid  the  moment  the  debt 
is  paid.  Goodwin  v.  Mass.  Life  Ins.  Co.,  72)  N.  Y.  497.  Besides, 
from  the  nature  of  the  contract,  which  is  paid  for  by  the  creditor, 
he  needs  the  payment  of  the  policy  to  do  complete  justice  to  him. 
Suppose  he  has  received,  subsequent  to  payment  of  premiums  for 
years,  the  debt  due  from  his  debtor,  he  has  thus  received  only  what  it 
may  be  assumed  he  has  advanced  or  loaned  to  his  debtor.  He  has 
received  nothing  for  the  series  of  premiums  he  has  delivered  over 
from  year  to  year  to  the  insurer  to  keep  alive  the  policy. 

So,  too,  in  the  case  at  hand,  if  we  were  to  hold  that  the  policy  was 
avoided  by  payment  or  discharge  in  bankruptcy  of  the  debt,  the 
creditor  would  surely  be  the  loser  of  the  premiums  paid,  after  the 
payment  of  his  debt  or  the  discharge  in  bankruptcy,  and  the  insur- 
ance company  would  be  the  gainer.  It  would  keep  in  its  coffers 
moneys  which  it  received  as  a  consideration  for  its  promise,  which 
it  had  not  kept.  It  would  be  the  gainer  by  the  incidental  circum- 
stance that  the  debtor  had  paid  what  only  he  justly  owed  his  cred- 
itor, or  what  he  had  escaped  paying  by  obtaining  a  discharge  in 
bankruptcy.  Surely  no  such  contingency  was  taken  into  mind  or 
measured  in  fixing  the  amount  of  premiums  demanded  for  the  poli- 
cy. That  amount  was  ascertained  by  the  standard  tables  relating  to 
the  probabilities  of  human  life  upon  which  life  insurance  companies 
anchor  when  they  fix  and  determine  the  schedule  of  premiums  to  be 
exacted  in  the  conduct  of  their  business.  We  are,  upon  principle, 
prepared  to  agree  with  the  English  Court  in  its  conclusion  in  Dalby 
V.  India  and  London  Life  Assurance  Company,  28  Eng.  Law  and 
Eq.  312.  Indeed  we  think  the  doctrine  of  that  case  has  been  accept- 
ed in  this  state,  and  that  both  upon  principle  and  authority  we 
should  say  that  the  insurer  is  bound  to  fulfill  its  contract,  valid  in 
its  inception,  notwithstanding  the  debtor  upon  whose  life  it  runs 
may  have  paid  his  creditor  or  obtained  a  discharge  in  bankruptcy 
therefrom.  Rawls  v.  American  Life  Insurance  Co.,  Z6  Barb.  357, 
affirmed  27  N.  Y.  282,  84  Am.  Dec.  280;  St.  John  v.  American  Mut. 
Life  Ins.  Co.,  13  N.  Y.  31,  and  note  at  page  41,  64  Am  Dec.  529; 
Olmsted  v.  Keyes,  85  N.  Y.  598,  599;  Bliss,  Life  Ins.,  §  30;  May, 
Ins.,  §§  115,  116. 

The  discharge  in  bankruptcy  did  not  destroy  the  moral  obligation 
of  the  debtor  to  pay  his  debt.     Dusenbury  v.  Hoyt,  53  N.  Y.  521,  13 


1G4  SUBJECT-MATTER    OF    THE  CONTRACT  (Ch.  2 

Am.  Rep.  543.  Besides,  it  appears  that  no  such  defense  as  a  dis- 
charge in  bankruptcy  was  interposed  in  the  action  brought  upon  the 
debt,  or  set  up  in  a  supplemental  answer,  and  judgment  passed 
against  the  debtor  and  remained  unquestioned  when  the  policy  ma- 
tured. The  discharge  in  bankruptcy  at  most  was  a  personal  de- 
fense, which  by  not  pleading  or  asserting  by  motion  for  a  perpetual 
stay  the  debtor  could  waive.  The  discharge  when  granted  operates 
to  cut  off  the  creditor's  remedy  for  the  enforcement  of  his  debt  by 
judgment  and  execution  as  fully  as  the  statute  of  limitations.  And 
the  nature  of  either  of  the  two  defenses  does  not  suggest  any  dis- 
tinction between  them,  so  far  as  they  may  afifect  the  question  of  an 
insurable  interest  in  a  creditor,  after  the  right  to  interpose  such  a 
defense  has  arisen  in  favor  of  the  debtor.  In  Rawls  v.  American 
Life  Insurance  Company,  27  N.  Y.  282,  84  Am.  Dec.  280,  it  was  held 
that  a  creditor's  insurable  interest  continues,  although  the  statute 
of  limitations  would  have  barred  his  action  on  the  debt  if  pleaded 
before  the  debtor's  death.  See,  also,  Olmsted  v.  Keyes,  85  N.  Y. 
598.  We  have  not  overlooked  the  fact  that  a  discharge  in  bankrupt- 
cy might  have  been  used  upon  a  motion  for  a  perpetual  stay 
of  the  judgment  by  the  debtor.  Cornell  v.  Dalken,  38  N.  Y.  253. 
But  it  appears  the  debtor  made  no  such  use  of  it,  though  he  con- 
tinued in  life  nearly  ten  years  after  the  recovery  of  a  judgment 
against  him  upon  the  debt  existing  at  the  time  the  policy  was  issued. 

After  the  recovery  of  the  judgment,  March  27,  1868,  the  dis- 
charge granted  April,  1868,  was  not  asserted  by  the  debtor  upon 
any  motion  for  a  perpetual  stay  of  execution  or  otherwise.  We  see 
no  sound  reason  why  the  defendant  should  now  avail  of  or  profit 
by  the  discharge.  Defendant  urges  that  in  a  case  where  the  debt 
has  been  paid  a  payment  by  the  insurance  company  of  the  policy 
would  be  a  payment  of  the  debt  a  ''second  time."  Not  at  all.  The 
company  simply  observes  its  contract  to  pay  a  stated  sum  of  money 
in  return  for  premiums  received,  as  soon  as  the  death  happens,  whicli 
is  the  only  event  named  in  its  contract  which  must  occur  before  its 
promise  becomes  absolute. 

The  case  of  Babcock  v.  Bonnell,  10  Weekly  Dig.  158;  s.  c,  80 
N.  Y.  244,  cited  by  appellant's  counsel,  is  unlike  the  one  before  us. 
There  it  was  found  as  a  fact  that  the  policy  was  taken  out  and  de- 
livered to  defendant  as  collateral  security  for  an  indebtedness  of  the 
firm,  and  it  was  held  that  when  that  indebtedness  was  discharged 
the  defendant  had  no  further  right  to  the  policy.  The  deceased 
debtor  obtained  the  policy,  paid  the  first  premium,  and  delivered  it 
as  collateral  to  certain  debts,  and  they  were  paid  in  part  and  com- 
promised, and  the  court  found  defendant  had  no  other  interest  in 
the  policy  and  was  bound  to  account  for  it.  The  case  is  not  like 
the  one  before  us.  Ruse  v.  Mutual  Benefit  Life  Insurance  Com- 
pany, 23  N.  Y.  523,  and  s  c,  24  N.  Y.  653,  on  motion  for  a  reargu- 
ment,  does  not  aid  the  appellant.     That  case  declares  that  at  the 


Sec.  4)  INSURABLE  INTEKEST LIFE  INSURANCE  1G5 

time  the  policy  is  issued,  the  party  obtaining  it  must  have  an  in- 
surable interest,  and  that  in  the  absence  of  proof,  that  fact  is  fatal 
to  a  recovery.  Judge  Selden's  opinion  shows  that  without  such  in- 
terest the  policy  would  be  a  wager  one,  and  void  at  common  law,  as 
well  as  by  the  statute  of  14  George  III. 

We  pass  from  this  branch  of  the  case,  having  reached  the  con- 
clusion that  the  partial  payment  of  the  debt,  a  discharge  in  bank- 
ruptcy, a  full  payment  of  the  debt,  if  made  out  by  the  evidence, 
would  not  have  constituted  a  defense  to  plaintiff's  claim  upon  the 
policy,  or  to  any  part  thereof. ^^     *     *     * 

Judgment  and  order  affirmed.^ ^ 


CHICAGO  TITLE  &  TRUST  CO.  v.  HAXTUN. 
(Appellate  Court  of  Illinois,  First  District,  1906.  129  111.  App.  626.) 

Statement  by  the  Court.  This  is  an  appeal  from  a  decree  of  the 
Superior  Court  in  an  interpleader  case. 

The  Mutual  Life  Insurance  Company  of  New  York  filed  its  bill  of 
interpleader,  alleging  that  on  May  25,  1879,  it  issued  its  policy  of  in- 
surance numbered  202,636  for  $2,850  upon  the  life  of  one  Edward 
Brundige,  Jr.,  payable  to  William  E.  Haxtun,  beneficiary ;  that  said 
Edward  Brundige,  Jr.,  died  January  28,  1901,  and  that  William  E. 
Haxtun  died  June  14,  1900;  that  the  Chicago  Title  &  Trust  Com- 
pany of  Chicago,  as  administrator  of  the  estate  of  said  Edward  Brun- 
dige, Jr.,  demanded  the  amount  due  on  said  policy,  and  that  Sarah 
A.  Haxtun  also  claimed  the  amount  due  on  said  policy  as  assignee 
thereof,  and  as  the  sole  legatee  and  devisee  of  said  William  E.  Hax- 
tun, the  beneficiary  named  in  said  policy ;  that  said  company  was 
ready  to  bring  the  amount  due  on  said  policy  into  court  and  pay  the 
same  as  the  court  should  direct. 

After  answers  of  the  defendants  and  replications  thereto  by  the 
complainant  were  filed,  an  interlocutory  decree  was  entered  by  the 
court,  ordering  and  directing  the  complainant  company  to  pay  $3,135, 
the  amount  due  on  the  policy,  into  court,  and  referring  the  cause  to  a 
master  in  chancery  to  take  proofs  and  report  his  conclusions. 

The  master  heard  the  evidence  and  reported  it,  together  with  his 
conclusions,  to  the  court.  The  master  found  that  the  defendant, 
Sarah  A.  Haxtun,  was  entitled  to  the  fund,  and  recommended  a  de- 
cree directing  the  clerk  to  pay  the  money  to  her. 

Objections  were  filed  by  appellant,  which  were  overruled  by  the 
master.  Appellant  filed  exceptions  to  the  report,  which  were  over- 
ruled, by  the  court,  and  a  decree  was  entered  in  accordance  with  the 
master's  report. 

B2  The  remainder  of  the  opinion,  not  relating  to  insurable  interest,  is  omit- 
ted. 

63  Affirmed  in  102  N.  Y.  647  (1886). 


166  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

Smith,  J.  The  question  presented  for  decision  is:  Which  of 
the  defendants  is  entitled  to  the  fund  ? 

It  is  contended  on  behalf  of  appellant  that  appellee  was  bound  to 
allege  and  prove  an  insurable  interest  in  the  life  of  Brundige  at  the 
time  the  policy  was  issued,  and  that  such  interest  was  not  shown  by 
the  proofs.  The  argument  is  that  one  who  takes  out  a  policy  on  the 
life  of  another,  and  pays  the  premiums  himself,  must  have  an  in- 
surable interest  in  the  life  of  that  other  or  the  policy  will  be  a  mere 
wager,  upon  which  the  party  to  whom  it  is  issued  cannot  recover; 
and  that  there  can  be  no  such  thing  as  a  lawful  beneficiary  unless  he 
have  an  insurable  interest.  Therefore  this  must  be  alleged  and 
proved. 

While  it  may  be  conceded  that  the  general  rule  of  law  is  that  in- 
surance taken  out  on  the  life  of  another,  in  whose  life  the  person 
procuring  the  insurance  had  at  the  time  no  interest,  is  invalid,  it  is 
also  the  law  that  no  one  but  the  insurer  can  raise  the  question.  In 
Johnson  et  al.  v.  Van  Epps,  110  111.  551,  it  is  said,  at  page  563,  in 
the  opinion  on  an  application  for  a  rehearing,  in  response  to  the  sug- 
gestion here  made:  "Conceding,  for  the  purposes  of  the  argument, 
that  it  is  so,  and  that  the  decree  for  this  reason  is  erroneous,  it  does 
not  necessarily  follow  the  decree  should  be  reversed  at  the  instance 
of  appellants,  for  that  reason.  The  argument  is  like  a  two-edged 
sword — it  cuts  both  ways.  It  proves  too  much.  As  it  has  been  fully 
shown,  the  alleged  rights  which  appellants  are  seeking  to  enforce  in 
this  proceeding  are  based  upon  this  very  certificate,  and  if  it  is  true, 
as  claimed  by  them,  the  certificate  is  void  as  against  public  policy,  it 
manifestly  follows  they  themselves  acquire  no  rights  under  it  for 
no  one  can  acquire  rights  under  a  void  instrument,  and,  it  is  hardly 
necessary  to  add,  one  will  not  be  heard  to  complain  of  an  error  that 
does  not  injuriously  affect  some  right  of  his.  Assuming  appellants' 
hypothesis  to  be  true,  the  company  or  society  alone  would  have  the 
right  to  complain.  But  it  is  entirely  content,  and  makes  no  objec- 
tion whatever  to  the  payment  of  the  money  on  the  ground  suggested." 

So  here,  the  insurance  company  concedes  its  liability  on  the,  pol- 
icy, and  has  brought  the  money  into  court,  and  the  interlocutory  de- 
cree entered  at  its  instance  has  had  the  policy  declared  to  be  valid 
and  in  full  force  and  effect.  The  objection  urged  cannot  be  made 
by  appellant,  for  if  it  is  a  good  objection,  appellant  is  out  of  court. 

The  record,  however,  does  not  bear  out  the  assertion  that  appellee 
made  no  proof  of  an  insurable  interest  in  the  life  of  Brundige. 

Appellee,  to  sustain  her  claim  to  the  fund  paid  into  court,  offered 
in  evidence  before  the  master  a  promissory  note  dated  May  23,  1866, 
signed  Edward  Brundige,  Jr.,  payable  on  demand  to  William  E.  Hax- 
tun,  for  $1,084,  with  interest  from  date.  At  the  time  the  policy  was 
issued  William  E.  Haxtun  was  a  creditor  of  Brundige,  as  shown  by 
this  note.  True,  the  Statute  of  Limitations  had  run  against  the  note 
at  the  death  of  Brundige,  but  that  did  not  affect  the  debt.    Rawls  v. 


Sec.  4)  INSURABLE  INTEREST^LIFE    INSURANCE  1G7 

Am.  Life  Ins.  Co.,  27  N.  Y.  282,  84  Am.  Dec.  280;  Conn.  Mutual 
Life  Ins.  Co.  v.  Dunscomb,  108  Tenn.  724,  69  S.  W.  345,  58  L.  R.  A. 
694,  91  Am.  St.  Rep.  769. 

In  1  May  on  Insurance,  §  108,  the  author  says:  "Upon  the  same 
principles,  if  the  debt  be  one  to  which  the  Statute  of  Limitations 
might  be  pleaded  at  the  time  of  the  death  of  the  debtor,  it  neverthe- 
less constitutes  an  interest  which  will  support  a  policy.  A  debt  still 
exists.  It  is  not  extinguished  by  the  currency  of  the  statute,  as  in 
case  of  payment." 

The  note  offered  in  evidence  was  thirty-eight  years  old,  and  the 
payment  of  the  debt  evidenced  by  it  may  be  presumed.  "But  this  is 
a  rebuttable  presumption,  and  may  be  overcome  by  any  evidence 
tending  to  satisfy  the  court  that  the  debt  is  still  due.  The  condition 
of  the  debtor  as  to  solvency  or  other  circumstances  may  repel  the 
presumption."  Conn.  Mutual  Life  Ins.  Co.  v.  Dunscomb,  supra,  and 
cases  there  cited. 

We  think  the  evidence  before  the  master  was  sufficient  to  rebut 
the  presumption  of  the  payment  of  the  indebtedness,  on  and  prior 
to  the  assignment  of  the  policy  to  appellee. 

The  assignment  of  the  policy  for  value  received  to  Sarah  A-  Haxtun 
on  December  26,  1892,  appears  to  be  in  due  and  regular  form.  This 
assignment  was  properly  admitted  in  evidence  under  the  averments 
of  the  answer  of  appellee,  thus  completing  appellee's  title  and  right  to 
recover  the  fund. 

Finding  no  error  in  the  decree  of  the  court  below,  it  is  affirmed. 

Affirmed. 


In  re  POLICY  NO.  6402  OF  SCOTTISH  EQUITABLE  LIFE 
ASSUR.  SOCIETY. 

(Supreme  Court  of  Judicature,  Chancery  Division,  1902.     1  Ch.  282.) 

On  March  11,  1850,  Mr.  William  Sanderson  effected  a  policy  on 
his  own  life  for  £400.  with  the  Scottish  Equitable  Life  Assurance  So- 
ciety "for  behoof  of  Miss  Harriott  Stiles,"  and  it  was  thereby  cer- 
tified that  the  said  Harriott  Stiles,  and  her  executors,  administrators, 
and  assigns,  should  be  entitled  to  receive  at  the  end  of  six  months 
after  the  decease  of  the  said  William  Sanderson  the  sum  of  £400.,  or 
such  other  sum  as  should  become  payable  upon  the  contingency  be- 
fore expressed,  agreeably  to  the  laws  and  regulations  of  the  said  so- 
ciety ;  and  it  was  thereby  specifically  declared  and  agreed  that  the 
sum  or  sums  to  become  due  and  payable  as  therein  mentioned  should 
be  payable  to  the  executors,  administrators,  or  assigns  of  the  said 
assured  at  the  office  of  the  society  in  London,  and  that  the  receipt 
of  the  person  or  persons  who  in  the  character  of  executor  or  execu- 
tors, or  administrator  or  administrators,  would  by  the  law  of  Eng- 
land have  been  competent  to  have  given  a  discharge  for  the  said  sum 


108  SUBJECT-MATTER    OF    THE   CONTRACT  (Cll.  - 

or  sums,  if  the  said  policy  had  been  a  policy  issued  by  a  society  or 
company  established  in  England,  should  be  a  valid  or  sufficient  dis- 
charge to  the  society  for  the  said  sum  or  sums,  notwithstanding  that 
the  said  policy  was  a  policy  issued  by  a  society  established  in  Scotland. 

Mr.  Sanderson's  wife  died  in  the  same  year,  1850,  and  in  May, 
1852,  Mr.  Sanderson  went  through  the  ceremony  of  marriage  with 
Miss  Stiles,  who  was  his  deceased  wife's  sister. 

Miss  Stiles  died  on  September  21,  1870,  and  Mr.  Sanderson  on 
September  22,  1900. 

There  was  then  due  under  the  policy  the  sum  of  i790.  17s.  4d. 
Doubts  having  arisen  as  to  who  was  entitled  to  this  sum,  the  insur- 
ance company  paid  the  money  into  court  under  the  Life  Assurance 
Companies  (Payment  into  Court)  Act,  1896. 

This  summons  was  taken  out  by  the  executors  of  Mr.  Sanderson 
for  the  determination  of  the  question  whether  the  money  belonged 
to  them,  or  to  the  legal  personal  representative  of  Miss  Stiles. 

It  appeared  that  Mr.  Sanderson  had  always  retained  the  policy  in 
his  own  possession,  and  had  regularly  paid  the  premiums  thereon 
until  his  death.  There  was  no  evidence  to  shew  that  the  policy  was 
taken  out  for  the  benefit  of  Miss  Stiles. 

Joyce,  J.  In  the  leading  case  of  Dyer  v.  Dyer  (1788)  2  Cox, 
92,  93,  1  Watk.  Copy.  216,  2  R.  R.  14,  Eyre,  C.  B.,  in  giving  his  judg- 
ment, says :  "The  clear  result  of  all  the  cases,  without  a  single  ex- 
ception, is,  that  the  trust  of  a  legal  estate,  whether  freehold,  copy- 
hold, or  leasehold ;  whether  taken  in  the  names  of  the  purchasers  and 
others  jointly,  or  in  the  name  of  others  without  that  of  the  purchaser; 
whether  in  one  name  of  several;  whether  jointly  or  successive,  re- 
sults to  the  man  who  advanced  the  purchase-money" ;  and,  although 
the  judgment  goes  only  to  real  estate  or  to  leaseholds,  I  think  the 
law  is  correctly  laid  down  in  Lewin  on  Trusts,  10th  ed.  p.  175,  where 
it  is  stated :  "Not  only  real  estate,  but  personalty  also,  is  governed 
by  these  principles,  as  if  a  man  take  a  bond,  or  purchase  an  annuity, 
stock,  or  other  chattel  interest,  in  the  name  of  a  stranger,  the  equi- 
table ownership  results  to  the  person  from  whom  the  consideration 
moved." 

The  authority  cited  with  reference  to  a  bond  is  the  case  of  Ebrand 
V.  Dancer  (1680)  2  Ch.  Cas.  26,  where  a  grandfather  had  taken  a 
bond  in  the  name  of  his  grandchildren,  their  father  being  dead.  The 
Lord  Chancellor  said:  "There  is  difiference  in  the  case,  where  the 
father  is  dead  and  where  he  is  alive;  for  when  the  father  is  dead,  the 
grandchildren  are  in  the  immediate  care  of  the  grandfather ;  and  if 
he  take  bonds  in  their  names,  or  make  leases  to  them  it  shall  not  be 
judged  trusts,  but  provision  for  the  grandchild,  unless  it  be  otherwise 
declared  at  the  same  time."  In  other  words,  that  means  that,  if  the 
grandfather  in  that  case  had  not  been  in  loco  parentis  to  the  grand- 
children in  whose  name  the  bond  had  been  taken  out,  then  they  would 
have  been  trustees  for  the  grandfather,  who  took  the  bond. 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  109 

Then  there  is  the  case  of  Rider  v.  Kidder,  10  Ves.  360,  53  R.  R. 
269.  There  John  Rider  purchased  Consohdated  2  per  cent.  Annuities, 
and  retransferred  the  stock  into  the  joint  names  of  himself  and  the 
defendant  Anne  Kidder;  and  Sir  Samuel  Romilly,  in  his  argument 
in  that  case,  cites  Mortimer  v.  Davies,  and  says  (10  Ves.  363)  :  "In 
Mortimer  v.  Davies,  a  late  case  at  the  Rolls,  a  man  living  in  this 
way,  but  not  married,  purchased  an  annuity  in  the  name  of  the  wo- 
man with  whom  he  cohabited.  It  appeared  that  the  purchase-money 
was  his;  and  no  consideration  passed  from  her.  She  insisted,  that  it 
was  intended  as  a  provision  for  her;  but  was  held  to  be  a  trustee." 
That  case  is  again  mentioned  by  Sir  Samuel  Romilly  in  his  reply. 
He  says  (Ibid.  365) :  "In  Mortimer  v.  Davies,  there  were  no  circum- 
stances. Upon  the  dry  point  alone,  that  the  defendant  cannot  produce 
evidence  of  an  intention  to  make  a  provision  for  her,  this  plaintiff  is 
entitled" ;  and  it  appears  that  in  this  particular  case  of  Rider  v.  Kid- 
der, 10  Ves  360,  (1806)  12  Ves.  202,  53  R.  R.  269,  the  annuities  were 
directed  to  be  retransferred.  Lord  Eldon  says  (10  Ves.  366) :  "If 
the  case  at  the  Rolls  was  purely  this,  that  A.  bought  an  annuity  in  the 
name  of  B.,  A.  paying  for  it,  and  B.  had  no  proof,  that  it  was  meant 
as  a  provision  for  her,  in  this  Court  the  fact  of  the  advancement  of 
the  purchase-money,  as  between  these  persons,  standing  in  no  rela- 
tion to  each  other,  that  would  meet  the  presumption,  raises  a  trust 
in  the  person,  vested  with  the  interest,  for  the  benefit  of  the  person, 
who  paid  the  money;"  and  later  on  he  says:  "If  therefore  this  case 
depended  upon  the  mere  naked  circumstances  of  the  purchase  of 
stock  in  both  their  names,  and  he  had  died  immediately,  without  any 
dealing  or  transaction  upon  it,  I  should  have  thought,  the  defendant 
would  have  been  a  trustee  for  his  personal  representative;  as  she 
would  have  been  for  himself."  And  Lord  Romilly  puts  it  quite  gen- 
erally in  the  case  of  Garrick  v.  Taylor  (1860)  29  Beav.  79,  83,  which 
was  affirmed  in  the  Court  of  Appeal,  (1861)  31  L.  J.  (Ch.)  68.  He 
says.:  "If  a  purchase  be  made  by  one  in  the  name  of  another,  the 
presumption  is  that  the  latter  is  a  trustee  for  the  person  who  pays 
the  money,  unless  the  parties  stand  in  the  relation  of  parent  and 
child." 

Now,  in  the  present  case  a  policy  was  taken  out  by  Mr,  Sanderson 
a  great  many  years  ago,  and  the  name  of  Miss  Stiles  appears  in  the 
policy  as  the  person  to  whom  the  money  is  to  be  paid.  The  policy 
was  never  handed  to  her,  and  she  is  now  dead,  and  the  premiums 
were  always  paid,  and  were  paid  for  many  years  after  her  death,  by 
Sanderson.  That,  really,  is  a  case  of  a  man  taking  the  policy  out  in 
the  name  of  another,  that  other  person  being  a  sister  of  his  wife,  and, 
therefore,  not  standing  in  any  relation  to  him  "that  would  meet  the 
presumption,"  as  Lord  Eldon  expressed  it.  It  comes  really  to  this : 
A  purchase  by  one  in  the  name  of  another  with  no  other  circum- 
stances at  all  proved.  Therefore,  in  my  opinion,  although  the  legal 
personal  representative  of  the  lady  in  this  case  would  be  the  person 


170  SUBJECT-MATTER   OF   THE  CONTRACT  (Ch.  2 

entitled  to  receive  the  money  at  law  and  to  give  a  receipt  for  it,  in 
equity  the  money  belongs  to  the  legal  personal  representatives  of 
Mr.  Sanderson,  who  took  out  the  policy. 


WARNOCK  V.  DAVIS. 
(Supreme  Court  of  the  United  States,  1881.     104  U.  S.  775,  26  L.  Ed.  924.) 

Error  to  the  Circuit  Court  of  the  United  States  for  the  Southern 
District  of  Ohio. 

Warnock,  the  plaintiff,  is  the  administrator  of  the  estate  of 
Henry  L.  Crosser,  deceased,  and  a  resident  of  Kentucky.  Davis 
and  the  other  defendants  are  partners,  under  the  name  of  the 
Scioto  Trust  Association,  of  Portsmouth,  Ohio,  and  reside  in 
that  state.  On  the  27th  of  February,  1872,  Crosser  applied  to 
the  Protection  Life  Insurance  Company,  of  Chicago,  a  corpo- 
ration created  under  the  laws  of  Illinois,  for  a  policy  on  his 
life  to  the  amount  of  $5,000 ;  and,  on  the  same  day,  entered 
into  a  written  contract  ^*  with  the  Scioto  Trust  Association  where- 
by he  agreed  that  he  would  assign  the  policy  applied  for  to  the 
association  as  soon  as  it  was  issued,  while  the  association  agreed 
to  pay  the  first  and  all  subsequent  premiums  and  other  charges 
that  might  become  due  on  such  policy  and  furthermore,  at  the 
death  of  Crosser,  to  pay  over  one-tenth  of  the  proceeds  of  the 
policy  to  such  person  as  might  be  entitled  thereto  by  the  terms 
of  the  assignment. 

The  policy,  bearing  even  date  with  the  agreement,  was  issued 
to  Crosser,  and  on  the  following  day  he  executed  to  the  associa- 
tion an  assignment  in  accordance  with  the  provisions  of  the  agree- 
ment. 

Crosser  died  on  the  11th  of  September,  1873,  and  on  the  16th 
of  May,  1874,  the  association  collected  from  the  company  the 
amount  of  the  policy,  namely,  $5,000;  one-tenth  of  which, 
$500,  less  certain  sums  due  under  the  agreement,  was  paid  to 
the  widow  of  the  deceased. 

The  present  action  is  brought  to  recover  the  balance,  which 
with  interest  exceeds  $5,000.  The  defendants  admit  the  collec- 
tion of  the  money  from  the  insurance  company ;  but,  to  defeat 
the  action,  rely  upon  the  agreement  mentioned,  and  the  assignment 
of  the  policy  stipulated  in  it.  The  agreement  and  assignment 
are  specifically  mentioned  in  the  second  and  third  of  the  three 
defences  set  up  in  their  answer.  The  first  defence  consists  in  a 
general  allegation  that  Crosser  assigned,  in  good  faith  and  for 
a  valuable  consideration,  nine  tenths  of  the  policy  to  the  defend- 

54  This  contract,  as  well  as  the  subsequent  assignment,  is  set  out  in  full 
in  the  original  report. 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  171 

ants;  that  a  power  of  attorney  was  at  the  time  executed  to 
them  to  collect  the  remaining  one  tenth  and  pay  the  same  over 
to  his  widow;  and  that  after  the  collection  of  the  amount  they 
had  paid  the  one  tenth  to  her  and  taken  her  receipt  for  it. 

The  case  was  tried  by  the  court  without  the  intervention  of 
a  jury.  On  the  trial,  the  plaintiff  gave  in  evidence  the  deposi- 
tion of  the  receiver  of  the  insurance  company,  who  produced 
from  the  papers  in  his  custody  the  policy  of  insurance,  the  agree- 
ment and  assignment  mentioned,  the  proofs  presented  to  the 
company  of  the  death  of  the  insured,  and  the  receipt  by  the 
association  of  the  insurance  money.  There  was  no  other  testi- 
mony offered.  The  court  thereupon  found  for  the  defendants,  to 
which  finding  the  plaintiff  excepted.  Judgment  being  entered 
thereon  in  their  favor,  the  case  is  brought  to  this  court  for  review. 

Mr.  Justice  Field,  after  stating  the  facts,  delivered  the  opinion 
of  the  court,  as  follows : 

As  seen  from  the  statement  of  the  case,  the  evidence  before 
the  court  was  not  conflictmg,  and  it  was  only  necessary  to  meet 
the  general  allegations  of  the  first  defence.  All  the  facts  estab- 
lished by  it  are  admitted  in  the  other  defences.  The  court  could 
not  have  ruled  in  favor  of  the  defendants  without  holding  that 
the  agreement  between  the  deceased  and  the  Scioto  Trust  Asso- 
ciation was  valid,  and  that  the  assignment  transferred  to  it  the 
right  to  nine-tenths  of  the  money  collected  on  the  policy.  For 
alleged  error  in  these  particulars  the  plaintiff  asks  a  reversal  of 
the  judgment. 

The  policy  executed  on  the  life  of  the  deceased  was  a  valid 
contract,  and  as  such  was  assignable  by  the  assured  to  the  asso- 
ciation as  security  for  any  sums  lent  to  him,  or  advanced  for  the 
premiums  and  assessments  upon  it.  But  it  was  not  assignable 
to  the  association  for  any  other  purpose.  The  association  had 
no  insurable  interest  in  the  life  of  the  deceased,  and  could  not 
have  taken  out  a  policy  in  its  own  name.  Such  a  policy  would 
constitute  what  is  termed  a  wager  policy,  or  a  mere  speculative 
contract  upon  the  life  of  the  assured,  with  a  direct  interest  in  its 
early  termination. 

It  is  not  easy  to  define  with  precision  what  will  in  all  cases 
constitute  an  insurable  interest,  so  as  to  take  the  contract  out 
of  the  class  of  wager  policies.  It  may  be  stated  generally, 
however,  to  be  such  an  interest,  arising  from  the  relations  of 
the  party  obtaining  the  insurance,  either  as  creditor  of  or  surety 
for  the  assured,  or  from  the  ties  of  blood  or  marriage  to  him.  as 
will  justify  a  reasonable  expectation  of  advantage  or  benefit  from 
the  continuance  of  his  life.  It  is  not  necessary  that  the  expecta- 
tion of  advantage  or  benefit  should  be  always  capable  of  pecuniary 
estimation ;  for  a  parent  has  an  insurable  interest  in  the  life  of 
his  child,  and  a  child  in  the  life  of  his  parent,  a  husband  in  the 


172  SUBJECT-MATTER    OF    THE   CONTRACT  (Cll.  2 

life  of  his  wife,  and  a  wife  in  the  life  of  her  husband.  The  natural 
affection  in  cases  of  this  kind  is  considered  as  more  powerful — as 
operating  more  efficaciously — to  protect  the  life  of  the  insured 
than  any  other  consideration.  But  in  all  cases  there  must  be  a 
reasonable  ground,  founded  upon  the  relations  of  the  parties 
to  each  other,  either  pecuniary  or  of  blood  or  affinity,  to  expect 
some  benefit  or  advantage  from  the  continuance  of  the  life  of 
the  assured.  Otherwise  the  contract  is  a  mere  wager,  by  which 
the  party  taking  the  policy  is  directly  interested  in  the  early  death, 
of  the  assured.  Such  policies  have  a  tendency  to  create  a  desire 
for  the  event.  They  are,  therefore,  independently  of  any  stat- 
ute on  the  subject,  condemned,  as  being  against  public  policy. 

The  assignment  of  a  policy  to  a  party  not  having  an  insur- 
able interest  is  as  objectionable  as  the  taking  out  of  a  policy  in 
his  name.  Nor  is  its  character  changed  because  it  is  for  a  por- 
tion merely  of  the  insurance  money.  To  the  extent  in  which  the 
assignee  stipulates  for  the  proceeds  of  the  policy  beyond  the  sums 
advanced  by  him,  he  stands  in  the  position  of  one  holding  a 
wager  policy.  The  law  might  be  readily  evaded,  if  the  policy,  or 
an  interest  in  it,  could,  in  consideration  of  paying  the  premiums 
and  assessments  upon  it,  and  the  promise  to  pay  upon  the  death 
of  the  assured  a  portion  of  its  proceeds  to  his  representatives, 
be  transferred  so  as  to  entitle  the  assignee  to  retain  the  whole 
insurance  money.     *     *     *  °° 

Although  the  agreement  between  the  Trust  Association  and 
the  assured  was  invalid  as  far  as  it  provided  for  an  absolute 
transfer  of  nine  tenths  of  the  proceeds  of  the  policy  upon  the 
conditions  named,  it  was  not  of  that  fraudulent  kind  with  re- 
spect to  which  the  courts  regard  the  parties  as  alike  culpable 
and  refuse  to  interfere  with  the  results  of  their  action.  No  fraud 
or  deception  upon  any  one  was  designed  by  the  agreement,  nor 
did  its  execution  involve  any  moral  turpitude.  It  is  one  which 
must  be  treated  as  creating  no  legal  right  to  the  proceeds  of  the 
policy  beyond  the  sums  advanced  upon  its  security;  and  the 
courts  will,  therefore,  hold  the  recipient  of  the  moneys  beyond 
those  sums  to  account  to  the  representatives  of  the  deceased. 
It  was  lawful  for  the  association  to  advance  to  the  assured  the 
sums  payable  to  the  insurance  company  on  the  policy  as  they 
became  due.  It  was,  also,  lawful  for  the  assured  to  assign  the 
policy  as  security  for  their  payment.  The  assignment  was  only 
invalid  as  a  transfer  of  the  proceeds  of  the  policy  beyond  what 
was  required  to  refund  those  sums,  with  interest.  To  hold  it 
valid  for  the  whole  proceeds  would  be  to  sanction  speculative  risks 

6  8  The  court's  discussion  of  Franlilin  Life  Ins.  Co.  v.  Hazzard,  41  Ind.  116, 
13  Am.  Rep.  313   (1872),  is  here  omitted. 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  173 

on  human  life,  and  encourage  the  evils  for  which  wager  policies 
are  condemned. 

The  decisions  of  the  New  York  Court  of  Appeals  are,  we  are 
aware,  opposed  to  this  view.  They  hold  that  a  valid  policy  of 
insurance  effected  by  a  person  upon  his  own  life,  is  assignable 
like  an  ordinary  chose  in  action,  and  that  the  assignee  is  entitled, 
upon  the  death  of  the  assured,  to  the  full  sum  payable  without 
regard  to  the  consideration  given  by  him  for  the  assignment,  or 
to  his  possession  of  any  insurable  interest  in  the  life  of  the  assured. 
St.  John  V.  Insurance  Co.,  13  N.  Y.  31,  64  Am.  Dec.  529;  Valton 
v.  Assurance  Co.,  20  N.  Y.  32.  In  the  opinion  in  the  first  case  the 
court  cite  Ashley  v.  Ashley,  3  Simons,  149,  in  support  of  its  con- 
clusions; and  it  must  be  admitted  that  they  are  sustained  by 
many  other  adjudications.  But  if  there  be  any  sound  reason  for 
holding  a  policy  invalid  when  taken  out  by  a  party  who  has  no 
interest  in  the  life  of  the  assured,  it  is  difficult  to  see  why  that 
reason  is  not  as  cogent  and  operative  against  a  party  taking  an 
assignment  of  a  policy  upon  the  life  of  a  person  in  which  he  has 
no  interest.  The  same  ground  which  invalidates  the  one  should 
invalidate  the  other — so  far,  at  least,  as  to  restrict  the  right  of 
the  assignee  to  the  sums  actually  advanced  by  him.  In  the  con- 
flict of  decisions  on  this  subject  we  are  free  to  follow  those  which 
seem  more  fully  in  accord  with  the  general  policy  of  the  law 
against  speculative  contracts  upon  human  life. 

In  this  conclusion  we  are  supported  by  the  decision  in  Cam- 
mack  V.  Lewis,  15  Wall.  643,  21  L.  Ed.  244.  There  a  policy  of 
life  insurance  for  $3,000,  procured  by  a  debtor  at  the  suggestion 
of  a  creditor  to  whom  he  owed  $70,  was  assigned  to  the  latter  to 
secure  the  debt,  upon  his  promise  to  pay  the  premiums,  and,  in 
case  of  the  death  of  the  assured,  one  third  of  the  proceeds  to 
his  widow.  On  the  death  of  the  assured,  the  assignee  collected 
the  money  from  the  insurance  company  and  paid  to  the  widow 
$950  as  her  proportion  after  deducting  certain  payments  made. 
The  widow,  as  administratrix  of  the  deceased's  estate,  subse- 
quently sued  for  the  balance  of  the  money  collected,  and  recov- 
ered judgment.  The  case  being  brought  to  this  court,  it  was 
held  that  the  transaction,  so  far  as  the  creditor  was  concerned, 
for  the  excess  beyond  the  debt  owing  to  him,  was  a  wagering 
policy,  and  that  the  creditor,  in  equity  and  good  conscience,  should 
hold  it  only  as  security  for  what  the  debtor  owed  him  when  it 
was  assigned,  and  for  such  advances  as  he  might  have  after- 
wards made  on  account  of  it;  and  that  the  assignment  was  valid 
only  to  that  extent.  This  decision  is  in  harmony  with  the  views 
expressed  in  this  opinion. 

The  judgment  of  the  court  below  will,  therefore,  be  reversed, 
and  the  cause  remanded  with  direction   to  enter  a  judgment  for 


174  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

the  plaintiff  for  the  amount  collected  from  the  insurance  com- 
pany, with  interest,  after  deductinj^-  the  sum  already  paid  to  the 
widow,  and  the  several  sums  advanced  by  the  defendants;  and 
it  is  so  ordered. ^^ 


LAKE  V.  NEW  YORK  LIFE  INS.  CO. 

(Supreme  Court  of  Louisiana,  1908.     120  La.  971,  45  South.  Om.) 

Appeal  from  First  Judicial  District  Court,  Parish  of  Caddo; 
Thomas  Fletcher  Bell,  Judge. 

Action  by  Mayme  Lake  against  the  New  York  Life  Insurance 
Company  and  Jacob  C.  Simon.  From  the  judgment,  Simon  ap- 
peals.    Reversed  and  rendered. 

Provosty,  J.  The  defendant  insurance  company  has  deposited 
in  court  the  proceeds  of  four  insurance  policies  on  the  life  of  Elias 
Lake,  to  be  litigated  over  by  the  plaintiff,  Mrs.  Mayme  Lake,  sur- 
viving widow  of  Elias  Lake  and  administratrix  of  his  succession, 
and  Jacob  C.  Simon,  the  real  defendant  in  the  case,  who  was  the 
assignee  of  the  policies. 

Plaintiff  contends  that  the  policies  were  assigned  to  Simon  mere- 
ly in  pledge,  and  that  the  debt  secured  by  the  pledge  was  not  as 
large  as  is  pretended  by  Simon ;  and,  in  alternative,  plaintiff  con- 
tends that,  if  the  assignment  was  an  absolute  transfer,  it  was  nujl 
except  to  the  extent  that  Simon  was  the  creditor  of  her  husband, 
and  as  such  had  an  insurable  interest  in  his  life. 

We  experience  no  difficulty  in  finding,  with  the  learned  trial 
judge,  that  the  assignment  was  intended  to  be  absolute,  and  that 
the  debt  was  as  large  as  claimed  by  Simon.  Lake  and  Simon  were 
fellow  clerks  in  the  employ  of  Simon's  brother-in-law.  Lake  had 
a  family  to  support,  and  had  no  means  outside  of  his  salary  of  $75  to 
$100  a  month.  Simon  was  a  bachelor,  living  rent  and  board  free 
at  his  sister's,  and  receiving  an  income  of  $300  a  month  from  his 

56  "We  agree  with  tlie  learned  .iudse  of  the  court  below  that  the  affidavit  of 
defense  was  insufficient.  The  policy  of  insurance  in  question  was  taken  out 
on  the  life  of  Marsaret  Brennan.  The  insurance  company  defends  upon  the 
ground  that  the  policy  was  issued  and  delivered  to  Catharine  Lamb,  who  took 
it,  and  paid  all  the  premiums  on  it  which  were  paid,  as  beneficiary ;  and  that 
the  said  Catharine  Lamb  had  no  insurable  interest  in  the  life  of  Margaret 
Brennan,  being  neither  a  creditor  nor  a  relation.  There  would  have  been 
more  force  in  this  defense  if  the  suit  had  been  brought  by  Catharine  Lamb. 
It  was  brought,  however,  by  the  administrator  of  the  estate  of  Margaret 
Brennan,  and  we  have  been  furnished  with  no  sufficient  reason  why  he  may 
not  recover."  Brennan  v.  Prudential  Ins.  Co.  of  America,  148  Pa.  199,  23 
Atl.  901  (1892). 

Compare  Bromley  v.  Washington  Life  Ins.  Co.,  122  Ky.  402,  92  S.  W.  17,  28 
Ky.  L.  Rep.  l.^OO,  5  L.  R.  A.  (N.  S.)  747.  121  Am.  St.  Rep.  467,  12  Ann.  Cas. 
685  (1906),  and  Trinity  College  v.  Travelers'  Ins.  Co.,  113  N.  C.  244,  18  S.  E, 
175,  22  L.  R.  A.  291  (1893),  in  which  policies  issued  under  circumstances  simi- 
lar to  those  in  the  principal  case  were  wholly  void. 


Sec.  4)         INSURABLE  INTEREST LIFE  INSURANCE  175 

salary  and  an  investment  of  $20,000.  The  two  were  friends.  Si- 
mon had  at  divers  times  made  small  loans  to  Lake,  which,  with 
capitalized  interest,  had  grown  at  the  time  of  the  assignment  to 
$2,834.20.  The  assignment  came  about  in  the  following  manner. 
Lake  sought  to  borrow  $1,000  more  of  Simon,  and  in  applying  for 
the  loan  informed  him  that  his  intention  was  to  insure  his  life  in 
favor  of  his  wife  for  $1,000,  and  to  take  out  at  the  same  time  $10,- 
000,  additional,  and  assign  the  latter  to  him  in  payment  of  the  debt 
already  due  and  of  the  additional  loan  applied  for.  This  plan  was 
carried  out.  Four  policies  of  $2,500  each  were  taken  out  by  Lake  in 
the  defendant  company  on  his  own  life  payable  to  his  executors, 
administrators,  and  assigns,  and  a  few  days  after  their  issuance 
were  assigned  over  in  full  ownership  to  Simon,  and  Simon  sur- 
rendered to  Lake  all  the  notes  and  duebills  he  held  representing  the 
old  debt  and  representing  $250,  which  he  had  in  the  meantime  let 
him  have  out  of  the  $1,000,  and  paid  him  the  balance  of  the  $1,000. 
Simon  was  to  pay  all  the  premiums,  including  the  first. 

Simon  was  not  related  to  Lake  by  blood  or  marriage,  and  had  no 
other  insurable  interest  in  his  life  than  as  creditor. 

The  law  seems  to  be  fairly  settled  that  a  life  insurance  policy  is 
an  incorporeal  right,  or  chose  in  action,  which  may  be  sold,  or 
given  in  payment  of  a  debt;  and  that  the  transaction  is  not  the  less 
valid  where  the  transferee  is  to  pay  all  future  premiums ;  not,  at 
least,  where  the  value  of  the  policy,  and  the  price  of  the  sale,  or 
amount  of  the  debt,  are  not  so  disproportionate  as  to  show  that 
the  transaction  was  nothing  more  than  a  mere  wagering  scheme. 
25  Cyc.  709;  Metropolitan  Life  Ins.  Co.  v.  Elison,  72  Kan.  199,  83 
Pac.  410,  3  L.  R.  A.  (N.  S.)  934,  115  Am.  St.  Rep.  189,  7  Ann.  Cas. 
909;  Rylander  v.  Allen,  125  Ga.  206,  53  S.  E.  1032,  6  L.  R.  A.  (N. 
S.)  128,  5  Ann.  Cas.  355;  Alba  v.  Providence  Life  Assurance  So- 
ciety, 118  La.  1021,  43  South.  663. 

Whether  it  makes  any  difference  that  the  policy  is  taken  out,  as 
in  this  case,  in  pursuance  of  an  agreement  that  it  is  to  be  trans- 
ferred, and  that  the  transferee  is  to  pay  the  premiums  from  first  to 
last,  is  really  the  only  question  in  the  case.  We  see  no  good  rea- 
son why  it  should.  Whether  the  policy  be  first  taken  out  and  then 
sold,  or  given  in  payment,  or  be  taken  out  in  pursuance  of  an  agree- 
ment that  such  a  use  is  to  be  made  of  it,  the  wagering  element, 
which  is  the  objectionable  feature  of  such  a  transaction,  is  equally 
present.  The  taking  out  of  life  insurance  with  a  view  to  its  being 
used  as  collateral  security  is  a  common  practice ;  now,  if  such 
insurance  may  be  taken  out  for  the  purpose  of  being  pledged,  why 
not  for  the  purpose  of  being  given  in  payment?  The  insurable  in- 
terest which  supports  the  transaction  in  the  one  case  is  equally 
present  in  the  other. 

Doubtless  such  a  transaction  lends  itself  more  readily  to  fraud, 
and  for  that  reason  may  have  to  be  scrutinized  more  closely  by 


176  SUBJECT-MATTER   OF    THE  CONTRACT  (Ch.  2 

the  courts;  but  that  is  an  objection  which  addresses  itself  to  the 
facts  and  not  to  the  law — to  the  transaction  in  the  concrete,  not 
in  the  abstract.  In  the  case  at  bar,  the  transaction  was  character- 
ized by  the  most  perfect  good  faith.  Lake  was  33  years  old  and 
his  expectancy  of  life  was  33  years  and  some  months.  Had  he 
lived  out  his  full  quota,  the  yearly  premium  of  $281,  would,  with 
interest,  have  exceeded  the  $10,000,  so  that  Simon  would  have  paid 
out  in  premiums  more  than  the  amount  of  the  policy,  and  would 
in  addition  have  lost  his  large  debt  and  his  $1,000  loan.  By  the 
transaction,  Lake  paid  his  heavy  debt  and  got  $1,000  additional. 
At  Lake's  death,  six  years  and  four  months  after  the  issuance  of 
the  policies,  Simon  had  already  paid  $2,254.40  in  premiums. 

It  is  ordered,  adjudged,  and  decreed  that  the  judgment  appealed 
from  be  set  aside,  and  that  the  defendant,  Jacob  C.  Simon,  have 
judgment  decreeing  him  to  be  entitled  to  receive  the  fund  deposited 
in  court  by  the  defendant  company,  and  ordering  said  money  to  be 
paid  over  to  him ;  and  that  plaintiff  pay  the  costs  of  this  suit. 

Breaux,  C.  J.,  dissents. 


GRIGSBY  V.  RUSSELL. 

(Supreme  Court  of  the  United  States,  1911.    222  U.  S.  149,  32  Sup.  Ct.  58,  50 
L.  Ed.  133,  36  L.  R.  A.  [N.  S.]  642.) 

On  Writ  of  Certiorari  to  the  United  States  Circuit  Court  of  Ap- 
peals for  the  Sixth  Circuit  to  review  a  judgment  which,  reversing  a 
judgment  of  the  Circuit  Court  for  the  Middle  District  of  Tennessee, 
held  an  assignment  of  a  policy  of  life  insurance  to  an  assignee  with 
no  insurable  interest  valid  only  to  the  extent  of  the  money  actually 
given  for  it  and  the  premiums  subsequently  paid.     Reversed. 

See  same  case  below,  94  C.  C.  A.  61,  168  Fed.  577. 

Mr.  Justice  Holmes  delivered  the  opinion  of  the  court: 

This  is  a  bill  of  interpleader  brought  by  an  insurance  company  to 
determine  whether  a  policy  of  insurance  issued  to  John  C.  Burchard, 
now  deceased,  upon  his  Hfe,  shall  be  paid  to  his  administrators  or  to 
an  assignee,  the  company  having  turned  the  amount  into  court.  The 
material  facts  are  that  after  he  had  paid  two  premiums  and  a  third 
was  overdue,  Burchard,  being  in  want  and  needing  money  for  a  sur- 
gical operation,  asked  Dr.  Grigsby  to  buy  the  policy,  and  sold  it  to 
him  in  consideration  of  $100  and  Grigsby's  undertaking  to  pay  the 
premiums  due  or  to  become  due;  and  that  Grigsby  had  no  interest 
in  the  life  of  the  assured.  The  circuit  court  of  appeals,  in  deference 
to  some  intimations  of  this  court,  held  the  assignment  valid  only  to  the 
extent  of  the  money  actually  given  for  it  and  the  premiums  subse- 
quently paid.    94  C.  C.  A.  61,  168  Fed.  577. 

Of  course,  the  ground  suggested  for  denying  the  validity  of  an  as- 
signment to  a  person  having  no  interest  in  the  life  insured  is  the  pub> 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  177 

lie  policy  that  refuses  to  allow  insurance  to  be  taken  out  by  such  per- 
sons in  the  first  place.  A  contract  of  insurance  upon  a  life  in  which 
the  insured  has  no  interest  is  a  pure  wager  that  gives  the  insured  a 
sinister  counter  interest  in  having  the  life  come  to  an  end.  And  al- 
though that  counter  interest  always  exists,  as  early  was  emphasized 
for  England  in  the  famous  case  of  Wainewright  (Janus  Weather- 
cock), the  chance  that  in  some  cases  it  may  prove  a  sufificient  motive 
for  crime  is  greatly  enhanced  if  the  whole  world  of  the  unscrupulous 
are  free  to  bet  on  wdiat  life  they  choose.  The  very  meaning  of  an  in- 
surable interest  is  an  interest  in  having  the  life  continue,  and  so  one 
that  is  opposed  to  crime.  And  what,  perhaps,  is  more  important, 
the  existence  of  such  an  interest  makes  a  roughly  selected  class  of 
persons  who,  by  their  general  relations  with  the  person  whose  life 
is  insured,  are  less  likely  than  criminals  at  large  to  attempt  to  com- 
pass his  death. 

But  when  the  question  arises  upon  an  assignment,  it  is  assumed 
that  the  objection  to  the  insurance  as  a  wager  is  out  of  the  case.  In 
the  present  instance  the  policy  was  perfectly  good.  There  was  a 
faint  suggestion  in  argument  that  it  had  become  void  by  the  failure 
of  Burchard  to  pay  the  third  premium  ad  diem,  and  that  when  Gris- 
by  paid,  he  was  making  a  new  contract.  But  a  condition  in  a  policy 
that  it  shall  be  void  if  premiums  are  not  paid  when  due  means  only 
that  it  shall  be  voidable  at  the,  option  of  the  company.  Knickerbocker 
L.  Ins.  Co.  V.  Norton,  96  U.  S.  234,  24  L.  Ed.  689 ;  Oakes  v.  Manu- 
facturers' F.  &  M.  Ins.  Co.,  135  Mass.  248.  The  company  waived  the 
breach,  if  there  was  one,  and  the  original  contract  with  Burchard 
remained  on  foot.  No  question  as  to  the  character  of  that  contract 
is  before  us.  It  has  been  performed  and  the  money  is  in  court.  But 
this  being  so,  not  onl}-  does  the  objection  to  wagers  disappear,  but 
also  the  principle  of  public  policy  referred  to,  at  least,  in  its  most 
convincing  form.  The  danger  that  might  arise  from  a  general  li- 
cense to  all  to  insure  whom  they  like  does  not  exist.  Obviously  it  is 
a  very  different  thing  from  granting  such  a  general  license,  to  allow 
the  holder  of  a  valid  insurance  upon  his  own  life  to  transfer  it  to  one 
whom  he,  the  party  most  concerned,  is  not  afraid  to  trust.  The  law 
has  no  universal  cynic  fear  of  the  temptation  opened  by  a  pecuniary 
benefit  accruing  upon  a  death.  It  shows  no  prejudice  against  re- 
mainders after  life  estates,  even  by  the  rule  in  Shelley's  Case.  Indeed, 
the  ground  of  the  objection  to  life  insurance  without  interest  in  the 
earlier  English  cases  was  not  the  temptation  to  murder,  but  the  fact 
that  such  wagers  came  to  be  regarded  as  a  mischievous  kind  of  gam- 
ing.   Stat.  14  George  III.,  chap.  48. 

On  the  other  hand,  life  insurance  has  become  in  our  days  one  of 
the  best  recognized  forms  of  investment  and  self-compelled  saving. 
So  far  as  reasonable  safety  permits,  it  is  desirable  to  give  to  life  pol- 
icies the  ordinary  characteristics  of  property.  This  is  recognized  by 
Vance  Ins. — 12 


178  SUBJECT-MATTER    OP    THE   CONTRACT  (Ch.  2 

the  bankruptcy  law,  §  70  (U.  S.  Comp.  v^t.  1901,  p.  3451),  which  pro- 
vides that  unless  the  cash  surrender  value  of  a  policy  like  the  one  be- 
fore us  is  secured  to  the  trustee  within  thirty  days  after  it  has  been 
stated,  the  policy  shall  pass  to  the  trustee  as  assets.  Of  course  the 
trustee  may  have  no  interest  in  the  bankrupt's  life.  To  deny  the 
right  to  sell  except  to  persons  having  such  an  interest  is  to  diminish 
appreciably  the  value  of  the  contract  in  the  owner's  hands.  The 
collateral  difficulty  that  arose  from  regarding  life  insurance  as  a  con- 
tract of  indemnity  only  (Godsall  v.  Boldero,  9  East,  72),  long  has 
disappeared  (Phoenix  Mut.  L.  Ins.  Co.  v.  Bailey,  13  Wall.  616,  20 
L.  Ed.  501).  And  cases  in  which  a  person  having  an  interest  lends 
himself  to  one  without  any,  as  a  cloak  to  what  is,  in  its  inception,  a 
wager,  have  no  similarity  to  those  where  an  honest  contract  is  sold 
in  good  faith. 

Coming  to  the  authorities  in  this  court,  it  is  true  that  there  are  in- 
timations in  favor  of  the  result  come  to  by  the  circuit  court  of  ap- 
peals. But  the  case  in  which  the  strongest  of  them  occur  was  one  of 
the  type  just  referred  to,  the  policy  having  been  taken  out  for  the  pur- 
pose of  allowing  a  stranger  association  to  pay  the  premiums  and  re- 
ceive the  greater  part  of  the  benefit,  and  having  been  assigned  to  it 
at  once.  Warnock  v.  Davis,  104  U.  S.  775,  26  L.  Ed.  924.  On  the 
other  hand,  it  has  been  decided  that  a  valid  policy  is  not  avoided  by 
the  cessation  of  the  insurable  interest,  even  as  against  the  insurer, 
unless  so  provided  by  the  policy  itself.  Connecticut  Mut.  L.  Ins.  Co. 
V.  Schaefer,  94  U.  S.  457,  24  L.  ,Ed.  251.  And  expressions  more  or 
less  in  favor  of  the  doctrine  that  we  adopt  are  to  be  found  also  in 
^tna  L.  Ins.  Co.  v.  France,  94  U.  S.  561,  24  L.  Ed.  287;  Mutual 
L.  Ins.  Co.  V.  Armstrong,  117  U.  S.  591,  29  L.  Ed.  997,  6  Sup.  Ct. 
877.  It  is  enough  to  say  that  while  the  court  below  might  hesitate 
to  decide  against  the  language  of  Warnock  v.  Davis,  there  has  been 
no  decision  that  precludes  us  from  exercising  our  own  judgment  up- 
on this  much  debated  point.  It  is  at  least  satisfactory  to  learn  from 
the  decision  below  that  in  Tennessee,  where  this  assignment  was 
made,  although  there  has  been  much  division  of  opinion,  the  supreme 
court  of  that  state  came  to  the  conclusion  that  we  adopt,  in  an  unre- 
ported case, — Lewis  v.  Edwards,  December  14,  1903.  The  law  in 
England  and  the  preponderance  of  decisions  in  our  state  courts 
are  on  the  same  side. 

Some  reference  was  made  to  a  clause  in  the  policy  that  "any  claim 
against  the  company,  arising  under  any  assignment  of  the  policy,  shall 
be  subject  to  proof  of  interest."  But  it  rightly  was  assumed  below  that 
if  there  was  no  rule  of  law  to  that  efifect,  and  the  company  saw  fit  to 
pay,  the  clause  did  not  diminish  the  rights  of  Grigsby,  as  against 
the  administrators  of  Burchard's  estate. 

Decree  reversed. 

Mr.  Justice  Lurton  took  no  part  in  the  decision  of  this  case. 


Sec.  4)         INSURABLE  INTEREST — LIFE  INSURANCE  179 

RAHDERS,  MERRITT  Sz  HAGLER  v.  PEOPLE'S  BANK  OF 
MINNEAPOLIS  et  al. 

(Supreme  Court  of  Minnesota,  1911.     113  Minn.  496,  130  N.  W.  16,  Ann.  Gas. 

1912A,  299.) 

Appeal  from  District  Court,  Hennepin  County ;  Horace  D.  Dick- 
inson, Judge. 

Action  by  Rahders,  Merritt  &  Hagler  against  the  People's  Bank 
of  Minneapolis  and  others.  From  the  judgment,  W.  C.  Daniels  and 
others  appeal.     Affirmed. 

Lewis,  J.  From  1890  until  1907,  Rahders,  Alerritt  &  Hagler  were 
copartners  in  business  in  North  Dakota,  under  the  name  Rahders, 
Merritt  &  Hagler.  In  1907  a  corporation  was  formed  with  the  same 
name.  Each  former  partner  became  the  owner  of  one-third  of  the 
capital  stock,  and  the  business  of  the  copartnership  was  transferred 
to  the  corporation,  which  acquired  all  of  the  assets  and  assumed  all 
of  the  liabilities.  In  1900  Merritt  took  out  $5,000  insurance  on  his 
life,  payable  to  his  estate,  and  delivered  the  policies  to  the  copart- 
nership, and  after  the  corporation  was  formed  they  were  scheduled 
among  the  assets  and  turned  over  to  the  corporation.  The  pre- 
miums were  all  paid  by  the  copartnership  until  the  corporation  was 
formed,  and  then  one  premium  was  paid  by  the  company.  By  the 
agreement  of  the  parties  the  money  due  on  the  policies  was  paid 
by  the  insurance  company  to  the  People's  Bank,  and  this  action  was 
brought  to  secure  judgment  in  favor  of  the  corporation. 

The  trial  court  found  that,  while  said  partnership  was  conducting 
said  business,  the  lives  of  the  several  members  were  insured  by  said 
copartnership  for  the  benefit  of  said  firm  in  the  sum  of  $5,000  on  the 
life  of  each  partner;  that  all  of  the  premiums  on  the  policies  taken 
out  on  the  lives  of  the  members  were  paid  by  said  partnership  as  an 
expense  of  its  business,  and  that  the  policies  so  taken  out  were  de- 
livered to  and  kept  in  the  possession  of  said  partnership ;  that  the 
policies  taken  out  by  Mr.  Merritt  by  inadvertence  were  not  trans- 
ferred or  formally  assigned  to  said  partnership  or  to  said  corpora- 
tion, but  that  the  same  were  at  all  times  the  property  of  said  co- 
partnership until  the  organization  of  said  corporation,  and  there- 
after were  the  property  of  said  corporation,  and  were  at  all  times 
recognized  by  said  Merritt  as  part  of  the  assets  of  said  copartner- 
ship, and  of  said  corporation  after  its  organization,  and  were  listed 
and  included  by  said  Merritt  in  the  statement  of  assets  of  said  co- 
partnership which  were  transferred  to  said  corporation  upon  its  tak- 
ing over  the  business  and  assets  of  said  copartnership — and  ordered 
judgment  for  the  corporation. 

The  administrators  of  the  estate  appealed,  but  do  not  question 
the  findings  of  fact.    They  claim  the  right  to  recover  upon  the  fol- 


180  SUBJECT-MATTER   OF   THE  CONTRACT  (Ch.  2 

lowing-  propositions  of  law:  First,  that  there  was  no  insurable  in- 
terest in  the  two  other  members  of  the  copartnership  at  the  time 
the  policies  were  issued;  second,  if  there  was  an  insurable  interest, 
then  it  became  extinguished  on  the  formation  of  the  corporation; 
and,  third,  any  assignment  or  change  in  the  beneficiary  by  parol 
would  be  an  unauthorized  alteration  of  the  contract  of  insurance. 

1.  The  question  of  insurable  interest  is  fully  discussed  in  Bacon 
on  Life  Insurance,  §§  248,  250,  where  the  leading  authorities  are  col- 
lected. Any  reasonable  expectation  of  pecuniary  benefit  or  advan- 
tage from  the  continued  life  of  another  creates  an  insurable  interest 
in  such  life.  The  essential  thing  is  that  the  policy  shall  be  obtained 
in  good  faith,  and  not  for  the  purpose  of  speculating  upon  the  haz- 
ards of  a  life  in  which  the  insured  has  no  interest.  Conn.  Life  In- 
surance Co.  V.  Schaefer,  94  U.  S.  457,  24  L.  Ed.  251;  Loomis  v. 
Eagle,  6  Gray  (Mass.)  396.  It  does  not  require  a  very  great  inter- 
est to  take  a  case  out  of  the  objection  of  being  a  wager  policy.  Each 
member  of  a  copartnership  certainly  has  an  interest  in  the  continu- 
ance of  the  lives  of  his  copartners,  growing  out  of  the  partnership 
relation.  The  necessities  of  the  business  incur  more  or  less  liability, 
which  might  be  serious  financially  if  one  were  removed  by  death. 
Conn.,  etc.,  Insurance  Co.  v.  Luchs,  108  U.  S.  498,  2  Sup.  Ct.  949,  27 
L.  Ed.  800.  This  is  the  general  rule,  and  we  hold  that  the  partner- 
ship in  question  had  an  insurable  interest  in  the  life  of  Mr.  Merritt. 

2,  Among  the  assets  turned  over  by  the  copartnership  to  the  cor- 
poration, upon  its  formation  in  1907,  were  the  Merritt  insurance 
policies,  and  two  other  policies  held  by  the  partnership  upon  the 
lives  of  the  other  two  members.  The  three  members  of  the  copart- 
nership were  the  charter  members  of  the  corporation,  and  the  cap- 
ital stock  of  $50,000  was  divided  equally  among  them,  and  so  re- 
mained to  the  time  of  Mr.  Merritt's  death,  at  which  time  the  cor- 
poration had  paid  one  premium.  The  court  found  that  the  policies 
were  issued  for  the  benefit  of  the  copartnership,  and  that  the  cor- 
poration when  formed  became  the  beneficiary.  This  is  equivalent 
to  finding  that  the  contract  of  insurance  was  transferred,  although 
there  was  no  formal  assignment  of  the  policies.  This  finding  was 
not  attacked  by  the  appellant;  but  it  is  denied  that  the  corporation 
could  legally  become  the  beneficiary,  because  it  had  no  insurable 
interest  in  the  life  of  its  stockholder,  Mr.  Merritt. 

There  is  a  great  diversity  of  opinion  on  this  question.  In  some 
jurisdictions  it  has  been  squarely  held  that  a  policy,  though  valid  in 
its  inception,  is  void  in  the  hands  of  an  assignee  having  no  insurable 
interest  in  the  life  of  the  insured.  Tate  v.  Building  Ass'n,  97  Va. 
74,  33  S.  E.  382,  45  L.  R.  A.  243,  75  Am.  St.  Rep.  770 ;  Cheeves  v. 
Anders,  87  Tex.  287,  28  S.  W.  274,  47  Am.  St.  Rep.  107;  Metropoli- 
tan Life  Insurance  Co.  v.  Elison,  72  Kan.  199,  83  Pac.  410,  3  L.  R. 
A.  (N.  S.)  934,  115  Am.  St.  Rep.  189,  7  Ann.  Cas.  909;   Bendet  v. 


Sec.  4  )         INSUUARLE  INTEREST LIFE  INSURANCE  181 

Ellis,  120  Tenn.  277,  111  S.  W.  795,  18  L.  R.  A.  (N.  S.)  114,  127 
Am.  St.  Rep.  1000.  The  weight  of  authority,  however,  supports  the 
rule  that  a  policy,  valid  when  issued,  may  be  assigned  as  a  chose  in 
action  to  one  having  no  insurable  interest  in  the  insured.  Dixon  v. 
National  Life  Insurance  Co.,  168  Mass.  48,  46  N.  E.  430;  Prudential 
Ins.  Co.  V.  Liersch,  122  Mich.  436,  81  N.  W.  258;  Steinback  v.  Die- 
penbrock,  158  N.  Y.  24,  52  N.  E.  662,  44  L.  R.  A.  417,  70  Am.  St. 
Rep.  424;  Rittler  v.  Smith,  70  Md.  261,  16  Atl.  890,  2  L.  R.  A.  844. 
The  reasoning  in  support  of  this  line  of  decisions  is  that  the  insured 
ought  to  be  permitted  to  realize  at  any  time  on  the  value  of  his  pol- 
icy ;  that  it  is  a  species  of  property,  and  the  value  of  life  insurance 
as  an  asset  would  unnecessarily  be  lost,  if  not  made  assignable  as 
other  clioses  in  action.  Of  course,  good  faith  in  the  transaction  is 
required,  and  the  courts  do  not  hesitate  to  condemn  a  policy  issued 
for  the  purpose  of  having  it  assigned.  See  valuable  note  to  Met. 
Life  Ins.  Co.  v.  Elison,  3  L.  R.  A.  (N.  S.)  934.  Our  own  court,  in 
Brown  v.  Equitable  L.  A.  S.,  75  Minn.  412,  78  N.  W.  103,  671,  79  N. 
W.  968.  decided  that  a  policy,  valid  when  issued,  was  valid  in  the 
hands  of  a  bank  which  had  loaned  money  on  it  to  the  assignee  of 
the  insured. 

The  courts  are  not  unanimous  on  the  question  whether  a  corpor- 
ation has  an  insurable  interest  in  its  stockholders.  An  interesting 
discussion  of  this  subject  is  found  in  Mechanics'  Nat.  Bank  v.  Com- 
ins,  72  N.  H.  12,  55  Atl.  191,  101  Am.  St.  Rep.  650.  But  that  ques- 
tion is  not  directly  involved  here,  and  it  is  unnecessary  to  determine 
whether  this  corporation  might  have  taken  out  a  policy  on  the  life 
of  Mr.  Merritt.  These  policies  were  issued  in  good  faith  to  the  co- 
partnership, and  acquired  in  good  faith  by  the  corporation,  and  on 
authority  and  on  principle  that  company  is  entitled  to  collect  the 
amount  of  the  policies  as  assignee. 

3.  It  only  remains  to  notice  appellant's  third  point,  that  the  as- 
signment, if  made,  was  by  parol,  and  contrary  to  the  terms  of  the 
written  contract.  There  are  three  answers  to  this  objection :  First, 
the  writing — that  is,  the  policies — do  not  forbid  an  assignment  of 
the  contract,  and  do  not  provide  in  what  manner  an  assignment 
shall  be  made ;  second,  the  court  found  that  the  policies  became  the 
property  of  the  corporation,  and  appellant  does  not  question  the 
fact ;  and,  third,  the  insurance  company  admits  its  liability  on  the 
policies,  and  makes  no  objection  to  the  method  of  the  transfer  or 
assignment,  and  as  between  the  assignor  and  assignee  an  assign- 
ment by  parol  was  sufficient,  Hogue  v.  Minn.  Packing  &  Prov.  Co., 
59  Minn.  39,  60  N.  W.  812. 

Affirmed. 


182  SUBJECT-MATTER    OF    THE   CONTRACT  (Ch.  2 

HARDY  V.  ;ETNA  LIFE  INS.  CO. 

(Supreme  Court  of  North  Carolina,  1910.     152  N.  C.  2S6,  07  S.  E.  7G7.) 

Action  by  W.  P.  Hardy  against  the  ^tna  Life  Insurance  Com- 
pany. From  a  judgment  in  favor  of  plaintiff  on  a  demurrer,  defend- 
ant appeals.    Affirmed. 

The  complaint  alleged  that  certain  policies  of  insurance  aggregat- 
ing $3,000  had  been  taken  out  in  October,  1907,  by  the  plaintiff's  un- 
cle, P.  M.  Hardy,  upon  his  own  life  and  payable  to  his  executors, 
administrators  and  assigns ;  that  two  weeks  or  more  after  issue  of 
the  policies  they  were  assigned  by  P.  M.  Hardy  to  the  plaintiff. 
This  assignment  was  made  with  the  consent  of  the  defendant  com- 
pany and  upon  the  motion  of  P.  M.  Hardy  and  not  through  the  in- 
tervention of  the  plaintiff,  who  had  no  knowledge  of  the  issue  of 
such  policies.  It  further  averred  that  P.  M.  Hardy  and  the  plain- 
tiff, in  addition  to  sustaining  the  relation  of  uncle  and  nephew  to 
each  other,  were  intimately  associated,  rendered  each  other  mutual 
financial  assistance,  and  held  each  other  in  mutual  affection,  that  P. 
M.  Hardy  had  died  on  the  8th  day  of  April,  1908,  and  that  proper 
proofs  of  loss  had  been  furnished  as  required  by  the  policy.  By 
leave  of  the  court,  the  administrator  of  P.  M.  Hardy  was  allowed  to 
intervene,  and  filed  a  petition  claiming  the  amount  due  on  the  poli- 
cies on  the  ground  that  the  assignment  to  the  plaintiff  was  void  for 
lack  of  insurable  interest.  The  defendant  demurred  to  the  com- 
plaint of  the  plaintiff  and  also  to  the  petition  of  the  intervener, 
claiming  that  the  attempted  assignment  to  one  without  insurable 
interest  rendered  the  policies  void  in  toto,  and  that  no  recovery 
could  be  had  thereon  in  favor  of  either  the  plaintiff  or  the  inter- 
vener.^'^ 

Hoke;,  J.  It  is  very  generally  held  that  the  relationship  of  uncle 
and  nephew  does  not  of  itself  create  an  insurable  interest  in  favor 
of  either.  Corson,  Ex.  of  McLean,  113  Pa.  438,  6  Atl.  213,  57  Am. 
Rep.  479;  Singleton  v.  Insurance  Co.,  66  Mo.  63,  27  Am.  Rep.  321 ; 
Doody  Co.  V.  Green,  Guardian,  131  Ga.  568,  62  S.  E.  984.  But  we 
are  not  called  on  to  determine  whether  the  additional  facts  set  forth 
in  section  6  of  the  complaint  would  bring  about  such  an  interest, 
for  the  reason  that,  on  the  facts  as  they  appear,  we  are  of  opinion 
that  if  the  assignment  is  otherwise  valid,  plaintiff  has  a  right  to 
recover  the  proceeds  of  the  policies,  whether  at  the  time  of  the  as- 
signment he  had  an  insurable  interest  in  the  life  of  the  deceased  or 
not. 

It  is  accepted  doctrine  here,  and  elsewhere,  that  in  order  to  a  valid 
policy  of  life  insurance  there  must  have  existed  an  insurable  interest 

67  The  statement  of  facts  is  abbreviated. 


Sec.  4)  INSURABLE  INTEUKST LIFE  INSURANCE  183 

at  the  time  the  contract  is  entered  into,  and  the  question  whether 
such  a  policy,  valid  at  its  inception,  can  be  assigned  to  one  who  has 
no  insurable  interest  has  been  very  much  discussed  in  the  courts, 
and  on  this  there  is  some  conflict  in  the  cases.  We  consider  it,  how- 
ever, as  established  by  the  great  weight  of  authority  that  where  an 
insurant  makes  a  contract  with  a  company,  taking  out  a  policy  on 
his  own  life  for  the  benefit  of  himself  or  his  estate  generally,  or  for 
the  benefit  of  another,  the  policy  being  in  good  faith  and  valid  at  its 
inception,  the  same  may,  with  the  assent  of  the  company,  be  as- 
signed to  one  not  having  an  insurable  interest  in  the  life  of  the  in- 
sured; provided  this  assignment  is  in  good  faith,  and  not  a  mere 
cloak  or  cover  for  a  wagering  transaction. 

Decided  intimation  in  favor  of  this  general  principle  was  given  by 
this  court  in  the  recent  case  of  Pollock  v.  Household  of  Ruth,  150  N. 
C.  211,  63  S.  E.  940,  and  the  position  will  be  found  sustained  by  a 
large  number  of  authoritative  and  well-considered  decisions  and  by 
text-writers  of  approved  excellence.  Insurance  Co.  v.  Armstrong, 
117  U.  S.  591,  6  Sup.  Ct.  877,  29  L.  Ed.  997;  Connecticut  Mutual  v. 
Schaefer,  94  U.  S.  457,  24  h.  Ed.  251 ;  Crosswell  v.  Association,  51 
S.  C.  103,  28  S.  E.  200;  Rylander  v.  Allen,  125  Ga.  206,  53  S.  E.  1032, 
6  L.  R.  A.  (N.  S.)  128,  annotated  in  5  Ann.  Cas.  355;  Murphy  v. 
Red,  64  Miss.  614,  1  South.  761,  60  Am.  Rep.  68;  Brown  v.  Green- 
field Ins.  Co.,  172  Mass.  498,  53  N.  E.  129;  Mutual  Life  v.  Allen,  138 
Mass.  24,  52  Am.  Rep.  245;  Steinback  v.  Diepenbrock,  Ex.,  158  N. 
Y.  24,  52  N.  E.  662,  44  L.  R.  A.  417,  70  Am.  St.  Rep.  424 ;  Chamber- 
lain v.  Butler,  61  Neb.  730,  86  N.  W.  481,  54  E.  R.  A.  338,  87  Am. 
St.  Rep.  478 ;  Moore  v.  Guarantee  Fund,  178  111.  202,  52  N.  E.  882 ; 
Prudential  Co.  v.  Liersch,  122  Mich.  436,  81  N.  W.  258;  Cooky's 
Briefs  on  Ins.  vol.  1,  p.  262  et  seq. ;  1  Vance  on  Insurance,  p.  140 
et  seq. 

To  quote  from  some  of  the  cases  referred  to,  in  Steinback  v.  Die- 
penbrock, supra,  it  was  held :  "That  one  having  no  insurable  inter- 
est in  the  life  of  another  may  acquire  by  assignment  a  valid  policy 
upon  his  life  and  enforce  it  to  the  full  amount."  And  in  Murphy  v. 
Red,  supra:  "The  holder  of  a  valid  policy  of  insurance  on  his  own 
life,  payable  to  himself  or  his  legal  representatives,  may  assign  the 
same  for  a  valuable  consideration,  as  he  may  any  other  chose  in  ac- 
tion, if  there  is  nothing  in  the  terms  of  the  policy  to  prevent  the 
assignment,  and  the  assignee  or  purchaser  of  such  policy,  trans- 
ferred according  to  its  terms,  is  entitled  to  the  proceeds  of  the  same 
when  due,  notwithstanding  he  may  have  no  insurable  interest  in 
the  life  of  the  insured." 

In  several  cases,  where  the  opinion  apparently  upholds  the  con- 
trary view,  it  will  be  found  that  the  cause  was  correctly  decided  and 
sustainable  on  the  ground  that  the  policy,  though  taken  out  in  the 
name  of  the  insured,  was  procured  in  pursuance  of  a  scheme  and 


184  SUBJECT-MATTER    OF    THE   CONTRACT  (Cll.  2 

purpose  to  assign  to  one  having  no  insurable  interest,  and  that  the 
proposed  assignee  was  cognizant  of  the  arrangement  and  took  part 
in  it.  This  was  true  in  the  case  of  Warnock  v.  Davis,  104  U.  S.  775, 
26  L.  Ed.  924,  and  also  in  Cammack  v.  Lewis,  82  U.  S.  (15  Wall.) 
643,  21  L.  Ed.  244.  In  both  of  these  cases  the  assignees  were  par- 
ties to  the  arrangement  by  which  the  policies  were  procured  and 
assigned,  and  having  no  insurable  interest  in  the  life  of  the  insured, 
the  facts  disclosed,  as  far  as  the  assignments  were  concerned,  a  clear 
case  of  wagering  contract  on  the  duration  of  a  human  life,  forbidden 
by  the  law,  and  the  assignments  were  not  allowed  to  stand.  Ac- 
cordingly, we  find  the  same  high  court,  in  Life  Ins.  Co.  v.  Arm- 
strong, supra,  under  a  different  state  of  facts,  deciding  the  general 
principle:  "That  a  policy  of  life  insurance,  without  restrictive 
words,  is  assignable  by  the  assured  for  a  valuable  consideration 
equally  with  any  other  chose  in  action,  where  the  assignment  is  not 
made  to  cover  a  mere  speculative  risk,  and  thus  evade  the  law 
against  wager  policies,  and  payment  thereof  may  be  enforced  for 
the  benefit  of  the  assignee,  and,  under  the  procedure  of  many  states, 
in  his  name." 

Undoubtedly,  however,  there  are  decisions  which  directly  hold 
that  a  life  insurance  policy,  though  valid  at  its  inception,  may  not 
be  assigned  to  persons  having  no  insurable  interest  in  the  life  of  the 
msured ;  and  North  Carolina  has  been  referred  to  as  upholding  this 
view  both  in  text-books  and  in  decisions  of  other  courts.  If  this  is 
a  correct  interpretation  of  our  cases  on  this  subject,  we  would  not 
hesitate  to  hold  that  they  were  not  well  decided ;  but,  while  some 
of  them  certainly  give  color  to  this  view,  we  think  that  a  more  care- 
ful consideration  of  our  decisions  will  disclose  that  in  all  of  them, 
where  the  contract  was  declared  void  or  set  aside,  it  appeared  that 
the  assignment  of  the  policy  to  one  having  no  insurable  interest  was 
made  in  pursuance  of  a  preconceived  purpose,  and  that  the  assignee 
had  suggested  the  arrangement  or  been  a  party  to  it.^^     *     *     * 

In  Vance  on  Insurance,  p.  140  et  seq.,  the  rule  is  thus  stated : 
"That  on  principle,  and  according  to  the  clear  weight  of  authority, 
an  assignment  of  a  life  policy  to  one  having  no  insurable  interest 
therein  is  perfectly  valid  if  made  in  good  faith,  and  not  as  a  cover 
for  fraudulent  speculation  in  life." 

And  referring  to  the  opinions  of  Warnock  v.  Davis,  104  U.  S.  775, 
26  L.  Ed.  924,  and  Cammack  y.  Lewis,  82  U.  S.  (15  Wall.)  643,  21  L. 

5  8  Here  the  court  distinguished  Hinton  v.  Mutual  Reserve  Fund  Life  Ass'n. 
135  N.  C.  314,  47  S.  E.  474,  65  L.  R.  A.  161,  102  Am.  S't.  Rep.  545  (1904),  Powell 
V.  Dewey,  123  N.  C.  103,  31  S.  E.  3S1.  68  Am.  St.  Rep.  818  (189S),  Collesie  v. 
Insurance  Co.,  113  N.  O.  244,  18  S.  E.  175,  22  L.  R.  A.  291  (1893),  Burbage 
V.  Windley,  108  N.  C.  357,  12  S.  E.  839,  12  L.  R.  A.  409  (1891),  and  Albert  v. 
Insurance  Co.,  122  N,  C.  92,  30  S.  E.  327,  65  Am.  St.  Rep.  693  (1898) .  A  quo- 
tation from  Crosswell  v.  Connecticut  Indemnity  Ass'n,  51  S.  C.  103,  28  S.  E. 
200  (1897),  is  also  omitted. 


Sec.  mULUABLS  ESTEBEST — LIFE    INSUBAXCB  185 

Ed.  244,  and  to  the  subject  generally,  the  author  says:  "These  con- 
fusing influences  have  further  been  aided  and  abetted  by  a  catch 
phrase,  which,  however,  does  not  state  the  issue  fairly,  to  the  effect 
that  the  law  will  not  allow  a  person  to  procure  by  assignment  insur- 
ance that  he  could  not  procure  directly.  A  fair  statement  of  the 
issue  is  found  in  the  postulate  that  the  law  will  allow  the  insured  to 
designate  a  beneficiary  under  the  policy  as  well  by  assignment  as 
by  original  nomination.  The  true  principle  governing  the  question 
may  be  derived  from  the  statement  of  some  generally  accepted  rules 
of  law : 

(1)  A  person  insuring  his  own  life  may  designate  any  person 
whatever  as  beneficiary,  irrespective  of  insurable  interest  in  that 
beneficiary.  (2)  The  law  requires  an  insurable  interest  only  at  the 
inception  of  the  policy,  as  evidence  of  good  faith.  The  presence  of 
such  interest  at  any  subsequent  period  is  wholly  immaterial.  (3) 
Life  insurance,  though  based  on  the  theory  of  indemnity  at  its  in- 
ception, is  not  a  contract  of  indemnity,  but  chiefly  of  investment. 
As  a  chose  in  action  it  has  at  any  time  after  its  issue  a  recognized 
value,  termed  the  'reserved  value.'  Hence  we  conclude  that  a  pol- 
icy of  life  insurance,  validly  issued  to  one  having  an  insurable  in- 
terest, becomes  in  his  hands  a  valuable  chose  in  action,  which  should 
be  assignable  as  any  other  property  right,  unless  such  assignment 
be  opposed  to  some  clear  rule  of  public  policy." 

This,  we  think,  correctly  states  the  true  doctrine,  and,  applied  to 
the  facts  admitted,  fully  justifies  the  court  below  in  overruling  de- 
fendant's demurrer,  and  the  judgment  to  that  efifect  is  affirmed. 

Aflirmed.^^ 

59  In  the  second  trial  of  this  case  it  was  proved  that  the  first  premiums  on 
the  policies  in  suit  were  paid  by  the  assignee.  Upon  the  argument  in  the 
supreme  court  on  appeal  from  a  judgment  in  the  trial  court  in  favor  of  the 
plaintiff,  the  defendant  contended  that  the  fact  of  such  payment  by  the  as- 
signee brought  the  case  within  the  principle  of  Warnock  v.  Davis,  104  U.  S. 
775.  26  L.  Ed.  924  (1S81),  and  made  the  assignment  clearly  a  fraudulent  vio- 
lation of  the  rule  prohibiting  insurance  without  interest.  In  response  to  this 
argument,  the  supreme  court  said:  "It  is  also  clear,  we  think,  that  the  pay- 
ment of  the  first  premium  by  the  plaintiff  does  not  invalidate  the  policies, 
as  it  appears  that  he  did  not  procure  the  issuance  of  the  policies,  and  knew 
nothing  of  the  transaction  before  the  policies  and  assignments  were  brought 
to  him."  Hardy  v.  Insurance  Co.,  154  N.  C.  430,  70  S.  E.  828  (1911).  The 
same  conclusion  was  reached  in  Shea  v.  Mass.  Benevolent  Association,  IGO 
Mass.  291,  35  N.  E.  855,  39  Am.  St.  Rep.  475  (1894).  and  in  Mut.  Life  Ins. 
Co.  V.  Blodgett,  8  Tex.  Civ.  App.  48,  27  S.  W.  286  (1894).  See,  also,  .^tna 
Life  Ins.  Co.  v.  France,  94  U.  S.  565,  24  L.  Ed.  287  (1876). 

The  rule  announced  in  the  principal  case  was  expressly  affirmed  in  Johnson 
V.  Mut.  Ben.  Life  Ins.  Co.,  157  N.  C.  106,  72  S.  E.  847  (1911).  Compare  with 
the  principal  case  Trinity  College  v.  Travelers'  Insurance  Co.,  113  N.  C.  244, 
18  S.  E.  175,  22  L.  R.  A.  291  (1893),  in  which  it  was  held  that  a  policy  issued 
to  the  life  insured,  but  immediately  assigned  to  the  college,  which  paid  the 
first  premium  in  accordance  with  a  previous  arrangement,  was  wholly  void. 


186  MAKING    THE    CONTRACT  (Ch.  3 

CHAPTER  III 
MAKING  THE  CONTRACT 


SECTION  1.— THE  AGREEMENT 


TRUSTEES  OF  FIRST  BAPTIST  CHURCH  v.  BROOKLYN 

FIRE  INS.  CO. 

(Court  of  Appeals  of  New  York,  1S59.     19  N.  Y.  305.) 

Appeal  from  the  Supreme  Court.  Action  to  recover  $5,000,  the 
amount  of  an  insurance  against  fire,  alleged  to  have  been  made  by 
the  defendant.  At  the  trial  the  plaintiff  proved  the  execution,  by 
the  defendant,  on  the  21st  of  July,  1845,  of  a  fire  policy  on  the  plain- 
tiff's church,  for  $5,000,  insuring  the  premises  for  one  year.  It  con- 
tained a  provision  that  the  insurance  might  be  continued  for  such 
further  term  as  might  be  agreed  on,  "provided  the  premium  therefor 
is  paid  and  indorsed  on  this  policy,  or  a  receipt  given  for  the  same :" 
and  one  of  the  conditions  annexed  and  forming  a  part  of  the  con- 
tract was  that  "no  insurance,  whether  original  or  continued,  shall 
be  considered  as  binding  until  the  actual  payment  of  the  premium." 
The  plaintiff'  proved  two  renewal  receipts,  executed  by  the  defend- 
ant, one  continuing  the  policy  in  force  for  one  year  from  its  date, 
July  21,  1846,  and  the  other,  dated  July  21,  1847,  continuing  it  in 
force  for  another  year.  It  was  admitted  that  the  church  was  wholly 
destroyed  by  fire  September  10,  1848. 

The  plaintiff  then  off"ered  to  prove  that  while  the  original  policy 
was  running,  a  verbal  agreement  was  made  between  the  plaintiff 
and  defendant,  that  until  notice  to  the  contrary  should  be  given  by 
one  party  to  the  other,  the  defendant  should  renew  the  policy  from 
year  to  year,  without  further  notice,  and  give  a  certificate  of  re- 
newal, and  the  plaintiff  should  pay  the  premium  therefor  on  de- 
mand ;  that  it  was  the  usage  of  the  defendant,  from  1844  to  1849,  to 
make  such  verbal  agreements  and  to  pay  losses  in  pursuance  there- 
of;  that  in  pursuance  of  said  agreement,  in  this  case,  the  defendant 
renewed  the  policy  in  1846  and  1847,  and  gave  certificates  of  renew- 
al, and  after  receiving  such  certificate,  the  plaintiff,  within  a  few 
days,  paid  the  premium  therefor;  and  that  the  certificate  given  in 
1847  was  given  after  the  21st  of  July  of  that  year.  Upon  objection 
by  the  defendant,  the  judge  excluded  the  evidence,  and  the  plain- 
tiff took  an  exception.     The  judge  then  dismissed  the  complaint, 


Sec.  1)  THE    AGREEMENT  187 

on  the  ground  that  no  evidence  was  offered  of  a  written  contract, 
and  the  plaintiff  took  an  exception.  On  appeal,  the  judgment  for 
the  defendant  was  affirmed  at  general  term  in  the  first  district,  and 
the  plaintiff  appealed  to  this  court. 

CoMSTQCK,  J.  The  alleged  agreement  on  which  the  suit  is 
founded  was  to  renew  a  policy  of  insurance  from  year  to  year  in  con- 
sideration of  a  premium  to  be  annually  paid,  either  party  being  at 
liberty  to  give  notice  at  any  time  that  the  arrangement  would  not  be 
continued.  Such  an  agreement  although  not  in  writing,  is  not  void 
by  the  statute  of  frauds,  on  the  ground  that  "by  its  terms  it  is  not  to  be 
performed  within  one  year  from  the  making  thereof."  2  R.  S.  135,  §  2. 
It  is  not  the  meaning  of  the  statute  that  the  contract  must  be  perform- 
ed within  a  year.  If  it  can  be  so  performed  consistently  with  the  lan- 
guage in  which  the  parties  have  expressed  themselves,  in  other  words, 
if  the  obligation  of  the  contract  is  not,  by  its  very  terms,  or  neces- 
sary construction,  to  endure  for  a  longer  period  than  one  year,  it  is 
a  valid  agreement,  although  it  may  be  capable  of  an  indefinite  con- 
tinuance. An  agreement,  which  either  party  can  terminate  at  any 
time  by  a  notice  to  the  other,  may  be  binding  so  long  as  the  notice 
is  not  given,  but  it  is  not  within  the  language  or  policy  of  the  stat- 
ute. Plimpton  V.  Curtiss,  15  Wend.,  336;  Moore  v.  Fox,  10  John.  244; 
Fenton  v.  Embler,  3  Burr.,  1278;   2  Parsons  on  Con.  316,  and  note. 

Aside  from  the  objection  just  considered,  contracts  of  insurance, 
whether  executory  or  importing  a  present  risk,  are  not  required 
by  any  statute  to  be  in  writing ;  and  we  are  therefore  next  to  inquire 
whether,  if  made  by  parol,  they  are  valid  upon  general  principles  of 
law.  A  policy  of  insurance  is  a  mercantile  contract,  having  its  origin 
in,  and  deriving  its  incidents  from,  the  usages  and  laws  of  commer- 
cial nations.  In  many  of  the  couhtries  of  Europe  the  contract  is  re- 
quired to  be  in  writing  by  positive  ordinances,  which  set  forth  mi- 
nutely the  circumstances  and  the  stipulations  which  it  ought  to  ex- 
press. 1  Duer  on  Ins.,  61.  The  same  is  true  of  marine  insurances 
in  Great  Britain,  a  written  policy  being  required  by  the  Stamp  Acts. 
35  George  III,  ch.  63.  Such  is  also,  undoubtedly,  the  usage  in  this 
country;  and,  indeed,  the  very  term  "policy"  imports  that  the  party 
insured  holds  a  written  instrument  to  which  that  name  has  been  giv- 
en. It  seems,  however,  that  even  in  the  continental  countries  of  Eur- 
ope, where  formal  policies  are  required  by  the  codes  of  public  law, 
unwritten  agreements  to  insure  will,  in  some  circumstances,  be  exe- 
cuted by  the  courts  of  justice.  3.  Boulay  Du  Paty,  246;  2  Valin,  20; 
Pothier,  Traite  du  Contrat  d'Assurance,  n.,  96,  97. 

In  this  state,  we  have  no  positive  kiw  on  the  subject.  The  contract, 
as  I  have  said,  had  its  origin  in  mercantile  law  and  usage.  It  has, 
however,  become  so  thoroughly  incorporated  into  our  municipal 
system,  that  a  distinction  which  denies  the  power  and  capacity  of  en- 
tering into  agreements  in  the  nature  of  insurances,  except  in  partic- 
ular modes  and  forms,  rests  upon  no  foundation.     The  common  law, 


188  MAKING    THE    CONTRACT  (Cll.  3 

with  certain  exceptions,  having  regard  to  age,  mental  soundness,  etc., 
concedes  to  every  person  the  general  capacity  of  entering  into  con- 
tracts. This  capacity  relates  to  all  subjects  alike,  concerning  which 
contracts  may  be  lawfully  made,  and  it  exists  under  no  restraints  in 
the  mode  of  contracting,  except  those  which  are  imposed  by  legis- 
lative authority.  There  is  nothing  in  the  nature  of  insurance  which 
requires  written  evidence  of  the  contract.  To  deny,  therefore,  that 
parol  agreements  to  insure  are  valid,  would  be  simply  to  afifirm  the 
incapacity  of  parties  to  contract  where  no  such  incapacity  exists,  ac- 
cording to  any  known  rule  of  reason  or  of  law.  The  Supreme  Court 
of  the  United  States,  in  a  recent  case  in  which  the  question  directly 
arose,  has  determined  that  a  parol  agreement  to  make  and  deliver  a 
policy  of  insurance,  need  not  be  in  writing.  Commercial  Mut.  Ma- 
rine Ins.  Co.  V.  Union  Mut.  Ins.  Co.,  19  How.  (U.  S.)  318,  15  L.  Ed. 
636.  We  do  not  hesitate  to  adopt  that  conclusion,  and  it  follows  that 
the  objection  made  at  the  trial  to  the  agreement  offered  to  be  proved, 
so  far  as  it  rests  upon  this  ground,  cannot  be  maintained. 

We  come,  then,  to  the  question,  whether  the  alleged  parol  agree- 
ment in  this  case  was  void  by  reason  of  any  restraints  contained  in 
the  charter  of  the  defendants  as  a  corporation.  The  defendants  were 
chartered  by  an  act  of  the  Legislature  passed  in  1824.  Laws  of  1824, 
ch.  166,  p.  175.  The  1st  section  of  the  act  declares  that  the  company 
"shall  be  in  law  capable  [amongst  other  things]  of  contracting  and 
being  contracted  with  relative  to  the  funds  of  the  said  corporation 
and  the  business  and  purposes  for  which  the  said  corporation  is  here- 
by created,  as  hereinafter  declared."  The  2d  section  declares  "that 
the  corporation  hereby  created  is  so  created  for  the  purposes  afore- 
said, and  shall  have  power  and  authority  to  make  contracts  of  in- 
surance with  any  person  or  persons,  body  politic  or  corporate,  against 
loss,  etc.,  for  such  times  or  time,  and  for  such  premium  or  considera- 
tion, and  under  such  modifications  or  restrictions,  as  may  be  agreed 
on  between  the  said  corporation  and  the  person  or  persons  agreeing 
with  them  for  such  insurance."  The  10th  section  declares  "that  the 
policies  of  insurance,  and  other  contracts  founded  thereon,  thereafter 
to  be  made  or  entered  into  by  the  said  corporation,  though  not  under 
seal,  if  subscribed  by  the  president,  *  *  *  and  countersigned  by 
the  secretary,  shall  be  binding  and  obligatory  upon  the  said  corpora- 
tion, and  shall  have  the  like  force  and  efifoct,  to  all  intents  and  pur- 
poses, as  if  the  seal  of  the  said  corporation  had  been  or  was  affixed 
thereto." 

The  argument  on  behalf  of  the  defendants  is,  that  their  charter, 
being  the  enabling  act  which  alone  authorized  them  to  contract  at 
all,  and  the  10th  section  having  specified  the  mode  of  making  con- 
tracts of  insurance,  all  other  modes  and  forms  of  making,  or  agree- 
ing to  make  insurance  are  necessarily  excluded,  and,  hence,  that  the 
parol  agreement  alleged  to  have  been  entered  into  with  the  plaintiffs 
was  unauthorized  and  void. 


Sec.  1)  THE    AGREEMENT  189 

It  needs  no  argument  or  authority  to  prove  that  corporations  must 
act  within  the  powers  conferred  by  the  organic  laws  under  which 
they  are  created.  It  may  also,  for  the  present  purpose,  be  conceded, 
that  they  can  disaffirm  the  most  solemn  and  meritorious  engagements 
entered  into  by  them  in  excess  of  those  powers.  These  rules  are  not 
inconsistent  with  another,  which  is,  that  corporations,  along  with  the 
express  and  substantive  powers  conferred  by  their  charters,  take  by 
implication  all  the  reasonable  modes  of  execution  which  a  natural 
person  may  adopt  in  the  exercise  of  similar  powers.  The  business 
of  insurance,  for  example,  is  not,  in  its  nature,  a  corporate  franchise. 
Any  person  may  engage  in  it,  unless  forbidden  by  law ;  and  his  con- 
tracts of  that  nature,  whether  by  parol  or  in  writing,  as  we  have  seen, 
will  be  valid.  So,  when  a  general  authority  to  engage  in  that  busi- 
ness is  given  to  a  corporation  in  express  terms,  and  there  are  no  spe- 
cial restraints  in  its  charter,  it  takes  the  powder,  as  a  natural  person 
enjoys  it,  with  all  its  incidents  and  accessories.  It  may  bind  itself  in 
any  mode  and  form  of  obligation  which  is  not  forbidden.  If  a  pri- 
vate person  can  agree  by  parol  to  make  insurance,  so  can  a  corporate 
body,  unless  the  power  of  thus  contracting  is  plainly  denied  to  it  by 
its  organic  law.  That  the  use  of  the  corporate  seal  to  attest  its  con- 
tracts is  unnecessary  has  long  been  settled. 

Referring  now  to  the  charter  of  the  defendants,  w^e  find,  in  the  pro- 
visions above  set  forth,  an  authority  to  make  contracts  of  insurance 
conferred  in  the  most  general  terms.  Unless  the  power  thus  given 
is  specially  restrained  in  the  10th  section,  it  can  be  executed  in  any 
manner  and  form  which  the  corporation  may  approve,  and  by  any 
agents  whom  it  may  authorize  to  contract  in  its  name.  The  power  is 
to  make  "contracts  of  insurance."  These  may  be  in  writing  or  by 
parol.  They  may  be  in  the  form  of  undertaking  which  imports  a 
present  risk  completely  assumed,  or  they  may  be  executory,  for  the 
delivery  of  a  policy  or  a  renewal  of  a  policy  at  a  future  day. 

Does,  then,  the  10th  section  abridge  the  powers  thus  given,  and 
confine  the  corporation  to  a  particular  mode  of  action,  as  well  as  to 
action  through  particular* ^agents?  We  are  clearly  of  opinion  that  it 
does  not.  This  provision  of  the  charter  merely  declares  that  the  con- 
tracts of  the  corporation,  without  the  corporate  seal,  and  if  signed 
and  countersigned  by  the  president  and  secretary,  shall  be  valid  and 
obligatory.  Now,  corporations  always  and  of  necessity  act  by  agents ; 
and,  in  granting  their  charters,  it  is  a  practice  eminently  covenient 
and  proper,  and,  moreover,  a  very  usual  one,  to  specify  the  mode  in 
which,  and  the  agent  or  agents  by  whom,  their  contracts  may  be  exe- 
cuted so  as  to  bind  the  artificial  body.  Such  a  specification  forecloses 
all  question  and  doubt,  and  relieves  the  parties  with  whom  contracts 
are  thus  executed  from  the  burden  of  proving  that  the  agents  with 
whom  they  deal  have  acted  by  due  authority.  Buckley  v.  Derby  Fish- 
ing Co.,  2  Conn.,  252,  7  Am.  Dec.  271 ;   Safford  v.  Wykoflf,  4  Hill, 


190  MAKING   THE    CONTRACT  (Ch.  3 

446,  447,  per  Walworth,  Chancellor ;  Barnes  v.  Ontario  Bank, 
19  N.  Y.,  152.  Such  specifications  do  not  subtract  any  thing  from 
the  general  powers  which  corporate  bodies  take  under  their  charters. 
Within  those  powers,  they  may  contract  in  other  modes ;  and  all 
the  authority  which  they  possess,  they  may  delegate  to  other  agents. 
That  the  Legislature  may  restrict  them  in  these  respects  is  not  denied ; 
but  restrictions  of  such  a  nature  are  founded  in  no  policy,  and  they 
are  rarely,  if  ever,  imposed.  They  clearly  are  not  contained  in  the 
charter  under  consideration. 

It  is  further  contended,  that  proof  of  the  alleged  agreement  was  in- 
admissible, on  the  ground  that  it  was  opposed  to  the  stipulations  for 
renewal  contained  in  the  written  policy  originally  delivered,  and  would 
be  in  contradiction  of  the  terms  of  that  instrument.  In  the  body  of 
the  policy,  it  was  declared  that  the  insurance  (the  risk  not  being 
changed)  might  be  continued  for  such  further  term  as  should  be 
agreed  on,  "provided  the  premium  therefor  was  paid  and  indorsed  on 
the  policy,  or  a  receipt  given  for  the  same;"  and  in  the  conditions 
annexed  and  forming  a  part  of  the  contract,  it  was  set  forth  that  no 
insurance,  whether  original  or  continued,  should  be  considered  as 
binding  until  the  actual  payment  of  the  premium.  These  clauses  of 
the  contract  cannot  have  the  controlling  influence  which  is  claimed 
for  them.  A  provision  in  a  policy  already  executed  and  delivered  so 
as  to  bind  the  company,  declaratory  of  a  condition  that  premiums 
must  be  paid  in  advance,  manifestly  has  no  effect  except  to  impart 
convenient  information  to  persons  who  may  wish  to  be  insured.  As 
such  a  provision  in  the  policy  in  question  could  have  no  effect  upon 
the  delivered  and  perfect  contract  in  which  it  was  contained,  so  it 
could  have  none  to  prevent  the  same  parties  from  making  such  future 
contract  as  they  pleased.  In  any  subsequent  agreement  for  a  re- 
newal or  continuation  of  the  risk,  it  was  competent  for  the  parties  to 
contract  by  parol,  and  to  waive  the  payment 'in  cash  of  the  premium, 
substituting  therefor  a  promise  to  pay  on  demand  or  at  a  future  day. 
Proof  of  such  an  agreement  would  have  no  tendency  to  contradict 
or  to  change  the  written  policy  already  in  force  between  the  parties, 
and  which  would  be  wholly  spent  before  the  new  agreement  could 
take  its  place.     This  is  too  plain  to  require  further  elucidation. 

The  judgment  must  be  reversed,  and  a  new  trial  granted. 

Gray  and  Grovkr,  JJ.,  expressed  no  opinion.  All  the  other  judges 
concurring. 

Judgment  reversed,  and  new  trial  ordered. 


Sec.  1)  THE   AGREEMENT  191 

SCAMMELL  et  al.  v.  CHINA  MUT.  INS.  CO. 

(Supreme  Judicial  Court  of  Massachusetts.     Suffolk,  1895.     164  Mass.  341,  41 
N.  E.  G49,  49  Am.  St.  Rep.  402.) 

Report  from  Superior  Court,  Suffolk  County;  James  R.  Dunbar, 
Judge. 

Action  by  John  W.  Scammell  and  others  against  the  China  Mu- 
tual Insurance  Company,  for  insurance.  A  verdict  was  directed  for 
defendant,  and  the  casfe  reported  to  this  court,  judgment  to  be  en- 
tered on  verdict  if  the  ruling  was  correct;  otherwise,  to  stand  for 
trial.    Judgment  on  verdict. 

Knowlton,  J.  The  memorandum  relied  on  by  the  plaintiffs  as 
a  contract  is  in  the  form  of  an  application  for  insurance,  containing 
a  brief  statement  of  particulars,  and  is  marked  "binding."  At  the 
bottom  are  the  words,  "Send  policy  to  Walker  &  Hughes,  63  Wall 
street.  New  York."  On  its  face  it  purports  to  be  a  preliminary  and 
temporary  arrangement,  which  contemplates  the  making  of  a  full 
and  definite  contract  in  the  form  of  a  policy  covering  the  same  sub- 
ject, with  additional  provisions.  The  premium  which  is  to  be  paid 
as  the  consideration  for  the  insurance,  and  which  is,  perhaps,  the 
most  important  of  the  terms  of  the  contract,  is  not  fixed,  but  is  left 
to  be  agreed  upon  when  further  information  is  obtained.  At  the 
time  of  the  application  the  only  information  which  the  parties  had 
in  regard  to  the  freight  which  was  the  subject  of  the  insurance  was 
derived  from  a  very  brief  telegraphic  message.  Several  of  the  par- 
ticulars given  in  the  application  are  stated  in  the  most  general 
terms,  and  against  the  word  "premium"  are  written  the  words, 
"open  for  particulars." 

It  is  contended  with  much  force  by  the  defendant  that  the  memor- 
andum lacks  the  essential  features  of  a  contract,  in  its  failure  to  fix 
exactly  the  amount  of  the  insurance,  or  to  state  the  rate  of  premi- 
um, and  authorities  are  cited  which  go  far  towards  sustaining  this 
contention.  Hartshorn  v.  Insurance  Co.,  15  Gray,  240,  244,  247,  249; 
Insurance  Co.  v.  W^right,  23  How.  401,  408,  409,  16  L.  Ed.  524; 
Insurance  Co.  v.  Ewing,  92  U.  S.  377-381,  23  L.  Ed.  610;  Kimball 
v.  Insurance  Co.,  17  Fed.  625;  Hamilton  v.  Insurance  Co.,  5  Pa. 
339;  Strohn  v.  Insurance  Co.,  37  Wis.  625-631,  19  Am.  Rep.  777. 
In  order  to  bind  the  parties  by  a  contract  of  insurance,  all  the  essen- 
tial elements  of  the  contract  must  be  agreed  upon,  but  in  a  case  like 
this,  where  it  is  impossible  at  the  time  to  obtain  important  facts 
affecting  the  subject  of  their  dealings,  the  parties  may  make  a  gen- 
eral agreement  to  accomplish  their  purpose  as  well  as  they  can. 
The  memorandum,  applied  to  the  admitted  facts  in  this  case,  shows 
plainly  that  the  parties  desired  to  enter  into  a  definite  contract  of 
msurance,  in  the  form  of  a  policy  which  should  clearly  state  their 
rights  and  obligations.    They  had  not  sufficient  facts  in  their  pos- 


192  MAKING    THE    CONTRACT  (Cll.  3 

session  to  enable  them  to  determine  what  would  he  a  reasonable 
rate  of  premium,  and  the  defendant  declined  to  fix  the  premium  un- 
til further  information  could  be  obtained.  The  risk  was  to  com- 
mence soon,  and  the  plaintififs  desired  to  be  protected  from  the  in- 
ception of  it.  The  defendant  was  willing  to  give  them  this  protec- 
tion on  reasonable  terms,  and  both  parties  doubtless  expected  that 
the  additional  information  necessary  to  enable  them  to  make  the 
final  contract  for  the  voyage  would  soon  be  obtained.  They  there- 
fore agreed  that  the  insurance  should  be  binding,  to  the  amount  of 
$3,000,  temporarily,  at  a  rate  of  premium  which  should  be  fair  and 
reasonable,  until  such  time  as  the  rate  could  be  fixed  and  the  con- 
templated contract  entered  into.  Each  doubtless  thought  the  other 
would  act  reasonably,  by  agreeing  to  a  fair  rate  of  premium,  when 
the  time  should  come  for  making  the  final  contract,  and  each  was 
willing  to  trust  the  other  to  that  extent.  Plainly,  neither  of  them 
expected  this  to  be  anything  more  than  a  temporary  arrangement 
to  meet  the  emergency  until  further  particulars  could  be  obtained. 
We  think  this  was  a  binding  contract  for  the  purpose  for  which 
it  was  made.  If  the  vessel  had  sailed,  and  had  been  lost  at  sea,  be- 
fore the  plaintififs  had  a  reasonable  opportunity  to  furnish  the  fur- 
ther particulars,  the  defendant  would  have  been  bound  to  pay  the 
insurance,  and  the  plaintififs  would  have  been  bound  to  pay  a  pre- 
mium, at  a  reasonable  rate,  for  the  risk  as  it  was  when  the  contract 
was  made.  If  the  plaintififs,  when  they  received  the  charter  party, 
had  communicated  the  additional  information  obtained  from  it  to 
the  defendant,  the  parties  would  probably  have  agreed  upon  a  rate 
of  premium,  and  have  embodied  their  contract,  as  then  made,  in  a 
policy.  But,  if  they  had  been  unable  to  agree  upon  the  premium, 
their  temporary  contract  would  have  been  terminated  by  its  own 
limitation ;  the  plaintififs  would  have  been  at  liberty  to  seek  insur- 
ance elsewhere,  and  would  have  been  liable  to  pay  the  defendant,  at 
a  reasonable  rate,  for  the  time  the  insurance  had  continued.  The 
legal  efifect  of  the  memorandum  is  the  same  as  if  it  stated,  in  terms, 
that  the  insurance  should  continue,  at  a  reasonable  rate  of  premium, 
until  the  plaintififs  had  an  opportunity  to  furnish  the  further  par- 
ticulars;  that  the  plaintififs  would  furnish  them,  and  that  both  par- 
ties would  then  endeavor  to  agree  upon  a  premium,  and  make  a 
contract  in  the  form  of  a  policy.  The  plaintififs  were  bound  by  their 
implied  agreement  to  furnish  the  particulars  without  unreasonable 
delay,  and  upon  their  failure  to  do  so  the  preliminary  contract  of 
insurance  came  to  an  end.  This  is  in  accordance  with  the  decision 
in  Baker  v.  Assurance  Co.,  162  Mass.  358,  38  N,  E.  1124,  although  in 
that  case  the  agents  who  made  the  agreement  had  their  offices  side 
by  side  in  the  same  building;  and  it  was  held,  upon  the  conflicting 
testimony,  that  there  might  have  been  a  finding  either  that  the  parol 
contract  was  for  insurance  to  continue  temporarily,  for  a  short  time, 
until  one  of  the  agents  should  terminate  it,  or  that  it  should  contin- 


Sec.  1)  TIIIO    AGREEMENT  103 

lie  only  until  the  expiration  of  a  reasonable  time  to  enable  the  plain- 
tiffs to  ascertain  in  what  terms  they  wished  to  take  policies  in  writ- 
ing. It  was  held  that  there  was  no  evidence  which  would  warrant 
a  finding-  that  there  was  a  contract  of  insurance  for  a  year. 

In  the  present  case  all  the  additional  facts  necessary  to  enaljle  the 
parties  to  complete  their  contract,  and  to  put  it  in  the  form  of  a 
policy,  were  known  to  the  plaintiffs  as  soon  as  they  received  the 
charter  party.  This  was  sent  them  by  the  master  of  the  vessel,  and 
they  received  it  about  September  12,  1890.  The  memorandum  sued 
on  bears  date  July  30,  1890.  The  vessel  did  not  sail  on  the  voyage 
by  which  the  freight  w^as  to  be  earned  until  September  22,  1890. 
The  two  particulars  of  which  the  parties  were  ignorant,  which  were 
important  in  determining  the  rate  of  premium  to  be  paid,  were  the 
nature  of  the  cargo  and  the  port  of  destination.  The  cablegram 
which  furnished  their  only  information  on  the  subject  was  in  these 
words :  "The  vessel  is  fixed  to  load  on  the  spot.  Wood,  forty 
francs.  Queenstown,  etc.  for  orders.  U.  K.  or  continent."  The 
charter  party  shows  that  the  cargo  was  to  be  Quebracho  wood,  in 
logs,  and  contains  stipulations  in  regard  to  their  length,  and  how 
they  should  be  loaded.  The  charter  party  also  shows  that  the  vessel 
was  to  proceed  to  Queenstown,  Falmouth,  or  Plymouth  for  orders, 
and  was  liable  to  be  ordered  to  any  port  in  the  United  Kingdom,  or 
on  the  continent  between  Hamburg  and  Havre,  Rouen  excepted.  It 
also  contains  provisions  in  regard  to  the  mode  of  giving  the  orders. 
There  was  uncontradicted  testimony  that  this  kind  of  wood  was 
very  heavy,  and  was  considered  an  undesirable  risk.  There  w'as 
also  evidence,  which  was  not  disputed,  that  the  language  of  the 
cablegram  and  of  the  memorandum,  "on  the  continent,"  might  in- 
clude St.  Petersburg  and  ports  on  the  North  Sea,  for  which  rates 
of  insurance  for  a  vessel  starting  at  that  season  of  the  year  would 
be  very  high,  and  that  the  charter  party  included  only  the  usual 
range  of  ports  on  the  continent. 

The  plaintiffs'  agent  testified,  and  it  was  not  denied,  that  he  tried 
to  have  the  defendant's  agent  fix  the  rate  of  premium  when  the  ap- 
plication was  presented,  but  the  def-endant's  agent  said  he  would 
rather  leave  it  open  for  particulars  of  the  cargo.  There  is  nothing 
in  the  circumstances  to  show  that  the  rate  of  premium  was  to  be 
kept  open  for  any  other  particulars  .than  those  which  were  shown 
by  the  charter  party,  and  these  were  in  the  possession  of  the  plain- 
tiffs, at  their  office  in  St.  John,  10  days  before  the  vessel  sailed.  It 
was  the  duty  of  the  plaintiffs  to  communicate  these  facts  to  the  de- 
fendant at  once,  upon  their  receipt  of  them.  Instead  of  doing  so, 
they  made  no  communication  to  the  defendant  until  February  11, 
1891,  when  they  made  a  claim  for  a  total  loss.  They  broke  their 
implied  contract  when  they  neglected  to  communicate  these  facts 
within  a  reasonable  time  after  the  receipt  of  the  charter  party. 
Vance  Ins. — 13 


194  MAKING   THE    CONTRACT  (Cll.  3 

Even  if  they  were  justified  in  waiting  for  the  letter  from  the  master 
of  the  vessel,  which  showed  the  exact  quantity  of  the  cargo,  they 
failed  to  furnish  the  particulars  to  the  defendant  within  a  reasonable 
time,  for  they  received  this  letter  on  October  27,  1890.  This  was  al- 
most two  months  before  they  got  information  of  the  loss  of  the  ves- 
sel, which  came  by  telegraph  on  December  16th.  The  vessel  was 
abandoned   at   sea  by  the  captain   and  crew  on  November   16th. 

There  is  no  ground  for  the  contention  that  the  contract  contemplat- 
ed a  delay  in  fixing  the  premium  until  the  voyage  should  be  made  to 
Queenstown,  Falmouth,  or  Plymouth,  and  orders  should  be  receiv- 
ed there  to  proceed  to  the  port  of  discharge.  To  wait  for  the  receipt 
of  these  orders,  and  the  communication  of  them  to  the  defendant  in 
the  ordinary  way,  would  be  to  postpone  the  making  of  the  contract 
of  insurance  until  after  the  termination  of  the  risk.  Upon  the  con- 
ceded facts  of  the  case,  the  plaintiffs  failed  to  furnish  the  defendant, 
within  a  reasonable  time,  with  the  facts  which  were  to  be  the  found- 
ation of  the  contemplated  substantive  contract  of  insurance,  and  the 
incidental  and  temporary  arrangement  made  at  the  time  of  the  ap- 
plication expired  by  the  limitation  which  was  one  of  its  implied 
terms.  The  construction  which  we  put  upon  this  preliminary  ar- 
rangement, in  regard  to  the  undertaking  of  the  plaintiffs  to  furnish 
additional  facts  without  unnecessary  delay,  accords  with  the  testi- 
mony of  all  the  experts  as  to  the  usage  in  similar  cases.  This  usage 
almost  necessarily  results  from  the  fact  that  the  essence  of  a  con- 
tract of  insurance  is  to  provide  indemnity  upon  the  payment  of  an 
agreed  sum,  and  not  to  insure  for  a  price  to  be  determined  upon  a 
quantum  valebat  after  the  termination  of  the  risk. 

We  see  no  error  in  the  exclusion  of  certain  answers  in  the  deposi- 
tions offered  by  the  plaintiffs.  Only  one  or  two  of  those  answers, 
if  received,  would  have  had  any  tendency  to  show  that  the  contract 
made  in  this  case  was  to  continue  after  the  time  when  the  plaintiffs 
should  have  furnished  additional  particulars  to  the  defendants,  and 
these  were  statements  of  the  understanding  of  insurers,  which  were 
not  competent  to  affect  the  interpretation  which  the  law  gives  to 
such  a  contract.  Odiorne  v.  Insurance  Co.,  101  Mass.  551-553,  3 
Am.  Rep.  401 ;  Haskins  v.  Warren,  115  Mass.  514,  535,  536. 

A  majority  of  the  court  are  of  opinion  that  there  should  be  judg- 
ment on  the  verdict. 


Sec.  1)  THE    AGREEMENT  195 

DUFFY  V.  BANKERS'  LIFE  ASS'N  OF  DES  MOINES. 

(Supreme  Court  of  Iowa,  1913.     139  N.  W.  1087.) 

Action  for  damages  resulted  in  a  directed  verdict  for  defendant 
and  judgment  thereon.  The  plaintiff  and  intervener  appeal.  Af- 
firmed in  part  and  reversed  in  part. 

Ladd,  J.  The  plaintiff  is  the  widow  of  Joseph  M.  Duffy,  who 
departed  this  life  July  9,  1911.  He  had  applied  to  the  defendant  as- 
sociation on  June  8th  preceding  for  a  certificate  of  membership 
therein,  stipulating  the  payment  of  an  indemnity  of  $2,000  upon  his 
death;  but  the  association  had  failed  to  accept  or  reject  the  applica- 
tion, and,  in  this  action,  recovery  of  that  amount  as  damages  is 
sought  by  plaintiff,  who  was  named  as  proposed  beneficiary  in  the 
application,  on  the  ground  "that  defendant  negligently  failed  to 
take  any  action  upon  said  application  before  the  death  of  said  Jos- 
eph M.  Duft'y  and  negligently  failed  either  to  issue  to  him  a  certifi- 
cate of  insurance  as  provided  for  therein  or  to  reject  said  applica- 
tion and  give  him  notice  thereof  in  sufficient  time  to  enable  him  to 
procure  other  insurance,"  and,  in  consequence  of  such  negligence, 
she  was  deprived  of  the  benefit  of  the  insurance. 

The  widow,  as  a  duly  appointed  and  qualified  administratrix,  filed 
a  petition  of  intervention,  wherein  she  prayed  judgment  for  dam- 
ages to  the  estate  of  deceased  on  the  grounds :  "That  defendant's 
said  agent  carelessly  and  negligently  failed  to  send  the  application 
of  said  decedent  to  the  home  office  of  the  defendant  association  aft- 
er he  had  been  examined  by  defendant's  examining  physician  at  Ta- 
ma, Iowa ;  that,  in  consequence  of  such  negligence  on  the  part  of 
said  agent,  no  policy  or  certificate  of  life  insurance  was  issued  to 
said  applicant  by  the  defendant  association;  that,  if  said  application 
had  been  forwarded  by  said  agent  to  the  home  office  of  the  defend- 
ant association  as  soon  as  said  applicant  was  examined  by  defend- 
ant's examining  physician  at  Tama,  Iowa,  the  defendant  association 
would  have  issued  and  delivered  a  policy  or  certificate  of  life  insur- 
ance for  $2,000  to  said  applicant  before  he  died,  and  such  insurance 
would  have  been  in  force  at  the  time  of  his  death."  At  the  conclu- 
sion of  plaintift''s  evidence,  the  court  directed  a  verdict  for  the  de- 
fendant, and  this  is  the  only  ruling  of  which  complaint  is  made. 

The  facts  admitted  or  proven  on  the  trial  first  should  be  stated. 
The  defendant  is  a  mutual  assessment  insurance  association.  T.  P. 
Rogers,  at  the  time  in  question,  was  its  general  agent,  and  had  au- 
thority from  the  association  to  take  the  application  and  receive  the 
notes  hereinafter  mentioned.  Duffy's  application  for  membership 
in  the  association  closed  in  words  following:  "I  agree  to  accept  the 
certificate  of  membership  issued  hereon  and  that  the  same  shall 
not  take  effect  until  said  certificate  (signed  by  the  secretary  or  as- 
sistant secretary)  is  issued  and  received  by  me  during  my  continu- 


196  MAKING    THE    CONTRACT  (Ch.  o 

ancc  in  g^ood  health.  This  ai)i)lic:iti()n  and  the  certificate  issued 
thereon,  together  with  the  articles  of  incorporation  and  by-laws 
(not  reducing  the  insurance  provided)  which  may  be  hereafter 
adopted,  shall  constitute  the  agreement  or  contract  between  me  and 
the  said  association.  I  certify  that  I  have  carefully  read  the  forego- 
ing application.  [Signature  of  the  applicant  in  his  own  handwrit- 
ing] Joseph  M.  Duffy."  This  was  at  the  date  mentioned,  and  at 
the  same  time  the  applicant  executed  to  Rogers  his  promissory  note 
for  $17  as  membership  fee  required  to  be  paid  when  making  such  ap- 
plication, and  delivered  to  Rogers  a  guarantee  deposit  note  for  $34 
required  by  the  articles  of  corporation  and  by-laws  of  defendant. 

For  these  Rogers  gave  Duffy  a  receipt  in  the  words  following: 
"The  Bankers'  Life  Association  of  Des  Moines,  Iowa.  I  have  this 
day  taken  the  application  of  Mr.  J.  M.  Duffy  of  Tama,  Iowa,  for 
$2,000  insurance  in  the  Bankers'  Life  Association,  upon  which  he 
has  given  his  guarantee  note  for  $34.00  and  paid  in  cash  January  9, 
1912,  $17.00,  all  of  which  is  to  be  returned  promptly  if  the  applica- 
tion is  declined.  The  first  quarterly  payment  on  the  insurance  ap- 
plied for  will  be  due  January  31,  1912.     T.  P.  Rogers,  Solicitor, 

Dated  at ,  June  8,  1911."     On  the  back  of  this  receipt,  this 

appears:  "Agents  should  not  promise  that  certificate  will  be  issued 
in  less  time  than  is  reasonably  assigned  to  do  the  work,  as  disap- 
pointment may  result,  especially  as  frequently  occurs,  an  extra 
amount  of  business  comes  in  a  bunch.  The  home  oflice  does  all  it 
can  to  expedite  the  issue  and  the  agent  can  add  material  help  if  he 
will  see  that  all  applications  are  properly  completed  and  full  infor- 
mation given.    If  delay  is  unusual  write  for  cause." 

Rogers  informed  Duffy  at  the  time  he  could  go  to  the  office  of  Dr. 
Thompson  within  a  day  or  two  for  examination,  and  the  application 
would  then  be  sent  to  the  association  and  explained  to  him  ;  that 
the  notes  would  be  returned  if  the  applications  were  rejected.  To 
his  inquiry  as  to  how  soon  the  insurance  would  be  in  force,  Rogers 
responded,  "Upon  the  passage  of  the  physical  examination  required 
by  their  physician."  Rogers  left  the  application  with  Dr.  Thompson 
on  the  same  day,  and  two  days  later  Duff'y  called  and  was  examined 
by  that  physician,  who  informed  the  applicant  that  he  had  passed 
a  satisfactory  examination  and  that  he  (the  doctor)  had  recommend- 
ed him  for  membership  of  the  association. 

As  required  by  defendant's  rules,  the  physician  mailed  to  Dr. 
Will,  medical  director  of  defendant,  on  the  same  day,  a  slip  of  paper 
signed  by  him  showing  that  he  had  made  the  medical  examination 
of  Duffy,  and  this  reached  defendant's  office  June  12,  1911.  Rogers 
had  been  in  the  habit  of  calling  at  Thompson's  office  for  the  applica- 
tion with  the  examination,  and  the  doctor  left  these  on  the  desk  for 
him,  where  it  remained  until  he  learned  that  Duffy  had  drowned, 
whereupon  the  physician  mailed  them  to  defendant.     The  medical 


Sec.  1)  THE    AGKEEMEXT  197 

examination  disclosed  that  Duffy,  who  was  32  years  of  age,  was  in 
fine  physical  condition.  He  is  conceded  to  have  been  a  man  of  good 
habits,  good  financial  ability,  and  of  good  moral  character.  He  had 
done  all  that  was  required  of  him  to  obtain  the  insurance.  The  de- 
fendant was  actively  engaged  through  its  agents  in  soliciting  mem- 
bers of  the  association  to  whom  certificates  of  insurance  might  be 
issued,  and  on  an  application  of  one  Herman,  procured  by  Rogers, 
June  5,  1911,  defendant  issued  a  certificate  June  24th  following. 
The  defendant  paid  the  $17  note  out  of  its  funds  and  caused  it  to 
be  canceled  July  28,  1911,  after  the  association  had  been  advised  of 
the  claim  now  made  against  it  in  this  action,  and  it  tendered  the  sur- 
render of  the  guaranteed  deposit  note. 

It  is  to  be  observed  that  the  petition  does  not  proceed  on  the  the- 
ory that  from  the  retention  of  the  application  and  unreasonable  time 
without  acting  thereon  acceptance  of  the  application  is  to  be  pre- 
sumed, nor  on  the  theory  that  defendant  is  estopped  from  denying 
such  acceptance  because  of  having  misled  the  applicant  in  some 
way.  See  Winchell  v.  Iowa  State  Ins.  Co.,  103  Iowa,  189,  72  N.  W. 
503.  The  action  is  not  based  on  contract  either  express  or  implied, 
but  solely  on  tort;  the  theory  of  the  plaintiff  being  that,  having  so- 
licited and  received  the  application  for  insurance,  it  owed  the  appli- 
cant the  affirmative  duty  either  of  rejecting  the  application  or  of  ac- 
cepting it  within  a  reasonable  time,  and  upon  breach  of  such  duty  it 
is  liable  for  all  damages  suffered  in  consequence  of  such  breach. 
Let  us  first  ascertain  whether  the  evidence  was  sufficient  to  carry 
the  issues  involved  in  such  a  claim  to  the  jury. 

I.  Might  defendant  have  been  found  to  have  been  negligent?  The 
association  was  responsible  for  the  conduct  of  Rogers  when  acting 
within  the  scope  of  his  agency,  and  it  is  admitted  that  he  allowed 
the  application  to  lie  on  the  physician's  desk  a  month  lacking  a  day, 
though  it  was  his  duty  to  forward  it  promptly  to  the  association. 
But  he  was  not  alone  at  fault,  for  the  association  was  aware  as  early 
as  June  12,  1911,  that  the  application  had  been  taken,  and  yet  did 
nothing  in  the  matter  during  the  27  days  intervening  his  death.  In 
the  case  of  another  application  taken  at  about  the  same  time  and  in 
the  same  vicinity  there  was  a  delay  of  but  19  days  in  issuing  the  cer- 
tificate. We  think  whether  defendant  in  the  exercise  of  ordinary 
diligence  should  have  passed  on  the  application  prior  to  Duffy's 
death  was  fairly  put  in  issue.  The  association  was  bound  by  the 
acts  of  its  agents  and  chargeable  with  any  consequences  that  result- 
ed from  the  failure  of  Rogers  to  promptly  forward  the  application 
and  physician's  report.  In  other  words,  if  the  association  was  under 
a  duty  to  promptly  act  on  the  application  and  notify  Duffy,  as  we 
think  it  was,  it  cannot  shield  itself  from  the  responsibility  by  the 
fact  that  the  application  and  medical  report  had  not  been  received 
by  it  and  therefore  it  could  not  act.    See  Northwestern  Mutual  Life 


198  MAKING    THE    CONTUACT  (Ch.  3 

Ins.  Co.  V.  Neafus,  145  Ky.  563,  140  S.  W.  1026,  36  L.  R.  A.  (N.  S.) 
1211.  The  possession  of  these  by  its  agent  had  the  same  effect  as 
if  they  were  in  the  possession  of  the  association  at  its  home  office. 
Assuming  then  that  the  application  and  medical  report  had  been 
promptly  forwarded  by  the  agent,  and  that  the  application  was  not 
accepted  or  rejected  within  the  time  intervening  prior  to  his  death, 
it  seems  manifest  that  whether  this  was  an  unreasonable  delay  was 
for  the  jury  to  determine,  and  we  so  hold. 

II.  But  it  is  argued  that  it  was  as  much  the  duty  of  the  applicant 
to  inquire  as  it  was  that  of  the  insurer  to  give  the  information,  and 
this  or  similar  expressions  will  be  found  in  several  decisions  holding 
that  mere  silence  on  the  part  of  the  insurer  is  not  as  strong  evidence 
of  acceptance  as  of  rejection.  Whether  this  were  so  or  not,  as  bear- 
ing on  whether  an  acceptance  should  have  been  inferred,  it  cannot 
be  said  that  the  duties  of  the  parties  were  reciprocal.  The  applicant 
had  done  all  he  could  or  was  required  to  do  in  the  matter.  He  had 
the  right  to  assume  that  the  application  would  be  forwarded  im- 
mediately after  the  medical  examination  and  was  so  assured.  This, 
with  the  suggestion  that  the  certificate  would  be  in  effect  after  pass- 
ing the  physical  examination,  was  well  calculated  to  lull  him  into 
supposed  security.  Moreover,  about  all  he  could  have  done  was  to 
withdraw  his  application  and  apply  to  another  insurer  for  a  policy, 
and  this,  one  who  has  applied  to  a  company  of  his  choice  would 
quite  naturally  hesitate  to  do.  Under  the  circumstances,  it  cannot 
be  said,  as  a  matter  of  law,  that  the  deceased  w^as  at  fault  in  not 
stirring  defendant  to  action  by  inquiry  as  to  the  cause  of  delay  or 
in  not  withdrawing  his  application.  At  the  most,  this  also  was  an 
issue  appropriate  for  the  determination  of  the  jury. 

III.  Assuming  then  that  the  defendant  was  negligent  and  Duffy 
without  fault  as  the  jury  might  have  concluded,  can  it  be  said  that 
but  for  such  negligence  a  certificate  of  insurance  would  have  been 
issued?  We  think  the  jury  might  have  found  that,  in  all  reasonable 
probability,  had  the  association  passed  upon  the  application,  it 
would  have  been  accepted.  Duffy  was  a  young  man  of  32  years,  his 
medical  examination  was  satisfactory,  and  the  physician  had  recom- 
mended him ;  his  employment  as  a  farmer  was  not  hazardous,  and 
his  character  all  that  could  be  desired.  The  association  was  actively 
soliciting  members,  and  it  seems  to  us  that  the  record  leaves  little  if 
any  doubt  but  that,  had  the  association  ever  passed  on  the  risk,  it 
would  have  been  accepted  and  the  certificate  issued.  As  observed  in 
Continental  Ins.  Co.  v.  Haynes,  10  Ky.  Law  Rep.  276:  "It  is  to  be 
assumed  that  the  company  will  accept  the  risk  if  advantageous  to  it, 
which  it  must  be,  if  fairly  and  honestly  contracted  for,  because  that 
is  the  business  in  which  it  is  engaged,  and  that  is  the  object  for 
which  its  agent  acted ;  and  therefore  to  allow  it,  under  the  reserva- 
tion of  the  right  to  approve,  to  reject  simply  because  a  loss  has  oc- 


Sec.  1)  THE    AGREEMENT  199 

curred,  would  destroy  the  mutuality  of  the  contract  and  inflict  upon 
the  party  the  misfortune  he  had  provided  against." 

Contingencies  might  have  arisen,  as  suggested  by  counsel  for  ap- 
pellee, which  would  have  led  to  a  different  conclusion,  as,  upon 
inquiry,  it  might  have  been  ascertained  that  applicant  was  so  ven- 
turesome or  reckless  in  his  conduct  as  to  render  him  an  undesirable 
risk.  It  is  enough  to  say  that  the  record  contains  no  intimation  that 
such  was  the  fact,  and  it  ought  not  to  be  inferred  that  other  than 
the  truth  would  have  been  elicited  by  any  inquiries  which  the  insur- 
er might  have  prosecuted.  If  the  applicant  was  of  such  disposition 
or  temperament  that  the  association  would  not,  if  it  had  acted,  have 
accepted  the  application  and  issued  the  certificate,  then  no  injury 
can  be  said  to  have  resulted  from  the  delay.  Whether  or  not  in  all 
reasonable  probability  the  certificate  would  have  been  issued  had 
the  association  acted  on  the  application  can  only  be  determined 
from  the  record  as  presented  to  the  court. 

But  it  is  said  that  a  certificate  or  policy  of  insurance  is  simply  a 
contract  like  any  other,  as  between  individuals,  and  that  there  is  no 
such  thing  as  negligence  of  a  party  in  the  matter  of  delay  in  enter- 
ing into  a  contract.  This  view  overlooks  the  fact  that  the  defend- 
ant holds  and  is  acting  under  a  franchise  from  the  state.  The  legis- 
lative policy,  in  granting  this,  proceeds  on  the  theory  that  charter- 
ing such  association  is  in  the  interest  of  the  public  to  the  end  that 
indemnity  on  specific  contingencies  shall  be  provided  those  who  are 
eligible  and  desire  it,  and  for  their  protection  the  state  regulates, 
inspects,  and  supervises  their  business.  Having  solicited  applica- 
tions for  insurance,  and  having  so  obtained  them  and  received  pay- 
ment of  the  fees  or  premiums  exacted,  they  are  bound  either  to  fur- 
nish the  indemnity  the  state  has  authorized  them  to  furnish  or  de- 
cline so  to  do  within  such  reasonable  time  as  will  enable  them  to 
act  intelligently  and  advisedly  thereon  or  suffer  the  consequences 
flowing  from  their  neglect  so  to  do.  Otherwise  the  applicant  is  un- 
duly delayed  in  obtaining  the  insurance  he  desires,  and  for  which 
the  law  has  afforded  the  opportunity,  and  which  the  insurer  implied- 
ly has  promised,  if  conditions  are  satisfactory.  Moreover,  policies 
or  certificates  of  insurance  ordinarily  are  dated  as  of  the  day  the 
application  is  signed,  and,  aside  from  other  considerations,  the  in- 
surer should  not  be  permitted  to  unduly  prolong  the  period  for 
which  it  is  exacting  the  payment  of  premium  without  incurring  risk. 

What  was  said  in  Northwestern  Mutual  Life  Ins.  Co.  v.  Neafus, 
145  Ky.  563,  140  S.  W.  1026,  36  L.  R.  A.  (N.  S.)  1211,  is  pertinent: 
"If  in  this  case  there  was  evidence  that  the  company  was  induced  to 
reject  the  application  for  the  sole  reason  that  Neafus  died  before  it 
acted  upon  it,  or  to  show  that  his  application,  except  for  the  fact  of 
his  death,  would  have  been  approved,  we  would  have  a  very  dift'er- 
ent  question.    We  think  there  is  a  sound  and  well-defined  distinc- 


200  MAKING    THE    CONTKACT  (Ch.  3 

tion  between  a  case  in  which  the  application  under  no  circumstances 
would  have  been  accepted  and  a  case  in  which  it  would  have  been 
accepted,  except  for  the  fact  that  the  applicant  died  before  it  was 
acted  upon,  and  after  the  company  had  a  reasonable  time  in  which 
to  act.  While  the  application  and  receipt  are  to  be  treated  merely 
as  a  proposal  for  insurance  that  it  is  with  the  company  at  its  elec- 
tion to  accept  or  reject,  it  may  well  be  said  that  the  company  must 
act  honestly  and  fairly  on  the  application  submitted  to  it,  and  which 
it  impliedly  at  least  agreed  to  accept,  if  satisfactory  to  it;  and  that 
if  an  application  is  satisfactory,  and  the  company,  if  it  had  acted  in  a 
reasonable  time,  would  have  accepted  the  risk,  it  should  not  be  al- 
lowed after  holding-  the  application  for  an  unreasonable  time  to  re- 
ject it,  solely  because  of  the  death  of  the  applicant.  But,  treating 
the  case  as  we  find  it  in  the  record,  the  delay,  however  unreasonable 
it  may  have  been,  cannot  be  construed  into  an  acceptance  of  an  ap- 
plication that  no  well-managed  company,  in  the  ordinary  course  of 
its  business,  would  have  accepted." 

In  Boyer  v.  State  Farmers'  Mutual  Hail  Ins.  Ass'n,  86  Kan.  442, 
121  Pac.  329,  40  L.  R.  A.  (N.  S.)  164,  recovery  for  the  amount  of  in- 
surance applied  for  was  awarded  because  of  negligent  delay  in  not 
issuing  the  policy  until  after  the  loss,  and  in  a  note  to  the  case  as 
reported  in  40  L.  R.  A.  (N.  S.)  164,  the  annotator  says  that :  "What- 
ever may  be  the  decision  of  the  jury  on  this  question  (delay),  it  can- 
not be  doubted  that  the  proposition  that  an  insurer  should  be  held 
liable  for  a  loss  sustained  by  an  applicant  for  insurance  because  of 
the  negligence  of  the  insurer's  agent  in  failing  to  forward  the  ap- 
plication within  a  reasonable  time  is  sound." 

In  Walker  v.  Farmers'  Ins.  Co.,  51  Iowa,  679,  2  N.  W.  583,  the 
trial  court  instructed  the  jury  that,  if  the  ag^ent  had  only  the  power 
"to  receive  and  forward  applications  to  the  company  for  their  ap- 
proval or  rejection,  then,  as  such,  he  would  be  held  to  the  use  of  or- 
dinary diligence,  and  the  defendant  would  be  liable  for  his  negli- 
gence in  the  performance  of  such  duty ;  and  if  you  find  that  said 
agent  neglected  to  forward  such  application  for  rejection  or  approv- 
al within  a  reasonable  time,  considering  all  the  circumstances,  then 
the  defendant  must  be  held  liable  for  any  loss  occasioned  by  such 
neglect."  Of  this,  the  court  said :  "It  may  be,  but  the  point  we  do 
not  decide,  that  defendant  is  liable  for  the  neglect  of  its  agent  as 
contemplated  in  this  instruction ;  but  in  order  to  recover  for  such 
negligence  the  action  must  be  based  thereon  and  the  petition  must 
so  declare."  And  the  instruction  was  held  to  be  erroneous  for  that 
no  such  issue  was  raised  on  the  pleadings.  We  are  inclined  to  the 
opinion  that  the  principle  announced  in  this  instruction  is  sound  and 
that  the  facts  of  the  case  were  such  as  to  require  its  application. 

IV.  The  application  named  plaintiff  as  his  beneficiary,  and,  had 
the  certificate  issued,  likely  she  would  have  been  named  therein  as 


Sec.  2)  THE   FORM  201 

such.  But  there  was  no  contract,  and  the  negligence,  if  any,  was 
that  of  failing  to  discharge  a  duty  owing  the  deceased.  Had  the 
certificate  issued,  whether  plaintiff  or  some  one  else  were  beneficiary 
would  have  been  optional  with  the  insured,  and  as  the  injury,  if  any, 
was  to  him,  his  representative  alone  can  maintain  the  action  for  re- 
sulting damages.  See  Schmidt  v.  Association,  112  Iowa,  41,  83  N. 
W.  800,  51  L.  R.  A.  141,  84  Am.  St.  Rep.  323. 

As  to  plaintiff  the  judgment  is  affirmed.  Because  of  the  error  in 
not  submitting  the  issues  to  the  jury,  the  judgment  against  the  in- 
tervener is  reversed. 

Preston,  J.,  takes  no  part.^ 


SECTION  2.— THE  FORM 


SALISBURY   et   al.   v.   HEKLA   FIRE   INS.   CO.   OF   MADI- 
SON, WIS. 

(Supreme  Court  of  Minnesota,  1884.     32  Minn.  458,  21  N.  W.  552.) 

Appeal  from  an  order  of  the  district  court,  Hennepin  county,  de- 
nying motion  for  a  new  trial. 

Gii^Fii^LAN,  C.  J.  Defendant,  by  its  agent  at  Minneapolis,  made 
orally  a  contract  with  plaintiffs,  acting  by  their  agent,  insuring  plain- 
tiffs' building  used  as  a  manufactory  in  the  sum  of  $150,  and  the 
stock  and  machinery  therein  in  the  sum  of  $350,  against  loss  by  fire, 
for  a  premium  at  the  rate  of  6  per  cent,  on  the  amount  of  insurance 
for  one  year,  the  risk  to  commence  at  once,  to-wit,  February  17, 
1883;  a  written  policy  to  be  made  and  delivered  as  soon  as  could  be 
done.  The  premium  was  not  then  paid,  and  nothing  was  said  as  to 
when  it  should  be.  On  the  night  of  February  18th,  the  manufactory 
then  running,  the  property  insured  was  destroyed  by  fire.  On  the 
morning  of  the  19th,  after  the  fire,  defendant's  agent  delivered  to  plain- 
tiffs' agent  a  policy  of  insurance.  February  23d,  plaintiffs  paid  the 
premium.  In  the  oral  agreement  nothing  was  said  about  any  condi- 
tions or  restrictions  of  insurance.  In  the  policy  delivered  there  was 
a  condition  that  it  should  be  void  if  the  manufactory  should  run  at 
night  or  overtime,  or  cease  to  be  operated,  without  the  consent  of 
defendant  indorsed  on  the  policy. 

The  controversy  is  as  to  whether  that  condition  attached  to  the 
contract  of  insurance  under  which  the  loss  occurred.  Was  that  con- 
dition a  part  of  the  contract  existing  at  the  time  of  the  fire?  Unless 
it  was,  it  has  no  influence  on  the  rights  of  the  parties.  Whether  it 
was  or  not  must  be  determined  by  what  was  said  between  them  or 

1  See  the  comment  on  this  case  in  27  Harvard  Law  Rev.  92. 


202  MAKING    THE    CONTRACT  (Ch.  3 

agfents  when  the  insurance  was  effected.  The  written  poHcy  made  out 
by  the  defendant  after  tlie  iire,  of  course,  cannot  be  conchisive.  In- 
deed, having  been  made  after  the  liabihty  accrued,  it  would  be  no  evi- 
dence of  the  contract  at  all,  were  it  not  for  its  delivery  to  and  retention 
by  plaintiffs.  Such  delivery  and  retention  may  be  taken  as  an  admis- 
sion by  plaintiffs  that  it  set  forth  the  terms  of  the  contract  as  agreed 
on,  which  might  be  rebutted  by  proof  of  what  the  contract  actually 
was.  And  in  view  of  the  fact  indicated  by  the  evidence,  that  the  plain- 
tiffs did  not  read  it,  it  would  not  be  very  strong  evidence  as  an  admis- 
sion. It  stands  on  an  entirely  different  footing  from  a  policy  deliv- 
ered and  accepted  before  the  loss.  For  in  that  case,  if  there  be  no 
fraud  or  mistake,  the  policy  in  the  contract,  (from  the  time  of  its  de- 
livery, at  any  rate,)  no  matter  what  may  have  been  the  negotiations 
which  led  to  it,  and  proof  of  such  negotiations  is  not  admissible  to 
contradict  its  terms. 

This  policy  did  not  exist  and  was  not  the  contract  at  the  time  of 
the  fire,  when  defendant's  liability  accrued.  The  only  contract  then  in 
force  was  oral,  and  the  rights  of  the  parties  must  be  measured  by  it. 
Upon  an  oral  contract  of  insurance,  where  nothing  is  said  about  con- 
ditions, if  a  policy  is  to  be  issued  the  parties  are  presumed  to  intend 
that  it  shall  contain  the  conditions  usually  inserted  in  policies  of  in- 
surance in  like  cases,  or  as  have  been  before  used  by  the  parties. 
That  a  particular  condition  is  usual  must  be  shown  by  the  party  who 
insists  upon  it,  who  has  the  affirmative.  There  was  no  evidence  that 
such  a  condition  as  this  is  usual.    Order  affirmed. 


HICKS  V.  BRITISH  AMERICA  ASSUR.  CO. 

(Court  of  Appeals  of  New  York,  1900.     162  N.  Y.  284,  56  N,  E.  743, 
48  L.  R.  A.  424.) 

Appeal  from  Supreme  Court,  Appellate  Division,  Fourth  Depart- 
ment. 

Action  by  Georgiana  Hicks  against  the  British  America  Assur- 
ance Company  on  a  contract.  From  a  judgment  in  plaintiff's  favor 
(43  N.  Y.  Supp.  623),  defendant  appeals.     Reversed. 

Parker,  C.  J.  We  are  agreed  that  the  verdict  of  the  jury  estab- 
Hshes  that  on  the  30th  day  of  December,  1893,  defendant's  agent  Ho- 
bart  had  a  conversation  with  Col.  Hicks,  plaintiff's  assignor,  the  le- 
gal effect  of  which  was  to  create  a  contract  of  present  insurance  in  the 
sum  of  $2,500  upon  property  of  Col.  Hicks,  which  was  consumed  by 
fire  two  days  later.  The  agreement  that  the  contract  was  one  of  pres- 
ent insurance  accords  with  the  allegations  of  the  complaint,  the  theory 
of  the  counsel  as  shown  by  their  method  of  trial,  and  the  charge  of 
the  court.  That  position  cannot  be  attacked  from  any  source,  for 
either  that  which  was  said  operated  to  create  a  contract  of  present 


Sec.  2)  THE   FORM  203 

insurance,  or  else  no  contract  was  ever  made  binding  upon  the  de- 
fendant. The  evidence  tended  to  show  a  contract  to  insure,  and  noth- 
ing else.  It  is  not  pretended  that  a  contract  of  any  kind  between 
these  parties  was  made  after  the  conversation  of  December  30th.  The 
jury  have  found  that  the  defendant's  agent  said  to  Hicks,  after  a 
general  discussion  on  the  subject  of  insuring  the  property,  "You  are 
insured  from  noon  on  the  30th  day  of  December,  1893,  to  noon  of 
December  30,  1894."  The  legal  effect  of  this  answer  to  the  applica- 
tion for  insurance  made  by  Col.  Hicks  was  to  create  a  complete, 
binding  agreement  for  insurance  for  the  period  named,  upon  which 
he  was  entitled  to  recover  for  the  damages  sustained  by  the  fire,  had 
he  made  performance  on  his  part.  Ruggles  v.  Insurance  Co.,  114 
N.  Y.  415,  21  N.  E.  1000,  11  Am.  St.  Rep.  674. 

This  contract  of  insurance,  although  verbal,  embraced  within  it 
the  provisions  of  the  standard  policy  of  fire  insurance,  which  the  leg- 
islature in  its  wisdom  formulated  for  the  protection  of  both  insured 
and  insurer.  It  is  usual  for  the  company  to  issue  a  policy  of  insur- 
ance evidencing  the  contract  between  the  parties;  but  the  policy  ac- 
complishes nothing  more  than  that,  for,  when  the  contract  is  entered 
into  between  the  agent  and  the  owner,  whether  the  binder  be  verbal 
or  in  writing,  it  includes  within  it  the  standard  form  of  policy,  and 
the  contract  is  a  completed  one.  Ruggles  Case,  supra ;  Lipman  v. 
Insurance  Co.,  121  N.  Y.  454,  24  N.  E.  699,  8  L.  R.  A.  719;  Karel- 
sen  V.  Sun  Fire  Office,  122  N.  Y.  545,  25  N.  E.  921 ;  Underwood  v. 
Insurance  Co.,  161  N.  Y.  413,  55  N.  E.  936.  In  the  three  cases  last 
cited  the  binder  had  been  reduced-  to  writing,  but  there  is  no  distinc- 
tion whatever  in  principle  between  those  cases  and  the  one  at  bar,  for 
in  each  there  is  a  binding  contract  to  insure,  and  necessarily  accord- 
ing to  the  only  form  of  insurance  contract  authorized  by  the  laws  of 
this  state.  The  law  reads  into  the  contract  the  standard  policy,  wheth- 
er it  be  referred  to  in  terms  or  not.  In  Lipman's  Case,  supra,  Judge 
Andrews,  in  speaking  of  the  construction  to  be  put  upon  the  binding 
shp,  issued  in  that  case,  said :  "The  construction  is,  we  think,  the 
same  as  though  it  had  expressed  that  the  present  insurance  was  under 
the  terms  of  the  usual  policy  of  the  company  to  be  thereafter  deliv- 
ered." And  in  Karelsen's  Case  the  court  said:  "While  the  binding 
slip  contained  none  of  the  conditions  usually  found  in  insurance  pol- 
icies, the  contract  evidenced  by  it  was  the  ordinary  policy  of  insur- 
ance issued  by  the  company.  So  that,  in  any  construction  of  the  con- 
tract, it  must  be  regarded  as  though  it  had  expressed  that  the  pres- 
ent insurance  was  under  the  terms  of  the  usual  policy  of  the  company 
to  be  thereafter  delivered." 

So  that  all  this  plaintiff  had  to  do,  in  order  to  recover  in  this  action, 
aside  from  showing  a  loss  by  lire,  and  compliance  on  her  part  with 
the  conditions  of  the  contract,  was  to  prove  the  making  of  the  con- 
tract. This  was  accomplished  by  proving  the  conversation  between 
her  assignor  and  the  agent,  for  the  conversation  disclosed  the  sum 


1*04  MAKING    THE    CONTUACT  (Ch.  3 

for  which  the  property  was  to  be  insured,  the  amount  of  premiums, 
and  the  period  of  insurance,  and  the  statute  provided  for  all  of  the 
other  conditions  of  the  contract  of  insurance.  Neither  party  to  it 
had  the  right  to  add  to  or  take  from  the  re(iuirements  of  the  legis- 
lature in  that  regard.  The  making  of  the  contract  the  plaintiff  proved 
to  the  satisfaction  of  the  jury,  and  she  did  not  attempt  to  prove  any- 
thing more.  This  the  trial  court,  as  well  as  the  counsel,  understood, 
and  the  case  was  tried  upon  that  theory.  It  has  been  discovered  in 
this  court,  however,  that  the  judgment  against  the  defendant  cannot 
be  sustained  if  this  action  be  now  treated  in  accordance  with  the 
theory  that  induced  its  commencement,  and  upon  which  it  was  tried, 
namely,  that  the  plaintiff's  assignor  made  a  valid  contract  of  insur- 
ance with  the  defendant,  by  virtue  of  which  this  plaintiff,  as  assignee, 
is  entitled  to  recover  to  the  extent  provided  for  by  the  policy  for  the 
damages  sustained  by  her  through  the  destruction  by  fire  of  the  build- 
ing insured. 

The  error  which  calls  for  a  reversal  of  the  judgment,  if  this  be  treat- 
ed as  an  action  on  the  contract,  lies  in  the  trial  court's  charge  to  the 
jury,  in  effect,  that,  as  matter  of  law,  it  was  not  necessary  for  the  in- 
sured to  present  to  the  defendant  proofs  of  loss  in  accordance  with 
the  requirements  of  the  standard  policy.  To  avoid  this  result,  it  is 
proposed  in  the  dissenting  opinion  not  only  to  set  at  naught  the  many 
decisions  of  this  court  holding  that  on  an  appeal  a  case  must  be  dis- 
posed of  upon  the  theory  upon  which  it  was  tried  (Snider  v.  Snider, 
160  N.  Y.  151,  54  N.  E.  676;  Stephens  v.  Meriden  Britannia  Co.,  160 
N.  Y.  178,  54  N.  E.  781,  73  Am.' St.  Rep.  678;  People  v.  Dalton, 
159  N.  Y.  235,  53  N.  E.  1113;  Drucker  v.  Railway  Co.,  106  N.  Y. 
157,  12  N.  E.  568,  60  Am.  Rep.  437;  Baird  v.  Mayor,  etc.,  96  N.  Y. 
567),  but  also  to  decide  that,  growing  out  of  this  contract,  the  plain- 
tiff had  another  cause  of  action,  the  maintenance  of  which  did  not 
require  the  service  of  proofs  of  loss.  Hence  it  is  claimed  that,  by 
treating  the  case  as  having  been  tried  upon  that  theory,  the  court 
may  avoid  reversing  the  judgment,  for  in  such  a  case  it  would  have 
been  unnecessary  to  charge  that  the  service  of  proofs  of  loss  was 
essential  to  recovery.  This  newly-discovered  cause  of  action  is  said 
to  spring  out  of  the  promise,  made  at  the  time  the  contract  was  en- 
tered into,  that  the  defendant  would  deliver  to  the  insured  evidence  of 
the  contract  in  the  shape  of  a  policy  of  insurance.  The  contract  was 
completed  at  the  moment  the  agent  said,  "You  are  insured  from  noon 
on  the  30th  day  of  December,  1893,  to  noon  on  the  30th  day  of  De- 
cember, 1894"  (Ruggles  v.  Insurance  Co.,  supra) ;  and  it  is  agreed 
by  every  member  of  this  court  that  the  defendant  is  liable  to  the  plain- 
tiff on  the  contract  thus  made  in  the  full  amount  of  the  policy,  if  the 
damage  was  sustained  in  the  manner  referred  to  in  the  policy,  and 
plaintiff  performed  the  conditions  imposed  upon  him  by  it. 

But  it  is  said  that  he  may  recover  either  on  the  contract,  or,  in- 
stead, if  he  elects,  on  the  ground  that  the  defendant  failed  to  deliver 


Sec.  2)  THE    FORM  205 

to  him  written  evidence  of  the  contract ;  i.  e.  a  policy  of  insurance. 
If  the  case  were  one  where  the  written  evidence  of  the  contract  had 
to  come  into  the  possession  of  the  plaintiff  before  recovery  could  be 
had  thereon,  then  it  is  true  that  an  action  in  equity  might  be  brought, 
praying  for  a  delivery  of  the  policy  that  the  defendant  withheld,  and 
further  demanding  that,  upon  the  policy  delivered  in  pursuance  of 
the  decree,  the  plaintiff  should  have  judgment  in  the  amount  specified 
in  the  policy  for  her  damages  by  fire ;  and  even  then  the  plaintiff 
would  have  to  abide  by  the  terms  of  the  policy,  delivery  of  which  the 
judgment  should  decree.  But  that  is  not  this  case  at  all.  To  enable 
her  to  recover,  it  was  not  necessary  for  this  plaintiff  to  have  physical 
possession  of  the  policy  which  the  agent  promised  to  give  her  as- 
signor. Ruggles  Case,  supra.  Her  action  was  not  founded  upon  a 
policy,  but  upon  the  contract  of  insurance  made  upon  the  30th  day 
of  December,  which,  as  both  parties  agreed,  was  to  begin  at  noon  on 
that  day,  no  matter  wdien  the  policy,  which  the  parties  intended  should 
furnish  evidence  of  the  contract,  should  be  delivered.  The  action  was 
brought,  tried,  and  decided  upon  that  theory;  and  no  one  disputes 
that  the  judgment  could  in  this  court  stand  upon  that  theory,  had  the 
trial  court  charged  the  jury  correctly  in  relation  to  the  necessity  of 
serving  proofs  of  loss.  It  is  apparent,  therefore,  that  the  plaintiff 
sustained  no  damage  by  reason  of  the  defendant's  failure  to  furnish 
her  assignor  v^ith  written  evidence  of  the  contract.  Had  the  prom- 
ise been  kept,  the  plaintiff  might  not  have  been  obliged  to  call  her 
assignor  to  prove  the  contract,  thus  subjecting  him,  as  it  turned  out, 
to  be  confronted  with  impeaching  testimony  ;  but  neither  the  plain- 
tiff nor  her  assignor  was  otherwise  damaged,  for  he  found  no  diffi- 
culty in  proving  a  contract  to  the  satisfaction  of  the  jury.  The  pos- 
session of  the  promised  policy,  therefore,  would  have  been  a  con- 
venience possibly,  but  nothing  more.  Plainly,  therefore,  it  is  not 
true  that  the  plaintiff  suffered  damage  in  the  amount  of  the  contract 
of  insurance  by  reason  of  the  failure  of  the  defendant  to  deliver  a 
policy  reciting  the  terms  of  the  contract  entered  into,  and  hence  the 
judgment  cannot  be  affirmed  on  the  ground  that  the  plaintiff  sus- 
tained damages  in  the  sum  of  $2,500,  because  the  defendant  omitted 
to  deliver  a  policy.  Nor  do  I  think  that  a  sound  public  policy  would 
sanction  the  creation  of  such  a  precedent  even  if  a  legal  principle 
could  be  found  upon  which  to  rest  it. 

The  legislature  of  the  state  of  New  York  has  prescribed  a  stand- 
ard form  of  policy  for  the  protection  of  both  insurer  and  insured. 
It  contains  provisions  specially  protecting  the  insured  from  harsh 
methods  by  insurance  companies.  On  the  other  hand,  it  provides 
that  which  experience  has  shown  to  be  necessary  in  order  to  protect 
insurance  companies  from  being  victimized  through  fraud;  and 
among  the  conditions  which  the  legislature,  in  its  wisdom,  has  caus- 
ed to  be  incorporated  into  the  standard  policy  is  one  making  it  nec- 
essary that  the  insurer  shall  have  immediate  notice  of  the  facts  and 


206  MAKING    THE    CONTRACT  (Ch,  3 

circumstances  of  the  fire;  ancHher,  that  within  60  days  the  owner 
shall  present  proofs  of  loss,  duly  verified,  in  which  shall  be  stated 
the  circumstances  of  the  fire,  and  the  value  of  the  property  destroy- 
ed, and  various  other  things  which  it  is  deemed  important  that  in- 
surance companies  should  know  before  being  called  upon  to  adjust 
a  loss ;  still  another  provides  that  no  local  agent  shall  have  the  pow- 
er to  waive  any  of  these  written  conditions,  except  by  a  writing.  It 
is  unnecessary  to  present  the  reasons  which  induced  the  legislature 
to  require  these  conditions  precedent  to  a  recovery  upon  a  policy  of 
insurance.  It  is  sufiicient  for  our  purpose  that  the  legislature  de- 
clared that  it  should  be  so,  and  we  should  see  to  it  that  the  general 
trend  of  our  decisions  is  towards  the  enforcement  of  the  legislative 
command,  instead  of  its  nullification.  This  plaintiff  had  the  right, 
as  it  is  conceded  on  all  hands,  to  recover  on  the  contract  of  insur- 
ance which  her  assignor  made  with  the  defendant's  agent,  whether 
a  policy  was  subsequently  delivered  to  him  or  not;  but,  as  the 
standard  policy  was  necessarily  a  part  of  the  contract,  he  should  be 
required  to  comply  with  the  conditions  of  that  policy,  and  give  no- 
tice of  the  facts  and  circumstances  of  the  fire,  and  present  proofs  of 
loss  duly  verified. 

The  view  taken  by  some  of  my  Brethren,  however,  is  that  it  was 
unnecessary  to  give  notice  of  the  fire  and  present  proofs  of  loss 
within  60  days,  or  at  any  other  time,  because,  it  is  said,  such  an  ac- 
tion need  not  be  treated  as  on  a  contract  of  insurance,  but  on  a  con- 
tract to  give  a  policy,  which  has  not  been  carried  out,  and,  therefore, 
prior  to  beginning  suit,  which  may  be  done  at  any  time  within  six 
years  instead  of  one  year,  as  provided  in  the  standard  policy,  the  in- 
sured has  nothing  whatever  to  do  when  he  sustains  a  loss  by  fire  but 
lie  by  until,  as  in  this  case,  several  months  have  passed,  or,  in  some 
other  case,  until  years  have  gone  by,  without  giving  the  company 
notice  of  the  fire  or  any  proofs  of  loss  whatever.  He  may  then  bring 
a  suit,  claiming  that  two  days,  or  less,  or  more,  before  the  fire,  the 
defendant's  local  agent,  without  receiving  any  premium,  agreed  to, 
but  did  not,  issue  a  policy,  for  which  defendant  is  liable  to  plaintifif 
in  the  amount  of  the  sum  for  which  it  was  agreed  that  the  policy 
should  issue.  If  such  a  procedure  should  be  sanctioned  by  this 
court,  then  might  an  insurance  company  be  mulcted  in  damages 
without  having  had  an  opportunity  to  investigate  promptly  the 
origin  of  the  fire  and  the  value  of  the  thing  destroyed,  and  thus 
would  the  door  be  opened  wide  for  the  perpetration  of  fraud. 

It  is  said  that,  if  the  foregoing  argument  seems  not  to  be  defec- 
tive upon  its  mere  reading,  it  is,  nevertheless,  so,  because  it  leaves 
out  of  consideration  the  decisions  of  this  court  in  Ellis  v.  Insur- 
ance Co.,  50  N.  Y.  402,  10  Am.  Rep.  495 ;  Angell  v.  Insurance  Co., 
59  N.  Y.  171,  17  Am.  Rep.  322;  Van  Loan  v.  Insurance  Co.,  90  N. 
Y.  280.  But  the  situation  which  those  cases  were  designed  to  meet 
no  longer  exists.    During  the  period  of  time  in  which  they  and  oth- 


Sec.  2)  THE   FORM  207 

ers  were  decided,  and  down  to  the  year  1886,  each  insurance  com- 
pany was  at  liberty  to  insert  such  provisions  in  the  policy  of  insur- 
ance issued  by  it  as  it  deemed  best.  The  result  was  that  there  was 
no  uniformity  in  policies  of  insurance,  and,  when  loss  by  fire  oc- 
curred prior  to  a  delivery  of  the  policy,  it  became  necessary  for  the 
assured  to  secure  possession  of  the  policy,  either  by  its  voluntary 
delivery  to  him  by  the  officers  of  the  company,  or  in  pursuance  of  a 
decree  in  a  suit  in  equity  for  specific  performance.  Thereon  he 
could  found  a  judgment  for  the  damages  sustained  by  the  fire,  or 
he  was  allowed  to  recover  the  damages  sustained  for  a  breach  of 
the  contract,  which  was  treated  as  a  contract  for  the  delivery  of  a 
policy.  The  last  one  of  the  cases  cited  was  decided  in  1882.  Four 
years  later  the  legislature,  by  chapter  488  of  the  Laws  of  1886, 
enacted  and  provided  for  a  uniform  policy  of  fire  insurance,  to  be 
made  and  issued  in  this  state  by  all  insurance  companies  taking  fire 
risks  on  property  w^ithin  this  state,  to  be  known  and  designated  as 
the  "standard  fire  insurance  policy  of  the  state  of  New  York." 
Upon  the  passage  of  this  important  legislation  the  policy  of  insur- 
ance was  no  longer  of  special  moment,  except  as  evidence  that  a 
contract  to  insure  had  been  made ;  for  it  was  no  longer  competent 
for  the  parties  to  incorporate  into  the  policy  any  provisions  what- 
ever outside  of  those  embraced  within  the  terms  of  the  standard 
policy,  and  thereafter  the  contract  to  insure  was,  by  common  con- 
sent of  the  profession  and  the  courts,  scientifically  treated  as  a  con- 
tract of  insurance,  and  not,  as  formerly,  a  contract  to  issue  a  policy, 
as  an  examination  of  the  authorities  in  this  court  from  the  Ruggles 
Case  down  will  show. 

It  is  suggested  that  an  affirmance  of  the  judgment  might  also  be 
placed  on  the  ground  that,  while  the  action  was  brought  upon  the 
contract  of  insurance,  it  was  made  to  appear  upon  the  trial  that  the 
defendant,  by  its  conduct,  waived  service  of  proofs  of  loss,  and  hence 
that  it  was  not  error  for  the  court  to  charge,  in  effect,  that  the  plain- 
tiff could  recover  without  showing  that  she  had  complied  with  the 
terms  of  the  contract  in  that  respect.  If  the  defendant  had,  by  its 
conduct,  rendered  unnecessary  the  service  of  proofs  of  loss,  the 
contention  would,  of  course,  be  well  founded.  But  it  had  to  do 
something  in  order  to  lose  the  benefit  of  the  stipulations  in  its  con- 
tract. At  the  outset  it  should  be  said  that  the  defendant  or  its  offi- 
cers never  did  anything  whatever  until  after  this  action  was  com- 
menced. Neither  the  plaintiff  nor  her  assignor,  so  far  as  this  record 
discloses,,  ever  addressed  any  letter  or  other  communication  to  the 
defendant  or  any  of  its  officers  prior  to  the  commencement  of  this 
action.  What,  then,  is  the  alleged  waiver  founded  upon?  Why, 
upon  the  action  of  the  local  agent  who  made  the  contract  of  insur- 
ance in  denying  that  he  ever  made  such  a  contract, — an  unstable 
and  worthless  foundation,  surely,  in  view  of  the  fact  that  under  the 


208  MAKING   THE    CONTRACT  (Ch.  3 

Standard  policy  an  agent  is  without  power  to  waive  any  of  the  con- 
ditions, as  this  court  has  time  and  again  held.  Van  Allen  v.  Insur- 
ance Co.,  64  N.  Y.  469;  Quinlan  v.  Insurance  Co.,  133  N.  Y.  356, 
31  N.  E.  31,  28  Am.  St.  Rep.  645;  Bush  v.  Insurance  Co.,  63  N.  Y. 
531 ;  De  Grove  v.  Insurance  Co.,  61  N.  Y.  594,  19  Am.  Rep.  305. 
While  it  is  conceded  that  the  local  agent  had  no  power  in  such  a 
case  to  waive  the  condition  regarding  proofs  of  loss,  yet  it  is  con- 
tended that  he  did  in  fact  waive  it  by  omitting  to  deliver  the  policy 
when  called  for  by  the  owner  of  the  building  after  the  fire,  and  by 
denying  that  he  had  ever  made  a  contract  to  insure. 

Stating  the  contention  in  other  words,  it  is  that,  if  the  agent  had 
tried  to  waive  the  conditions  of  the  policy,  and  had  promised  to  do 
so,  he  could  not  have  accomplished  it;  but  that,  by  omitting  either 
to  do  or  to  say  a  particular  thing,  he  did  waive  the  condition,  which 
is  to  say  that  an  express  waiver  would  not  be  effectual,  but  an  im- 
plied one  would.  As  the  statement  of  the  proposition  seems  to 
furnish  the  answer  to  it,  I  pass  on  to  such  of  the  defendant's  acts 
as  are  relied  upon  to  constitute  a  waiver.  It  is  not  pretended  that 
prior  to  the  commencement  of  this  action  the  plaintiff  or  her  as- 
signor ever  notified  the  defendant  company  that  she  claimed  that 
the  company  had  insured  the  burned  building,  so  there  is  nothing 
before  action  brought  upon  which  to  base  a  claim  that  the  defend- 
ant waived  proofs  of  loss.  But  it  is  said  that  when  the  suit  was 
brought,  and  the  defendant,  by  its  answer,  denied  the  allegations  of 
the  complaint,  it  in  some  way  made  good  the  attempted  waiver  of 
the  agent,  although  it  was  absolutely  void  before.  The  answer  is 
that,  if  the  plaintiff  had  not  a  complete  cause  of  action  against  the 
defendant  when  the  summons  was  served,  no  obstacles  have  been 
removed  from  her  path  by  the  denials  in  the  defendant's  answer  of 
the  allegations  of  her  complaint.  If  a  party  has  not  a  good  cause 
of  action  before  commencing  suit,  it  is  safe  to  say  that  he  will  not 
get  one  by  an  answer  of  the  defendant  which  contents  itself  with 
denying  the  existence  of  the  facts  alleged  in  the  complaint.  It  is 
plain,  therefore,  that  the  plaintiff  is  without  a  basis  for  a  recovery 
upon  this  cause  of  action  if  a  new  trial  be  granted,  because  neither 
she  nor  her  father,  the  assignor,  have  presented  to  the  defendant 
any  proofs  of  loss,  nor  was  service  of  proofs  of  loss  waived  by  the 
defendant ;  and,  while  such  a  result  may  or  may  not  be  in  the  in- 
terest of  justice,  in  this  particular  case  there  can  be  no  doubt  that 
the  measure  of  injustice  done,  if  any,  will  be  far  less  than  would 
necessarily  ensue  from  a  decision  putting  a  premium  upon  insur- 
ance obtained  without  a  policy,  by  making  it  possible  to  recover 
for  the  damages  sustained  through  a  fire  by  an  action  commenced 
at  any  time  before  the  six-years  statute  of  limitations  shall  have 
run,  and  that,  too,  without  giving  the  company  notice  of  the  fire,  or 
serving  it  with  proofs  of  the  loss;   thereby  preventing  it  from  being 


Sec.  2)  THE  FORM  209 

able  to  inquire  about  the  facts  and  circumstances  attending  the  fire 
until  months  or  years  after  the  happening  of  it.  This  would  in 
many  cases  effectually  prevent  the  company  from  acquiring  any  in- 
formation whatever. 

It  follows,  if  the  views  expressed  be  sound,  that  the  action  is 
upon  a  contract  of  insurance,  and  not  one  for  damages  resulting 
from  a  failure  to  deliver  a  policy,  and  hence  that  proofs  of  loss  were 
necessary,  in  the  absence  of  a  waiver  thereof  by  the  defendant,  of 
which  there  is  no  proof;  and  the  failure  to  so  charge  was  error 
calling  for  a  reversal  of  the  judgment.  The  judgment  should  be  re- 
versed. 

Weuner,  J.  (dissenting).  It  seems  to  me  that  we  cannot  hold 
that  an  action  may  not  be  brought  for  the  breach  of  an  agree- 
ment to  insure  without  distinctly  overruling  Ellis  v.  Insurance 
Co.,  50  N.  Y.  402,  10  Am.  Rep.  495,  Angell  v.  Insurance  Co.,  59 
N.  Y.  171,  17  Am.  Rep.  322,  Van  Loan  v.  Insurance  Co.,  90  N. 
Y.  281.  and  Post  v.  Insurance  Co.,  43  Barb.  351.  I  do  not  think 
that  the  evidence  wholly  justifies  the  statement  that  the  action 
was  clearly  tried  upon  the  theory  of  an  executed  contract  of 
insurance.  It  is  true  that  the  complaint,  and  the  evidence  given 
in  support  thereof,  were  undoubtedly  appropriate  to  such  an  ac- 
tion ;  but  it  does  not  follow  that  they  were,  therefore,  not  appro- 
priate to  an  action  for  damages  arising  out  of  the  alleged  breach 
of  the  contract  to  insure.  It  frequently  happens  that  the  same 
pleadings  and  proofs  will  support  different  causes  of  actions  which 
are  governed  by  inconsistent  legal  principles.  I  am  prepared  to 
agree  with  Chief  Judge  Parker,  in  holding  that  under  the  law 
providing  for  the  standard  policy  it  is  the  logical  rule  to  decide 
that  every  contract  for  insurance  made  with  an  authorized  agent, 
whether  the  same  be  oral  or  written,  constitutes  a  valid  contract 
of  insurance,  which  requires  nothing  to  complete  it  except  the 
written  evidence  of  its  terms  and  conditions.  The  cases  of  Lip- 
man  v.  Insurance  Co.,  121  N.  Y.  454,  24  N.  E.  699,  8  L.  R. 
A.  719,  Karelsen  v.  Sun  Fire  Office,  122  N.  Y.  545,  25  N.  E.  921. 
and  Underwood  v.  Insurance  Co.,  161  N.  Y.  413.  55  N.  E.  936. 
cited  by  him,  clearly  demonstrate  that  this  is  the  more  recent 
view  of  our  court.  But  that  is  very  different  from  deciding  that, 
when  a  plaintiff  claims  that  a  contract  for  insurance  has  been  made 
and  broken,  and  a  defendant  insurance  company  denies  that  any 
such  contract  was  ever  made,  a  plaintiff  can  recover  only  upon 
the  theory  of  an  executed  and  completed  contract.  Such  a  rule 
would  result  in  exempting  insurance  companies  from  the  appli- 
cation of  one  of  the  most  familiar  principles  of  the  law  of  con- 
tracts. It  is  a  rule  of  universal  application  that  when  a  party  to 
a  contract  refuses  to  execute  it  the  other  party  thereto  may 
treat  it  as  rescinded,  and  sue  for  the  breach.  Beach,  Mod.  Law 
Vance  Ins. — 14 


210  MAKING    THE    CONTRACT  (Cll.  3 

Cont.  §  788.  In  such  a  case  as  this  the  difference  in  tlie  character 
of  the  action  is  one  of  form,  rather  than  of  substance,  because 
the  recovery  in  either  case  would  be  the  same. 

But  let  us  assume  that  it  is  now  the  established  law  that  a  party 
claiming  under  an  oral  or  a  written  memorandum  for  insurance 
must  recover,  if  at  all,  upon  the  terms  and  conditions  of  a  com- 
pleted policy,  which  are  to  be  read  into  his  tentative  contract. 
It  is  conceded  that  Hobart  was  the  duly-authorized  agent  of 
the  defendant  for  the  purpose  of  issuing  policies  of  insurance.  He 
was  provided  with  blanks  for  that  purpose,  which  needed  only 
to  be  countersigned  by  him  to  make  them  executed  and  binding 
contracts.  The  right  to  issue  policies  included  the  right  to  re- 
fuse to  issue  them.  Hobart's  agreement  to  issue  a  policy  was 
the  act  of  the  company.  Whose  act  was  Hobart's  refusal  to  issue 
a  policy  after  he  had  bound  the  company  by  his  agreement  to 
issue  one?  To  my  mind  there  is  no  escape  from  the  conclusion 
that,  if  he  acted  for  the  company  in  making  the  agreement,  he 
acted  in  the  same  capacity  in  breaking  it.  There  was  a  dispute 
of  testimony  as  to  whether  he  ever  made  such  an  agreement  with 
plaintiff's  assignor.  This  presented  a  question  of  fact  which  the 
jury  have  settled  in  favor  of  the  plaintiff.  If,  then,  we  treat  this 
as  an  action  upon  the  policy,  and  hold  the  defendant  responsi- 
ble for  the  acts  of  Hobart,  what  is  the  effect  of  such  acts?  The 
answer  seems  obvious.  If  the  defendant,  through  its  proper  offi- 
cers, had  issued  a  policy  of  insurance,  and  after  a  loss  under  the 
same  had  denied  its  liability  on  the  ground  that  it  never  made 
any  such  contract,  it  would  be  a  distinct  waiver  of  the  right  to 
demand  proofs  of  loss.  Shaw  v.  Insurance  Co.,  69  N.  Y.  286; 
Stokes  v.  Makay,  147  N.  Y.  223,  41  N.  E.  496;  People  v.  Empire 
Mut.  Life  Ins.  Co.,  92  N.  Y.  105;  May,  Ins.  §  469;  Port.  Ins. 
(Am.  Notes  by  Darrach,  1889),  star  p.  194;  Richards,  Ins.  §  81; 
Grattan  v.  Insurance  Co.,  80  N.  Y.  281,  36  Am.  Rep.  617;  Payn 
V.  Relief  Society,  2  How.  Prac.  (N.  S.)  220;  Insurance  Co.  v. 
Pendleton,  112  U.  S.  696,  5  Sup.  Ct.  314,  28  L.  Ed.  866;  Brink 
V.  Insurance  Co.,  80  N.  Y.  113.  Is  the  result  any  different  because 
these  things  were  done  by  an  agent?  As  we  have  seen,  this  agent 
had  authority  to  issue,  and  therefore  to  refuse  to  issue,  policies. 
His  agreement  to  issue  a  policy  was  the  act  of  his  principal.  His 
refusal  to  issue  a  policy  after  he  had  agreed  to  do  so  falls  within 
the  same  category.  Under  these  circumstances  the  refusal  of  the 
agent  has  the  same  effect  as  though  it  had  actually  been  made  by 
the  principal.  Indeed,  for  the  purposes  of  the  particular  act,  he 
was  the  principal.     Goodwin  v.  Insurance  Co.,  7Z  N.  Y.  490,  491. 

But  it  is  suggested  that  the  policy  provides  that  no  agent  shall 
have  power  to  waive  any  of  the  conditions  thereof.  This  is  un- 
doubtedly  true  after  a  policy    has   been    issued,   and   the    limited 


Sec.  2)  TUB    FORM  211 

powers  of  the  assent  are  spent.  But  in  the  case  before  us  the 
acts  of  the  agent  were  within  the  scope  of  his  authority,  for,  until 
the  policy  was  actually  issued,  he  was  the  alter  ego  of  the  defend- 
ant. At  every  instant  within  the  period  covered  by  the  negotia- 
tions between  Hobart  and  the  plaintiff's  assignor  the  former  was 
acting  within  the  scope  of  his  authority.  As  the  case  stands,  it 
is  just  as  though  the  defendant  itself  had  refused  to  issue  a  policy 
after  it  had  agreed  to  do  so.  Under  these  circumstances  the  plain- 
tiff and  her  assignor  were  not  required  to  present  proofs  of  loss, 
because  they  had  been  absolved  from  this  duty  by  the  acts  of 
the  defendant.  If  these  views  are  adopted,  it  follows  that  the 
charge  of  the  trial  court  was  substantially  correct  wherein  it  stated 
that  it  was  not  necessary  for  the  plaintiff  to  serve  proofs  of  loss, 
and  by  the  same  rule  it  would  seem  to  follow  that  the  instruc- 
tions relating  to  the  waiver  by  Hobart  were  harmless,  because 
they  were  immaterial. 

Gray,  O'Brien,  and  Cull^n,  JJ.,  concur  with  Parke;r,  C.  J.,  for 
reversal.  Landon  ^  and  Wkrner,  JJ.,  read  for  affirmance,  and 
Haight,  J.,  concurs  with  Landon,  J. 

Judgment  reversed,  etc.* 

2  The  vigorous  dissenting  opinion  of  Landon,  J.,  is  omitted.  In  accord  with 
the  opinion  of  Werner,  J.,  is  Chenier  v.  Ins.  Co.  of  North  America,  72  Wash. 
27,  129  Pac.  905,  48  L.  R.  A.  (N.  S.)  319  (1913).  See,  also,  extensive  note,  48 
L.  R.  A.   (N.   S.)  319-325. 

3  Effect  of  Standard  Policy  Acts. — "A  glance  at  the  history  of  the  stand- 
ard form  of  policy  makes  it  very  clear  that  the  legislature  of  this  state  in- 
tended to  deprive  fire  insurance  companies  of  the  right  to  add  to  or  change 
the  terms  and  conditions  of  the  prescribed  form.  The  right  to  make  such 
changes  and  additions  is  one  of  the  principal  distin,guishing  characteristics 
of  the  two  classes  of  standard  forms.  The  Massachusetts  and  New  York 
standard  policies  went  Into  effect  about  the  same  time  and  have  formed  the 
models  for  the  legislation  in  other  states.  Both  states  were  seeking  uni- 
formity of  insurance  contracts,  but  Massachusetts  did  not  attempt  to  deprive 
the  parties  of  the  liberty  of  making  their  own  contracts.  It  merely  adopted 
a  model  which  the  parties  were  at  liberty  to  modify  at  will.  But  New  York 
went  fui'ther  and  determined  the-  form  which  all  must  use,  with  the  privilege 
of  adopting  certain  prescribed  clauses  to  cover  particular  conditions.  The 
Minnesota  act  of  1S.'"9  imposed  upon  the  insurance  commissioner  the  duty  of 
preparing  a  standard  form  of  policy  which  should  be  obligatory  after  that 
year.  The  New  York  form  was  prepared  and  went  into  use,  but  the  act  was 
declared  unconstitutional,  because  it  attempted  to  delegate  legislative  powers 
to  the  insurance  commissioner.  In  1S95  the  legislature  adopted  the  Mass- 
achusetts form,  with  such  modifications  as  were  necessary  to  avoid  conflict 
with  the  valued  policy  law.  Section  53  provided  that  a  company  may  write 
upon  the  margin  or  across  the  face  of  the  policy,  or  write  or  print  in  type 
not  smaller  than  long  primer  upon  separate  slips  or  riders  to  be  attached 
thereto  provisions  adding  to  or  modifying  those  contained  in  the  standard 
form.  The  insurance  comjianies  then  adopted  a  general  rider,  which  embraced 
substantially  all  the  provisions  of  the  New  York  form.  But  the  legislature 
of  1S97  [Laws  1897,  c.  2541,  amending  section  53,  c.  175,  p.  417,  Laws  1895,  in 
express  terms  prohil)ited  the  making  of  any  changes  except  such  as  were  spe- 
cifically enumerated  in  the  statute.  The  conclusion  is  inevitable  that  the  leg- 
islature intended  to  deprive  the  parties  of  the  right  to  make  insurance  con- 
tracts in  any  form  except  as  prescribed  by  the  statute." — Klliott,  J.,  in  Wild 
Rice  Lumber  Co.  v.  Royal  Ins.  Co.,  99  Minn.  190,  193,  lOS  N.  W.  871  (ISOO). 


212  MAKING    THE    CONTRACT  (Ch,  3 


SECTION  3.— DELIVERY 


NEW  YORK  LIFE  INS.  CO.  v.  BABCOCK. 

(Supreme  Court  of  Georgia,  1S9S.    104  Ga.  67,  30  S.  E.  273,  42  L.  R.  A.  88, 
09  Am.  St.  Rep.  134.) 

Error  from  superior  court,  Whitfield  county ;  A.  W.  Kite,  Judge. 

Action  by  Adelaide  A.  Babcock  against  the  New  York  Life 
Insurance  Company.  Plaintiff  had  judgment,  and  defendant  brings 
error.    Affirmed. 

Lewis,  J.  This  was  a  suit  upon  a  policy  of  life  insurance.  The 
case  was  submitted  to  the  court,  without  a  jury,  upon  an  agreed 
statement  of  facts,  the  substance  of  which  was  as  follows : 

On  November  20,  1895,  H.  C.  Babcock  made  application  to  J. 
D.  Thomas,  local  agent  at  Dalton,  Ga.,  of  the  defendant  com- 
pany, for  insurance  of  $5,000.  On  the  same  day,  Babcock  paid 
the  agent  the  first  year's  premium   on   said   policy,  to  wit,  $174, 

See.  also,  Quinlan  v.  Insurance  Co.,  133  N.  Y.  .356,  365,  31  N.  E.  31,  28  Am. 
St.  Rep.  645  (1S92). 

The  rule  that  the  terms  of  the  policy  are  to  be  construed  favorably  to  the 
insured  is  applied  to  the  standard  policy,  notwithstanding  tlie  fact  that  its 
language  is  fixed  by  law.  Gazzam  v.  German  Union  Ins.  Co.,  155  N.  C.  330, 
71  S.  E.  434,  Ann.  Cas.  1912C,  362  (1911).     See  Vance  on  Ins.  430. 

Construction  of  Policy  Varying  from  Standard  Form. — "It  is  ui'ged  by 
the  plaintiffs  that,  this  policy  being  different  from  the  standard  prescribed  by 
our  statutes  and  the  difference  not  being  Indicated  thereon  as  required  by 
law,  the  differences  are  null  and  void  and  the  policy  Is  to  be  construed  as 
though  it  were  conformable  to  the  standard ;  and  in  support  of  that  proposi- 
tion tliey  have  cited  cases  like  Queen  Ins.  Co.  v.  Leslie,  47  Ohio  St.  409,  24 
N.  E.  1072,  in  which  it  is  held  that,  where  a  statute  provides  a  certain  rule 
for  the  interpretation  of  a  policy,  the  statute  must  be  regarded  as  incorpo- 
rated in  the  policy  issued  when  the  law  is  in  force,  and,  being  so  incorporated, 
must  prevail  over  such  other  provisions  as  are  inconsistent  with  it.  But  such 
cases  are  not  applicable  here.  The  statute  in  force  when  this  policy  was  is- 
sued did  not  provide  how  the  policy  should  be  interpreted.  It  provided,  it  is 
true,  a  standard  form,  stated  in  what  way  and  to  wliat  extent  the  form  might 
be  modified,  declared  that  no  company  should  issue  a  different  policy  and  that 
if  it  (lid  it  should  be  subject  to  a  tine,  but  also  declared  that  the  policy  should 
be  binding  upon  the  company.  St.  1894,  c.  522,  §§  60.  105.  It  does  not  pro- 
vide any  rule  of  interpretation  of  a  policy  issued  contrary  to  law,  nor  does  it 
say  that  the  policy  shall  be  void.  On  the  contrary,  it  fines  the  company  for 
issuing  the  policy  and  declares  it  to  be  binding  upon  the  company.  Its  legal 
effect  is  not  changed.  The  illegal  policy  is  not  changed  by  law,  so  as  to  con- 
form to  the  legal  standard.  The  insured  may  sue  upon  it,  but  it  must  be  con- 
strued as  it  reads.  No  statute  is  incorporated  in  it.  The  penalty  suffered  by 
the  company  is  a  fine,  and  not  a  liability  to  be  held  on  a  contract  different 
from  that  made  by  it.  It  follows,  therefore,  that  as  to  this  one  policy  the 
amount  recovered  cannot  exceed  its  part  of  the  sum  equal  to  an  amount  needed 
to  restore  the  building  to  its  original  condition,  and  in  this  case  judgment 
should  be  entered  for  the  defendant.  As  to  the  other  cases,  judgments  should 
be  entered  for  the  plaintiffs  in  accordance  with  the  report." — Ilewins  v.  Lon- 
don Assurance  Corporation,  184  Mass.  183,  68  N.  E.  62  (1903). 


Sec.  3)  DELIVERY  213 

and  at  the  same  time  said  local  at^cnt  gave  to  said  Babcock  a 
receipt  to  the  effect  that  this  sum  of  $174  should  be  held  tor 
Babcock  on  the  condition  "that  if  the  officers  at  the  home  office 
of  the  New  York  Life  Insurance  Company  approve  an  application 
made  by  him  this  day  for  an  insurance  of  five  thousand  dollars, 
and  a  policy  is  issued  and  delivered  to  him  while  livini^  and  in 
good  health,  said  sum  shall  be  applied  in  payment  of  the  first 
annual  premium  on  said  insurance,  provided  on  or  before  such 
delivery  he  shall  first  pay  any  balance  of  said  premium,"  and 
"that  unless  his  application  is  approved,  and  a  policy  is  issued 
and  delivered  to  him  while  living  and  in  good  health,  and  until 
such  first  annual  premium  is  paid  in  full,  the  New  York  Life 
Insurance  Company  incurs  no  liability  except  for  the  return  of 
said  sum  on  surrender  of  this  receipt."  The  receipt  further  stip- 
ulated "that  no  agent  has  power  in  behalf  of  said  company  to 
make  any  contract  of  insurance  or  to  bind  said  company  by 
making  any  promise  or  making  or  receiving  any  representation  or 
information." 

The  application  made  at  the  same  time  the  receipt  was  given 
.was  at  once  forwarded  by  the  agent  to  the  home  office  of  the 
company  in  New  York.  It  was  provided  in  the  application  "that 
the  company  shall  incur  no  liability  under  this  application  until 
it  has  been  received,  approved,  the  policy  issued  thereon  by  the 
company  at  the  home  office,  and  the  premium  has  actually  been 
paid  to  and  accepted  by  the  company  or  its  authorized  agent  dur- 
ing my  lifetime  and  good  health."  This  application  was  stamped : 
"Received  November  25th,  1895.  Home  Office."  In  the  appli-' 
cation  was  this  further  provision :  "That  the  foregoing  applica- 
tion, together  with  the  answers  made  to  the  medical  examiner 
in  continuation  of  and  forming  part  of  the  application,  shall  be 
a  consideration  for  and  the  basis  of  the  contract  of  the  New 
York  Life  Insurance  Company,  under  any  policy  issued  under 
this  application."  On  the  26th  day  of  November,  1895,  a  polic}-. 
of  insurance  to  the  applicant  was  issued,  in  which  was  contained 
the  exact  provisions  above  quoted  from  the  application;  and  on 
the  face  of  this  policy  were  the  words :  "In  witness  whereof,  the 
New  York  Life  Insurance  Company  has,  by  its  duly-authorized 
officers,  signed  and  delivered  this  contract,  this,  the  26th,  day  of 
November,  1895," — signed  by  the  president  and  secretary  of  the 
company. 

The  above  policy  was  mailed  to  the  local  agent  of  the  company 
at  Dalton,  Ga.  It  reached  Dalton,  and  was  delivered  to  the  agent, 
Thomas,  by  the  postmaster,  about  2  p.  m.  on  November  30,  1895. 
Thomas  made  no  effort  to  deliver  the  policy  to  the  applicant. 
Babcock,  whose  office  was  about  three  minutes'  walk  from  the 
post  office,  but  carried  it  home  with  him,  his  home  being  about 
one  mile  from  the  post  office.    The  policy  remained  in  this  agent's 


214  MAKING   THE    CONTRACT  (Ch.  3 

possession  until  about  9  o'clock  of  the  morning  of  December  2, 
1895,  at  which  time  one  Sherry  McAuley,  whom  the  a.ycnt  knew 
to  be  an  intimate  friend  of  Babcock,  called  and  asked  for  said 
policy,  stating  that  he  was  authorized  to  receive  it.  The  agent 
asked  if  Babcock  was  sick,  and  ]\IcAuley  replied  that  he  was  not. 
After  hesitating,  the  agent  delivered  the  policy  to  McAuley.  Aft- 
er McAuley  had  received  the  policy,  he  then  informed  Thomas 
that  Babcock  was  dead ;  that  he  was  found  dead  on  the  afternoon 
of  the  day  before,  in  his  office,  with  a  pistol  wound  in  his  breast. 
This  was  the  first  knowledge  the  agent  had  of  Babcock's  death, 
and  he  at  once  demanded  the  return  of  the  policy,  but  McAuley 
refused  to  give  it  up. 

The  plaintifif,  Adelaide  A,  Babcock,  is  the  party  named  in  the 
policy  as  beneficiary,  and  is  the  mother  of  the  deceased  applicant. 
Demand  was  duly  made  by  plaintifif  on  defendant  company  for 
the  payment  of  the  policy  after  the  same  became  due,  which 
demand  was  refused.  No  ofifer  to  return  the  money  paid  by  the 
applicant  to  the  agent  Thomas  had  ever  been  made  to  the  legal 
representative  of  the  estate  of  Babcock  until  the  day  of  the  trial. 
Babcock,  the  applicant,  died  on  December  1,  1895,  about  4  o'clock, 
in  the  afternoon,  and  was  in  good  health  up  to  the  time  of  his 
death. 

After  argument  had  upon  the  foregoing  evidence,  the  court 
rendered  a  judgment  for  the  plaintifif  against  the  defendant  for 
the  principal  sum  sued  for,  $5,000,  besides  interest  and  costs  of 
suit.  To  this  judgment  defendant  excepted,  upon  the  following 
grounds:  (1)  Because  the  court  erred  in  holding  the  contract 
between  the  parties  was  consummated  without  the  delivery  of 
the  policy,  the  parties  having  contracted,  as  defendant  contends, 
that  actual  delivery  of  the  policy  should  be  made  during  life  of 
applicant;  (2)  because  the  court  erred  in  holding  there  was  a 
delivery  of  the  policy  under  the  contract;  (3)  because  the  court 
erred  in  disregarding  the  conditional  receipt  as  being  a  part  of 
the  contract,  said  receipt  declaring  the  policy  must  be  delivered 
during  the  lifetime  of  the  applicant ;  (4)  because  the  court  erred 
in  holding  the  applicant  had  paid  his  first  premium,  the  conditional 
receipt  showing,  as  defendant  contends,  that  there  was  really  no 
payment,  and  that  there  was  no  intention  upon  the  part  of  the 
applicant  to  pay,  or  defendant  to  receive,  said  money  as  a  premium. 

The  fundamental  question  to  be  determined  in  the  legal  con- 
struction of  all  contracts  is,  what  was  the  real  intention  of  the 
parties?  Where  one  party  makes  a  proposition  to  purchase  a 
thing  which  is  unconditionally  accepted  by  the  other,  the  c  ntract 
of  purchase  becomes  complete.  There  is  no  reason  why  the  same 
rule  should  not  be  applied  when  a  written  application  is  made 
for  an  insurance  policy.  So  long  as  the  application  is  not  acted 
upon  by  the  insurance  company,  of  course  no  contract  has  been 


Sec.  3)  DELIVERY  215 

consummated;  and,  if  the  applicant  should  die  before  the  accept- 
ance of  his  application,  the  company  has  incurred  no  liability. 
But  when  the  application  is  accepted,  and  nothing  remains  for  the 
applicant  to  do,  the  contract  becomes  complete.  Actual  delivery 
of  the  policy  to  the  insured  is  not  essential  to  the  validity  of  such  a 
contract,  unless  expressly  made  so  by  its  terms.  It  is  true  that 
as  to  whether  or  not  a  policy  has  been  delivered  often  becomes 
a  material  question,  for  this  is  usually  the  most  effectual  way 
of  proving  the  acceptance  of  the  application  made  by  the  insured. 
But  the  contract  may  be  otherwise  proven,  and,  when  it  is  shown 
to  be  in  writing,  it  is  ordinarily  binding  upon  the  company, 
though  there  should  be  no  delivery  whatever,  either  actual  or 
constructive,  of  the  policy,  and  though  it  should  remain  in  the 
hands  of  the  company.  This  principle  is  settled  by  the  provi- 
sions of  our  statute,  which  declares :  "Such  contract  [fire  insur- 
ance], to  be  binding,  must  be  in  writing;  but  delivery  is  not  nec- 
essary if,  in  other  respects,  the  contract  is  consummated."  Civ. 
Code,  §  2089.  By  section  2117  of  the  Civil  Code  the  same  prin- 
ciple is  made  applicable  to  life  insurance.  See,  also,  Cooke,  Life 
Ins.  p.  43 ;  1  Joyce,  Ins.  §  91.  See,  also,  opinion  of  Chief  Justice 
Simmons  in  Alston  v.  Insurance  Co.,  100  Ga.  282,  29  S.  E.  p.  266. 
We  do  not  mean  to  say,  however,  that  the  insurer  and  the  insur- 
ed cannot,  by  their  contract,  make  an  actual  delivery  of  the  policy 
essential  to  its  validity.  We  see  no  reason  why  an  insurance 
company  cannot  stipulate  in  its  agreement  to  insure  that  its  risk 
shall  not  begin  until  some  definite  time  in  the  future,  or  until 
some  specified  act  has  been  done. 

It  is  insisted  in  this  case  by  the  plaintiff  in  error  that  the  receipt 
given  by  the  local  agent  to  the  applicant  when  the  first  annual 
premium  was  paid  constitutes  a  part  of  the  contract  of  insurance, 
and  that,  by  virtue  of  the  terms  of  this  receipt,  it  was  expressly 
agreed  between  the  parties  that  the  insurance  company  should 
incur  no  liability  until  its  policy  had  been  actually  delivered  to 
the  applicant.  We  think  it  very  questionable  whether  the  pro- 
vision in  this  receipt  in  reference  to  a  delivery  of  the  policy  forms 
any  part  of  the  contract  sued  on  in  this  case.  It  was  evidently 
given  to  protect  the  company  against  any  liability  in  the  event 
the  application  made  to  it  should  be  rejected.  The  agent  who 
gave  the  receipt  had  no  authority  to  make  any  contract  of  insur- 
ance. When  the  application  was  passed  upon  by  the  duly-au- 
thorized officers  of  the  company,  the}-  could  accept  it  upon  such 
terms  and  conditions  as  they  might  stipulate.  They  could  have 
embodied  in  the  final  contract  the  conditions  appearing  in  the 
receipt,  or  have  waived  their  right  to  do  so  by  agreeing  to  insure 
the  life  of  the  applicant  without  prescribing  the  conditions  named 
in  the  receipt.  In  the  application  that  was  passed  upon  and  ac- 
cepted  by  the  company   no  such  condition  appears.     The  policy 


21G  MAKING    THE    CONTRACT  (Cll.  3 

that  was  issued  was  evidence  of  the  acceptance  of  this  applica- 
tion. The  one  had  direct  reference  to  the  other,  and  neither  made 
any  reference  whatever  to  any  stipulation  contained  in  the  receipt. 
The  policy  having  referred  to,  and  even  quoted  verbatim  the 
conditions  named  in  the  application,  and  having  made  no  allu- 
sion whatever  to  any  other  paper,  the  position,  to  say  the  least, 
is  plausible  that  it  was  the  intention  of  the  company  not  to  make 
the  receipt  a  part  of  its  contract.  But  a  decision  of  this  question 
is  not  necessary  under  the  view  we  take  of  this  case ;  for,  under 
the  facts  in  the  record,  we  hold  the  condition  in  the  receipt  as 
to  delivery  of  the  policy  was  fulfilled.  This  case  is  treated  just 
as  if  the  policy  never  left  the  hands  of  the  local  agent;  for  the 
means  by  which  he  was  induced  to  part  with  its  possession  after 
the  death  of  the  insured  cannot  strengthen  the  case  of  the  defend- 
ant in  error. 

The  sole  defense  of  the  plaintifif  in  error  is  based  upon  the 
contention  that,  under  its  contract,  it  was  to  incur  no  liability  until 
there  had  been  a  delivery  of  the  policy  to  the  applicant.  Assuming 
that  this  condition  constitutes  a  part  of  the  agreement  between 
the  parties,  it  then  becomes  a  material  question  as  to  whether  or 
not  such  delivery  was  effected  before  the  death  of  the  insured. 
This  is  also  a  question  of  intention,  and  must  be  determined  from 
the  facts  and  circumstances  in  this  case.  As  a  general  rule, 
whenever  one  parts  with  the  custody  and  control  of  anything  with 
the  intention  at  the  time  that  it  shall  pass  into  the  possession  of 
another,  its  delivery  to  such  other  person  has,  in  contemplation 
of  law,  become  complete.  The  mere  manual  possession  of  the 
thing  intended  to  be  delivered  is  a  matter  of  little  consequence. 
Such  possession  may  exist  without  any  legal  delivery,  and  it  may 
not  exist  when  a  legal  delivery  has  been  effected.  For  instance, 
where  one  has  obtained  possession  of  property  fraudulently,  or 
without  the  knowledge  or  consent  of  the  owner,  there  is  no  deliv- 
ery from  the  one  to  the  other,  the  controlling  element  of  inten- 
tion being  absent.  On  the  other  hand,  where  a  person  parts  with 
dominion  and  control  over  a  thing,  by  transmitting  it,  for  example, 
through  the  mails,  or  otherwise,  with  the  intention  that  it'  shall 
pass  unconditionally  into  the  hands  of  another,  and  in  the  course 
of  transportation  it  has  become  lost,  the  delivery  is,  nevertheless, 
complete  in  law.  The  controlling  question,  then,  on  this  subject 
of  delivery,  is  not  who  has  the  actual  possession,  but  who. has  the 
right  of  possession. 

Applying  these  principles  to  the  facts  before  us,  we  think  that 
the  delivery  of  the  policy  in  question  to  the  applicant  had,  in 
contemplation  of  law,  been  effected  before  his  death.  When  his 
application  was  accepted  at  the  home  office  in  New  York,  and 
a  policy  issued  thereon  was  placed  in  the  mails  for  the  sole  pur- 
pose of  ultimately  reaching  his  hands,  the  company  parted  with 


Sec.  3)  DELIVERY  217 

its  possession  and  control  of  the  paper.  The  intention  to  deliver 
was  complete.  The  premium  money,  which  it  had  held  up  to 
that  time  upon  a  conditional  trust,  then  became  its  absolute 
property.  It  would  have  been  guilty  of  no  breach  of  trust  in 
appropriating  the  fund  to  its  own  use.  For  this  privilege  it  thus 
acquired,  there  must  have  been  a  corresponding  benefit  accruing 
to  the  original  owner  of  the  fund;  and  what  he  acquired  in  lieu 
of  his  money  was  an  insurance  upon  his  life,  and  a  right  to  the 
policy,  which  evidenced  the  consummation  of  the  contract.  If  the 
delivery  was  not  complete  when  the  policy  was  mailed,  it  cer- 
tainly became  so  when  it  reached  the  hands  of  the  local  agent 
during  the  lifetime  of  the  applicant,  and  while  he  was  in  good 
health.  Construing  this  act  of  the  company  in  transmitting  the 
policy  to  the  agent  in  the  light  of  this  contract,  it  necessarily 
follows,  in  the  absence  of  any  proof  to  the  contrary,  that  the 
agent  received  the  policy  charged  with  no  other  duty  except  to 
hand  it  unconditionally  to  the  applicant.  If  this  be  true,  the  pos- 
session of  the  agent  was  the  possession  of  the  applicant;  and. 
while  in  the  hands  of  the  agent,  the  policy  was  simply  held  by 
him  on  deposit,  or  in  trust  for  its  real  owner.  This  owner  had  a 
right  to  demand  possession  of  it.  Upon  refusal,  he  could  have 
recovered  it  by  an  action  of  trover.  Conceding  this  right,  and  we 
cannot  see  how  death  can  rob  the  beneficiary  of  her  rights  under 
the  contract. 

Upon  a  careful  examination  of  the  authorities  cited  for  the 
plaintiff  in  error,  as  well  as  others  bearing  upon  the  subject,  we 
find  nothing  in  conflict  with  the  above  views.  [The  court  here 
discusses  the  following  cases:  Kohen  v.  Association  (C.  C.)  28 
Fed.  705;  Misselhorn  v.  Association  (C.  C.)  30  Fed.  545;  McCul- 
ly's  Adm'r  v.  Insurance  Co.,  18  W.  Va.  782 ;  Steinle  v.  Insur- 
ance Co.,  26  C.  C.  A.  491,  81  Fed.  489.] 

The  above  authorities  we  have  selected  are  among  the  strongest  re- 
lied upon  by  the  plaintiff  in  error,  and  we  merely  call  attention  to 
them  to  show  that  they  decide  no  principle  in  conflict  with  our  ruling 
in  this  case.  On  the  other  hand,  the  principle  upon  which  the  third 
headnote  is  fovmded  is  abundantly  sustained  by  authority,  as  well 
as  reason.  In  Newark  Mach.  Co.  v.  Kenton  Ins.  Co.,  50  Ohio  St. 
549,  35  N.  E.  1060,  22  L.  R.  A.  768,  it  was  held:  "When  the  terms 
of  an  executed  policy  have  been  unconditionally  accepted  by  the  in- 
sured, and  it  has  thereafter  been  treated  as  in  force  by  the  parties,  its 
delivery  will  be  regarded  as  complete,  though  it  remain  in  the  hands 
of  the  insurer's  agent."  In  Insurance  Co.  v.  Thomson,  94  Ky.  253, 
22  S.  W.  87,  it  was  held  that  where  a  policy  was  forwarded  by  the 
company  to  its  agent,  and  by  the  latter  delivered  to  a  broker,  the 
premium  having  been  paid,  the  company  was  liable,  though  the  policy 
had  not  been  delivered  to  the  applicant,  but  to  his  widow  after  his 
death.    The  supreme  court  of  Kentucky  in  that  case  based  its  ruling 


218  MAKING   THE    CONTRACT  (Ch.  3 

upon  the  ground  that  the  applicant  had  a  right  to  the  possession  of 
the  poHcy.  In  Insurance  Co.  v.  Hallock,  27  N.  J.  L.  645,  72  Am. 
Dec.  379,  it  was  held :  "Acceptance  of  proposition  to  insure  com- 
pletes contract  of  insurance,  and  the  policy  sent  by  mail  to  the  agent 
for  delivery  cannot  be  rescinded  without  the  consent  of  the  insured." 
In  the  case  of  Yonge  v.  Society,  30  Fed.  902,  the  applicant  was  taken 
sick  the  same  day  the  agent  received  the  policy  from  the  home  office. 
It  was  held  that  the  policy  was  binding  upon  the  company  from  the 
time  it  left  the  home  of^ce ;   if  not  then,  when  the  agent  received  it. 

In  1  May,  Ins.  (3d  Ed.)  §  55,  it  is  declared  that,  where  a  policy  is 
made  and  forwarded  to  the  agent  to  be  delivered  to  applicant  on  pay- 
ment of  premium,  he  is  not  entitled  to  the  policy  without  such  payment. 
Such  a  case,  however,  says  the  author,  is  to  be  distinguished  from  those 
where  the  party  claiming  the  policy  has  done  everything  which  is  re- 
quired of  him.  In  the  one  case  the  policy  is  held  merely  as  a  deposit, 
and  for  delivery ;  while  in  the  other  it  is  held  for  payment  of  the  pre- 
mium. Again,  in  section  56,  the  same  author  says:  "The  mere  man- 
ual possession  of  the  policy  is  of  little  consequence,  whether  it  be  in 
the  hands  of  the  insurers  or  the  insured."  In  section  60  of  the  same 
work  it  is  declared :  "To  constitute  a  delivery  of  the  policy,  it  is  not 
necessary  that  there  should  be  an  actual  manual  transfer  from  one 
party  to  the  other.  The  agreement  upon  all  the  terms,  and  the  issue 
and  transmission  to  the  agent  of  a  policy  in  accordance  therewith,  for 
delivery  without  conditions,  is  tantamount  to  a  delivery  to  the  in- 
sured. *  *  *  Whether  there  is  a  delivery  or  not  is  often  a  ques- 
tion of  intention."  1  Joyce,  Ins.  §  95,  declares  that  nondelivery  by 
reason  of  the  negligence  of  the  company  or  its  agents  does  not  re- 
lieve the  isurer  of  liability. 

To  the  same  effect  are  the  decisions  of  this  court  upon  the  sub- 
ject of  what  constitutes  a  valid  delivery  of  a  deed.  The  law  makes 
such  delivery  essential  to  the  conveyance  of  title  to  realty.  What 
would  constitute  a  sufficient  delivery  in  law  of  a  deed  would  be  equally 
sufficient  in  the  case  of  an  insurance  policy,  even  where  the  contract 
between  the  insurer  and  the  insured  stipulated  that  there  should  be 
no  liability  until  delivery  of  its  policy.  In  the  one  case  the  parties 
supply  by  contract  what  the  law  requires  in  the  other.  Rushin  v. 
Shields,  11  Ga.  636  (syl.  point  5),  56  Am.  Dec.  436;  Howell  v.  Lieth, 
39  Ga.  180;  O'Neal  v.  Brown,  67  Ga.  707;  Ross  v.  Campbell,  7Z  Ga. 
309,  310. 

In  any  view,  then,  that  we  take  of  this  case,  whether  the  receipt 
given  by  the  local  agent  to  the  applicant  constitutes  a  part  of  the  con- 
tract of  insurance  or  not,  the  defendant  company  was  liable.  The  in- 
sured had  complied  with  every  condition  and  had  done  everything 
required  of  him  in  order  to  obtain  insurance  upon  his  life.  The  com- 
pany had  unconditionally  accepted  his  application,  and  issued  a  policy 
to  be  unconditionally  delivered  to  him.  That  policy  was  received  by 
its  local  agent,  who,  through  negligence  or  in  disregard  of  his  obliga- 


Sec.  4)  MUTUAL    BENEFIT    INSURANCE  219 

tions  both  to  his  company  and  to  the  other  contractinc;  party,  failed 
without  excuse  and  without  autliority  to  hand  the  pohcy  to  its  real 
owner.  In  consequence  of  this  failure  and  nec^ligence,  the  company 
contends  it  is  not  liable.  It  thus  seeks  to  take  advantage  of  the  wrong 
of  its  own  agent  by  virtually  pleading  his  negligence  as  a  defense  to 
this  action.  The  law  should  be  plain  in  its  terms  and  unmistakable  in 
its  meaning  before  a  court  should  hold  that  for  such  a  cause  an  in- 
surance policy  was  inoperative.  As  was  held  by  this  court  in  the  case 
of  Clay  v.  Insurance  Co.,  97  Ga.  44,  25  S.  E.  417:  "Stipulations  and 
conditions  in  policies  of  insurance,  like  those  in  all  other  contracts, 
are  to  have  a  reasonable  intendment,  and  are  to  be  so  construed,  if 
possible,  as  to  avoid  forfeitures,  and  to  advance  the  beneficial  pur- 
poses intended  to  be  accomplished." 

Judgment    af^rmed.*      All    the    justices    concurring,    except    Cobb^ 
J.,  absent  for  providential  cause. 


SECTION  4.— MUTUAL  BENEFIT  INSURANCE 


REYNOLDS  V.  SUPREME  COUNCIL  OF  ROYAL  ARCANUM. 

(Supreme  Judicial  Court  of  Massacliusetts,  Suffolk,  1906.     192  Mass.  150, 
78  N.  E.  129,   7  L.  R.  A.   [N.  S.]  1154,  7  Ann.  Cas.   776.) 

Bill  by  one  Reynolds  against  the  Supreme  Council  of  the  Royal 
Arcanum.     Case  reserved  for  full  court.     Bill  dismissed. 

Knowlton,  C.  J.  This  is  a  bill  in  equity  to  set  aside  certain 
changes  in  the  defendant's  by-laws  which  afifect  the  rights  of  certifi- 
cate holders.  The  defendant  is  a  fraternal  beneficiary  association, 
organized  under  the  laws  of  Massachusetts  in  1877,  and  now  sub- 
ject to  the  provisions  of  Rev.  Laws,  c.  119,  and  the  acts  in  amend- 
ment thereof.  The  plaintiffs  are  certificate  holders,  who  bring  this 
bill  for  themselves  and  in  behalf  of  others.  From  the  time  of  its 
organization  the  defendant  issued  certificates  to  members,  agreeing 
to  pay  to  a  designated  beneficiary  a  sum  not  exceeding  a  certain  num- 
ber of  dollars  on  the  death  of  the  member,  upon  compliance  by  him 
with  certain  conditions  therein  stated.  The  by-laws  provided  that 
the  death  benefit  should  be  for  a  definite  amount,  and  payments  of 
these  definite  amounts  have  always  been  made.  The  words  "not 
exceeding"  are  inserted  in  the  certificate  to  meet  the  possibility  of 

4  The  policy  may  become  binding  if  such  is  the  intention  of  the  parties, 
though  it  remains  in  the  possession  of  the  insurer.  Xenos  v.  Wickham,  L.  R. 
2  Eng.  &  Irish  App.  Cas.  290  (1867);  1  Cooley's  Briefs  on  Ins.  442  et  seq. 
But  it  is  competent  for  the  insurer  to  show  by  parol  that  a  policy  actually 
in  possession  of  the  insured  was  delivered  subject  to  a  condition.  See  Hart- 
ford Fire  Ins.  Co.  v.  W  ilson,  187  U.  S.  467,  .23  Sup.  Ct.  189,  47  L.  Ed.  261 
(1903). 


220  MAKING    THE    CONTIIACT  (Ch.  ^ 

a  single  full  assessment  not  being  equal  to  the  amount  stated.  This 
limitation  of  the  payment  to  the  amount  of  an  assessment,  except 
when  there  is  an  emergency  fund,  was  expressly  called  for  by  St. 
1899,  p.  471,  c.  442,  §  11,  wdiich  is  now  found  in  Rev.  Laws,  c.  119, 

Until  1898  the  assessments  paid  by  members,  from  which  the 
death  benefits  were  derived,  were  certain  sums  dependent  U])on 
the  age  of  the  member  at  the  time  of  receiving  his  certificate,  which 
sums  remained  the  same  as  the  years  went  by.  These  sums  were 
paid  to  meet  assessments  as  members  died,  and  the  amount  for  the 
first  year  would  equal  the  cost  to  the  corporation  of  the  insurance 
of  these  members.  But  as  the  members  grew  older  the  risk  of  their 
death  increased,  and  as  their  payments  remained  constant,  and  as 
there  was  at  no  time  a  payment  of  any  surplus  beyond  the  amount 
required  to  meet  losses,  the  payments  by  members  of  long  standing 
were  not  nearly  enough  to  equal  the  cost  of  their  insurance  to  the 
corporation.  So  the  only  way  in  which  the  amounts  required  to 
meet  losses  could  be  obtained  was  from  the  payments  made  by  new 
members. 

In  1898  the  by-laws  were  amended  so  as  largely  to  increase  the 
payments  to  be  made  by  all  members,  and  to  require  the  payments 
monthly.  These  amendments  went  into  effect  on  August  1,  1898, 
and  it  appears  by  the  agreed  facts  that  no  objection  thereto  has. 
ever  been  made  by  any  member  of  the  order.  These  payments, 
while  much  larger  than  those  required  by  the  original  by-laws, 
were  upon  the  same  relative  basis ;  that  is,  the  increase  upon  all  was 
in  the  same  proportion,  and  they  were  all  determined  by  the  age  of 
the  member  when  he  received  his  certificate,  and  were  not  to  be 
afterwards  changed  as  a  member  grew  older. 

When  these  amendments  were  made  it  was  thought  that  the  in- 
crease would  provide  for  the  future  payments  called  for  by  the  cer- 
tificates, and  that  an  adequate  emergency  fund  would  be  created 
from  this  income.  Under  these  amendments  there  was  a  surplus  in 
1898  from  the  excess  of  receipts  above  payments  amounting  to 
more  than  $455,000,  and  afterwards  there  was  annually  a  steadily 
diminishing  surplus  from  the  same  cause  to  and  including  the  year 
1903.  In  the  year  1904  the  payments  exceeded  the  receipts,  and 
there  was  a  deficit  of  $270,540.50. 

Prior  to  the  session  of  the  Supreme  Council  in  May,  1905,  the 
executive  committee  caused  mortality  tables  of  the  order  to  be  pre- 
pared, and  made  extended  investigations  and  studies  with  the  aid 
of  competent  actuaries,  to  devise  some  method,  through  a  change 
of  by-laws,  which  should  enable  the  corporation  to  meet  its  obliga- 
tions to  members.  The  actuaries  prepared  for  them  new  tables, 
each  the  mathematical  equivalent  of  the  others,  the  first  being  the 
regular  rates,  and  three  others  optional  alternatives.     These  were 


Sec.  4)  MUTUAL  BENEFIT  INSURANCE  221 

founded  upon  the  payment  by  the  order  of  the  maximum  value  of 
each  certificate,  and  the  payment  by  the  member  of  a  rate  adequate, 
without  further  modification  or  additional  assessment,  to  pay  the 
certificate  at  the  maturity  thereof.  It  is  agreed  that  "competent  ac- 
tuaries would  testify,  and  the  case  may  be  taken  as  though  they 
had  testified,  that  the  old  plan  of  assessments  was  faulty,  accord- 
ing to  the  assumptions  made  by  the  actuaries,  and  that  the  order 
could  not  meet  the  maximum  face  of  its  certificates  under  it;  that 
upon  their  assumptions  a  change  was  expedient  or  necessary ;  that 
the  plans  proposed  and  adopted  were  mathematically  correct ;  that 
if  the  members  paid  the  amounts  fixed  in  these  tables  the  order 
could  continue  to  pay  the  maximum  face  value  of  its  certificates  at 
their  maturity ;  that  such  amounts  are  no  higher  than  necessary 
for  this  purpose,  and  that  they  fairly  and  equitably  apportion 
among  the  members  their  contributions  to  the  widows'  and  or- 
phans' benefit  fund,  taking  into  consideration  their  age  and  risk." 
"The  plaintiffs  do  not  controvert  this  evidence  in  this  case,  but  re- 
serve the  right  to  discuss  its  materiality,  the  basis  and  theories  up- 
on which  it  rests,  and  its  application  to  this  case."  On  January  1, 
1905,  the  members  of  the  corporation  were  305,083  in  number,  and 
they  held  benefit  certificates  amounting  to  $680,848,000. 

Under  these  conditions  the  changes  recommended  by  the  actua- 
ries were  adopted  by  an  amendment  of  the  by-laws  by  an  almost 
unanimous  vote  of  the  members  of  the  Supreme  Council,  and  the 
question  is  whether  the  changes  are  legal  and  binding  upon  the 
members. 

From  facts  agreed  it  is  plain  that  a  great  corporation,  managing 
and  controlling  important  financial  interests  for  hundreds  of  thou- 
sands of  families,  was  conducting  its  business  upon  unsound  prin- 
ciples, which,  if  followed  without  change,  would  ultimately  lead  to 
financial  ruin.  The  first  question  is,  was  the  change  adopted  in  ex- 
cess of  the  defendant's  corporate  powers,  or  in  violation  of  the  stat- 
ute governing  such  corporations?  [This  question  was  decided  in 
the  negative.] 

The  objection  that  the  amendments  are  illegal  by  reason  of  the 
division  of  the  members  into  classes  cannot  prevail.  There  is  no 
objection  to  a  classification  of  members  according  to  age,  and  it 
would  be  unjust  to  disregard  age  in  determining  the  rates  that  dif- 
ferent persons  shall  pay  for  death  benefits  in  an  association  of  this 
kind. 

The  distinctive  features  of  such  organizations  remain  since  the 
adoption  of  the  amendments  as  well  as  before.  The  fraternal  plan. 
with  mutuality  and  without  profit,  distinguishes  the  work  of  such 
an  association  from  a  commercial  enterprise.  It  is  a  charitable  and 
benevolent  organization,  with  a  limitation  of  membership  to  a 
special  class,  and  a  limitation  upon  the  choice  of  beneficiaries.  It 
is  not  allowed  to  employ  paid  agents  in  soliciting  or  procuring  busi- 


222  MAKING    THE    CONTIIACT  (Ch.  3 

ness,  except  within  very  narrow  limits  prescribed  by  the  statutes. 
Rev.  Laws,  c.  119,  §  16.  Looking  to  the  nature  and  purposes  of 
fraternal  beneficiary  corporations,  we  see  nothing-  in  the  amend- 
ments at  variance  with  the  laws.  It  cannot  have  l)een  intended  that 
such  corporations  should  be  limited  to  a  method  of  assessment  that 
would  be  sure  to  bring  about  their  early  dissolution. 

Another  question  is  whether  the  amendments  are  in  violation  of 
the  contract  rights  of  members.  It  is  stated  in  the  record  that  "the 
agreements  between  the  plaintiff  and  the  defendant  concerning  as- 
sessments and  benefits  are  not  contained  in  any  one  specific  instru- 
ment, but  are  found  in  the  application  for  membership,  the  benefit 
certificate,  the  laws  of  Massachusetts  constituting  the  charter  and 
the  constitution  and  laws  of  the  order."  If  there  were  no  express 
stipulation  in  regard  to  the  by-laws  In  the  application  for  member- 
ship or  in  the  certificates,  all  members  of  such  a  corporation  would 
be  bound  by  by-laws  regularly  made  or  amended.  Durfee  v.  Old 
Colony,  etc.,  R.  R.  Co.,  5  Allen,  230,  242;  Pain  v.  Societe  St.  Jean 
Baptiste,  172  Mass.  319,  52  N.  E.  502,  70  Am.  St.  Rep.  287;  Oliver 
V.  Hopkins,  144  Mass.  175,  10  N.  E.  776;  Spilman  v.  Supreme 
Council  Home  Circle,  157  Mass.  128,  31  N.  E.  776;  Wright  v.  Minn. 
Mutual  Life  Ins.  Co.,  193  U.  S.  657,  24  Sup.  Ct.  549,  48  L.  Ed.  832; 
Supreme  Lodge  Knights  of  Pythias  v.  Knight,  117  Ind.  489,  20  N. 
E.  479,  3  L.  R.  A.  409. 

Every  member  of  this  corporation,  at  the  time  of  joining  it,  en- 
ters into  an  express  agreement  to  "conform  to  and  abide  by  the 
constitution,  laws,  rules  and  usages  of  the  said  council  and  order, 
now  in  force  or  which  may  hereafter  be  adopted  by  the  same."  The 
certificates  promise  payment  only  on  condition  that  the  member 
complies  "with  the  laws,  rules  and  regulations  now  governing  the 
said  council  and  fund,  or  that  may  hereafter  be  enacted  by  the  Su- 
preme Council  to  govern  the  said  council  and  fund,"  etc.  Here  in 
the  contract  is  full  authority  to  amend  the  laws,  rules  and  regula- 
tions. 

In  regard  to  a  similar  provision  under  which  a  mutual  fire  insur- 
ance company  changed  its  by-laws,  so  as  to  increase  the  assess- 
ments upon  certain  policy  holders,  the  Supreme  Court  of  the  Unit- 
ed States  uses  this  language:  "The  liability  of  members  of  this  in- 
stitution is  of  a  twofold  nature.  It  results  both  from  an  obligation 
to  conform  to  laws  of  their  own  making  as  members  of  the  body 
politic  and  from  a  particular  assumption  or  declaration  which  every 
individual  signs  on  becoming  a  member.  The  latter  is  remarkably 
comprehensive.  'We  will  abide  by,  observe  and  adhere  to  the  con- 
stitution, rules  and  regulations  which  are  already  established  or 
may  hereafter  be  established  by  a  majority  of  the  assured  *  *  * 
or  which  are  or  may  hereafter  be  established  by  the  president  and 
directors  of  the  society.'  *  *  *  As  to  what  is  contended  to  be 
a  material  alteration  in  their  charter,  we  consider  it  merely  as  a 


Sec.  4)  MUTUAL    BEXKFIT    INSURANCE  22.3 

new  arrangement  or  distribution  of  their  funds,  and  whether  just 
or  unjust,  reasonable  or  unreasonal)le,  l)eneficial  or  otherwise,  to 
all  concerned,  was  certainly  a  mere  matter  of  speculation  proper 
for  the  consideration  of  the  society  and  which  no  individual  is  at 
liberty  to  complain  of,  as  he  is  bound  to  consider  it  as  his  own  in- 
dividual act.  Every  member,  in  fact,  stands  in  the  peculiar  situa- 
tion of  being  party  oh  both  sides,  insurer  and  insured.  Certainly 
the  general  submission  which  they  have  signed  will  cover  their  li- 
ability to  submit  to  this  alteration."  Korn  v.  Mutual  Assurance 
Co.,  6  Cranch,  192,  3  L.  Ed.  195. 

This  part  of  the  present  case  is  covered  in  principle  by  the  deci- 
sions of  this  court  in  Messer  v.  Grand  Lodge,  180  Mass.  321,  62  N. 
E.  252,  and  Pain  v.  Societe  St.  Jean  Baptiste,  172  Mass.  319,  52  N. 
E.  502,  70  Am.  St.  Rep.  287,  in  which  cases  changes  similar  to  those 
made  by  the  defendant  were  upheld  under  like  contracts.  The 
same  general  doctrine  has  been  stated  in  many  cases  in  other 
courts.  Wright  v.  Minn.  Mutual  Life  Ins.  Co.,  193  U.  S.  657,  24 
Sup.  Ct.  549,  48  L.  Ed.  832;  Fullenwider  v.  Supreme  Council  Roy- 
al League,  73  111.  App.  321 ;  s.  c,  180  111.  621,  54  N.  E.  485,  72  Am. 
St.  Rep.  239;  Bartram  v.  Supreme  Council  Royal  Arcanum,  6  Ont. 
W.  R.  404;  Gaines  v.  Supreme  Council  Royal  Arcanum  (C.  C.)  140 
Fed.  978;  Fugure  v.  Society  St.  Joseph,  46  Vt.  362;  Supreme 
Lodge  Knights  of  Pythias  v.  Knight,  117  Ind.  489,  20  N.  E.  479,  3 
L.  R.  A.  409;  Haydel  v.  Mutual  Reserve  Fund  Life  Ass'n,  104  Fed. 
718,  44  C.  C.  A.  169;  Gaut  v.  Same  (C.  C.)  121  Fed.  403,  409;  Rich- 
mond V.  Supreme  Lodge  Order  of  Protection,  100  Mo.  App.  8,  71 
S.  W.  736;  Barbot  v.  Mutual  Reserve  Fund  Life  Ass'n,  100  Ga. 
681,  28  S.  E.  498;  Mutual  Reserve  Fund  Life  Ass'n  v.  Taylor,  99 
Va.  208,  Z7  S.  E.  854. 

There  are  many  cases  in  which  it  is  held  that  the  amount  ex- 
pressly promised  to  be  paid  in  a  certificate  like  those  issued  by  the 
defendant  cannot  be  cut  down  by  an  amendment  of  the  by-laws. 
Newhall  v.  American  Legion  of  Honor,  181  Mass.  Ill,  63  N.  E.  1 ; 
Langan  v.  Same,  174  N.  Y.  266,  66  N.  E.  932 ;  American  Legion  of 
Honor  v.  Getz,  112  Fed.  119,  50  C.  C.  A.  153.  But  in  many  of 
these,  as  in  the  case  from  this  court  last  cited,  a  distinction  is  made 
between  the  express  stipulation  of  the  corporation  to  pay  a  certain 
sum  and  other  provisions  relating  to  the  methods  of  the  corpora- 
tion, and  the  duties  of  the  certificate  holders,  which  properly  may 
be  a  subject  for  regulation  by  by-laws,  even  though  they  affect  the 
rights  of  the  parties  under  their  contract.  The  assessments  to  be 
paid  for  death  benefits  in  this  case  are  provided  for  by  the  by-laws, 
while  the  promise  in  writing  to  pay  a  certain  sum  to  a  particular 
person  is,  as  to  that  person,  a  matter  outside  of  those  corporate 
rules  which  may  be  expected  to  be  changed  by  an  amendment  of 
the  by-laws.     This  promise  on   one   side  is   set  over  against  the 


-'2i  MAKING    THE    CON'TRAOT  (Ch.  3 

promise  of  the  member  on  the  other.  The  promise  of  the  mem1)er 
is  to  do  what  may  be  called  for  by  the  by-laws  then  existing  or  that 
may  afterwards  be  adopted.  The  promise  of  the  corporation  is 
stated  expressly,  without  mention  of  the  by-laws.  The  member  oc- 
cupies a  dual  position,  as  an  insurer  and  the  insured.  As  one  of 
the  association  agreeing  to  provide  for  the  payments  that  may  be- 
come due  to  members,  he  agrees  to  be  subject  to  the  by-laws.  As 
the  insured  person  to  whom  a  particular  sum  of  money  is  promised, 
he  has  a  right  to  stand  on  the  terms  of  the  promise. 

That  the  duties  of  members  prescribed  by  the  by-laws  remain 
subject  to  modification  when  a  power  of  amendment  is  reserved 
lias  often  been  decided.  Loeffler  v.  Modern  Woodmen  of  America, 
100  Wis.  79,  75  N.  W.  1012;  Langnecker  v.  Grand  Lodge  A.  O.  U. 
W.,  HI  Wis.  279,  87  N.  W.  293,  55  L.  R.  A.  185,  87  Am.  St.  Rep. 
860;  Lawson  v.  Hewell,  118  Cal.  613,  50  Pac.  763,  49  L.  R.  A.  400; 
Gilmore  v.  Knights  of  Columbus,  77  Conn.  58,  58  Atl.  223,  107  Am. 
St.  Rep.  17,  1  Ann.  Cas.  715;  Ellerbe  v.  Faust,  119  Mo.  653,  25  S. 
W.  390,  25  L.  R.  A.  149. 

Most  of  the  cases  relied  on  by  the  plaintiffs,  when  rightly  analyz- 
ed, turn  on  the  distinction  between  an  attempted  amendment  of  the 
by-laws  directly  affecting  the  promise  to  the  certificate  holder  as 
an  insured  person,  and  an  amendment  affecting  his  duties  as  a 
member  of  the  corporation  bound  to  perform  his  part  in  providing 
means  or  otherwise  as  one  of  the  association  of  insurers.  Hale  v. 
Equitable  Aid  Union,  168  Pa.  377,  31  Atl.  1066;  Fargo  v.  Supreme 
Tent,  96  App.  Div.  491,  89  N.  Y.  Supp.  65;  Weber  v.  Supreme 
Tent,  172  N.  Y.  490,  65  N.  E.  258,  92  Am.  St.  Rep.  753 ;  Sautter  v. 
Supreme  Conclave,  72  N.  J.  Law,  325,  62  Atl.  529;  Tebo  v.  Royal 
Arcanum,  89  Minn.  3,  93  N.  W.  513;  Deuble  v.  Grand  Lodge,  66 
App.  Div.  323,  72  N.  Y.  Supp.  755 ;  Deuble  v.  Grand  Lodge,  172  N 
Y.  665,  65  N.  E.  1116;  Beech  v.  Supreme  Tent,  177  N.  Y.  100,  69  N 
E.  281 ;  Startling  v.  Royal  Templars,  108  Mich.  440,  66  N.  W.  340 
62  Am.  St.  Rep.  709;  Peterson  v.  Gibson,  191  111.  365,  61  N.  E.  127 
54  L.  R.  A.  836.  85  Am.  St.  Rep.  263 ;  Wist  v.  Grand  Lodge,  22  Or 
271,  29  Pac.  610,  29  Am.  St.  Rep.  603;  Roberts  v.  Cohen,  60  App 
Div.  259,  70  N.  Y.  Supp.  57;  Roberts  v.  Grand  Lodge,  173  N.  Y 
580,  65  N.  E.  1122;  United  Workmen  v.  Stumpf,  24  Tex.  Civ.  App 
309,  58  S.  W.  840;  Hadley  v.  Woodman,  1  Tenn.  Ch.  App.  413 
Spencer  v.  Grand  Lodge,  53  App.  Div.  627,  65  N.  Y.  Supp.  1146. 
Other  cases  cited  by  the  plaintiffs  are  clearly  adverse  to  the  view 
which  we  take.  See  Ebert  v.  Mutual  Ass'n,  81  Minn.  116,  83  N.  W. 
506,  834,  84  N.  W.  457 ;  Strauss  v.  Mut.  Ass'n,  126  N.  C.  971,  36  S.  E. 
352,  54  L.  R.  A.  605,  83  Am.  St.  Rep.  699;  Benjamin  v.  Mutual,  146 
Cal.  34,  79  Pac.  517. 

On  principle  and  on  the  weight  of  authority  we  are  of  opinion 
that  there  is  nothing  in  this  contract  that  prevents  the  corporation 


Sec.  4)  MUTUAL  BENEFIT  INSURANCE  225 

from  amending  its  by-laws  in  a  reasonable  way,  to  accomplish  the 
purposes  for  which  it  was  organized,  even  though  the  change  in- 
creases the  payments  to  be  made  by  certificate  holders.  Such 
changes  necessarily  involve  some  hardship  to  certain  individual 
members,  but  the  corporation,  under  the  law,  should  do  that  which 
will  bring  the  greatest  good  to  the  greatest  number.  The  members 
who  complain  of  its  action  are  those  who  have  had  the  benefit  of  in- 
surance for  themselves  and  their  families  for  many  years,  at  very 
much  less  than  the  cost  of  their  insurance  to  the  corporation.  They 
have  had  the  good  fortune  to  survive,  and  therefore  their  contracts 
have  brought  them  no  money,  but  all  the  time  they  have  had  the 
stipulated  security  against  the  risk  of  death.  If  now  they  are  called 
upon  to  pay  for  future  insurance  no  more  than  its  cost  to  the  cor- 
poration they  ought  not  to  think  it  unjust. 
Bill  dismissed. 


WRIGHT  V.  KNIGHTS  OF  MACCABEES  OF. THE  WORLD. 

(Court  of  Appeals  of  New  York,  1909.     196  N.  Y.  391,  89  N.  E.  1078,  134 
Am.  St.  Rep.  838,  31  L.  R.  A.  [N.  S.]  423.) 

Appeal  from  Supreme  Court,  Appellate  Division,  Fourth  Depart- 
ment. 

Action  by  Dennis  L.  Wright  against  the  Knights  of  the  Mac- 
cabees of  the  World.  A  judgment  dismissing  the  complaint  on  the 
merits  was  affirmed  by  the  Appellate  Division  (128  App.  Div.  883, 
112  N.  Y.  Supp.  1150),  and  plaintifif  appeals.     Reversed. 

The  defendant  is  "a  mutual,  fraternal  benefit  insurance  associa- 
tion," organized  under  the  laws  of  the  state  of  Michigan,  with  its 
principal  office  in  the  city  of  Port  Huron  in  that  state,  and  with 
branches  or  subordinate  bodies,  known  as  tents,  in  various  places 
in  many  states,  one  of  which,  located  in  the  city  of  Watertown,  N. 
Y.,  is  known  as  Tent  No.  418.  The  plaintiff,  a  resident  of  Water- 
town,  became  a  member  of  the  defendant  and  of  said  tent  in  the 
month  of  June,  1897.  In  January,  1905,  he  was  suspended  by  the 
defendant,  and  the  suspension,  if  lawful,  involved  the  forfeiture  of 
his  right  to  participate  either  in  the  benefit  fund  of  the  association 
or  in  the  fraternal  privileges  of  his  tent.  Claiming  that  such  suspen- 
sion was  in  violation  of  law,  he  brought  this  action  to  procure  his 
reinstatement  as  a  member  in  good  standing,  the  restoration  of  his 
certificate  of  insurance,  and  an  injunction  against  the  defendant  re- 
straining it  from  changing, the  contract  or  the  dues  and  assessments 
thereunder.  The  history  of  the  controversy,  which  has  been  before 
the  courts  for  several  years,  may  be  found  by  consulting  the  case  as 
reported  in  48  Misc.  Rep.  558,  95  N.  Y.  Supp.  996;  119  App.  Div. 
914,  104  N.  Y.  Supp.  1151;  122  App.  Div.  904,  106  N.  Y.  Supp.  1150; 
Vance  Ins. — 15 


226  MAKING   THE    CONTRACT  (Ch.  3 

128  App.  Div.  883,  112  N.  Y.  Supp.  1150.  Upon  the  last  trial  the 
Special  Term  dismissed  the  complaint  on  the  merits,  without  costs, 
and  the  Appellate  Division  affirmed;  one  of  the  justices  dissenting, 
and  one  not  sitting. 

Vann,  J.  (after  stating  the  facts  as  above).  This  appeal  v^as 
heard  on  the  judgment  roll,  no  case  having  been  made  and  none  of 
the  evidence  or  exhibits  being  printed,  except  as  portions  of  the  lat- 
ter appear  in  the  findings  of  the  trial  court.  The  following  facts, 
found  by  the  court,  present  the  questions  that  we  are  called  upon  to 
decide :  In  his  application  to  become  a  member  of  the  defendant, 
dated  June  9,    1897,   the   plaintiff   stated :    "I   hereby    agree   that 

*  *  *  the  laws  of  the  Supreme  Tent  of  the  Knights  of  the  Mac- 
cabees of  the  World  now  in  force,  or  that  may  hereafter  be  adopted, 
shall   form   the   basis  of   this   contract   for   beneficial   membership 

*  *  *  ;  that  any  *  *  *  neglect  to  pay  any  assessment 
which  shall  be  made  by  the  Supreme  Tent  within  the  time  provided 
by  the  laws  thereof,  or  neglect  to  pay  the  dues  fixed  by  said  laws, 
in  the  manner  and  at  the  time  provided  by  said  laws,  or  the  by-laws 
of  the  tent  to  which  I  may  belong,  shall  vitiate  my  benefit  certifi- 
cate and  forfeit  all  payments  made  thereon.  *  *  *  This  appli- 
cation and  the  laws  of  the  Supreme  Tent  now  in  force,  or  that  may 
hereafter  be  adopted,  are  made  a  part  of  the  contract  between  my- 
self and  the  Supreme  Tent;  and  I,  for  myself,  and  my  beneficiary 
or  beneficiaries,  agree  to  conform  to  and  be  governed  thereby."  On 
the  19th  of  June,  1897,  the  defendant  issued  to  the  plaintiff  a  certif- 
icate or  policy  of  insurance  stating  in  part  as  follows :  "This  certi- 
fies that  Sir  Knight  Dennis  L.  Wright  has  been  regularly  admitted 
as  a  member  of  Watertown  Tent  No.  418,  located  at  Watertown, 
state  of  New  York,  and  that  in  accordance  with  and  under  the  pro- 
visions of  the  laws  of  the  order  he  is  entitled  to  all  the  rights,  bene- 
fits, and  privileges  of  membership  therein,  and  that  at  his  death 
one  assessment  on  the  membership,  not  exceeding  in  amount  the 
sum  of  $1,000,  will  be  paid  as  a  benefit  to  Mary  Wright  *  *  * 
provided  he  shall  have  in  every  particular  complied  with  the  laws 
of  the  order  in  force  or  that  may  hereafter  be  adopted." 

The  plaintiff,  who  at  the  date  of  the  certificate  was  of  the  age  of 
50  years,  complied  with  the  rules  of  the  defendant  and  paid  all  dues, 
assessments,  and  charges  against  him  until  and  including  the 
month  of  December,  1904.  According  to  the  laws  of  the  association 
in  force  at  the  time  of  plaintiff's  admission  to  membership  the  an- 
nual dues  were  $3  per  year,  and  in  January,  1898,  with  his  acquies- 
cence, they  were  changed  to  $4  per  year,  and  he  thereafter  paid  at 
that  rate.  According  to  said  laws  when  the  plaintiff  was  admitted 
each  monthly  assessment  was  $1.40,  and,  as  the  court  found,  "it  was 
further  agreed  that  'he  shall  pay  the  same  rate  of  assessment  there- 
after so  long  as  he  remains  continually  in  good  standing  in  the  or- 


Sec,  4)  MUTUAL   BENEFIT    INSURANCE 


227 


der.' "  Provision  was  made,  however,  that  in  case  one  assessment 
per  month  should  not  be  sufficient  to  pay  death  and  disability 
claims  as  they  should  occur,  additional  assessments  might  be  made 
from  time  to  time  to  pay  such  claims.  At  the  time  the  plaintiff 
joined  the  defendant  the  by-laws  provided  that  "any  member  hold- 
ing a  benefit  certificate  who  shall  become  totally  and  permanently 
disabled  from  any  cause,  not  the  result  of  his  own  illegal  act,  to 
perform  or  direct  any  kind  of  labor  or  business,  or  who  shall  ar- 
rive at  the  age  of  seventy  years,  and  who  has  paid  all  legal  dues 
and  assessments  since  the  date  of  his  initiation  to  the  date  of  such 
disability  or  period  in  life,  shall  be  relieved  from  the  payment  of 
any  further  dues  or  assessments  levied  under  these  laws,  or  the 
by-laws  of  the  tent  of  which  he  is  a  member,  and  shall  be  entitled 
to  receive  from  the  disability  fund  annually  one-tenth  part  of  the 
sum  for  which  his  benefit  certificate  is  issued,  provided,  however, 
that  the  aggregate  of  such  installments  received  by  him  shall  in  no 
case  exceed  the  sum  specified  in  such  certificate." 

In  July,  1904,  the  defendant,  without  the  consent  of  the  plain- 
tiff, so  amended  its  by-laws  as  to  provide  that  "on  and  after  Janu- 
ary 1,  1905,  all  present  life  benefit  members  of  the  association  who 
are  then  fifty-five  years  of  age,  or  over  *  *  *  shall  pay  three 
dollars  per  month  for  each  $1,000  of  life  benefits  carried."  The 
amendment  also  provided  for  a  per  capita  tax  of  ten  cents  per 
month  and  a  "fraternal  tax  of  fifty  cents  a  year,"  upon  every  mem- 
ber of  the  association.  Additional  assessments  at  the  new  rate 
were  authorized  to  pay  death  and  disability  claims  whenever  the 
amount  of  the  life  benefit  fund  was  not  sufficient  for  the  purpose. 
On  January  1,  1905,  the  plaintiff  had  passed  the  age  of  55  years. 
The  amended  laws  further  provided  that  "A  life  benefit  member  of 
the  association  who  shall  become  totally  and  permanently  disabled 
by  other  than  his  own  illegal,  reckless,  or  foolhardy  act  from  per- 
forming or  directing  any  and  all  kinds  of  labor  or  business,  whether 
such  directing  is  his  customary  occupation  or  not,  and  he  is  in  good 
standing  in  the  association  at  the  time  of  such  disability,  may  re- 
ceive total  and  permanent  disability  benefits,  provided  that  such 
member  shall  continue  to  pay  all  monthly  rates,  additional  assess- 
ments, dues,  and  fines  which  he  would  have  been  required  to  pay 
if  such  disability  had  not  occurred.  *  *  *  A  member  so  dis- 
abled may  receive  from  the  life  benefit  fund  annually  one-tenth 
part  of  the  amount  named  in  his  life  benefit  certificate,  which 
amount  shall  be  paid  in  quarterly  payments,  provided  that  such  in- 
stallments shall  be  paid  only  during  the  good  standing  of  such 
member  in  the  association  and  the  aggregate  of  such  installments 
shall  in  no  case  exceed  the  amount  in  his  life  benefit  certificate." 
As  the  plaintiff  declined  to  pay  at  the  rate  as  increased  by  the 
amendments  of  1904,  he  was  suspended,  and  owing  to  the  suspen- 


228  MAKING   THE    CONTRACT  (Ch.  3 

sion,  according  to  the  by-laws,  he  forfeited  absolutely  all  his  rights 
derived  from  membership.  In  January,  1905,  he  duly  tendered  to 
the  defendant  in  due  time  the  sum  of  $2.40,  which  included  all  that 
he  was  owing  at  the  old  rate  of  $1.40  per  month,  and  $1  dues  for 
the  quarter  beginning  on  the  first  of  the  month,  but  the  defendant 
refused  to  accept  less  than  $4.10,  the  amount  due  according  to  the 
new  rate. 

The  court  further  found  that  according  to  the  defendant's  expe- 
rience the  rate  assessed  at  the  time  the  plaintiff  became  a  member 
"at  twelve  assessments  per  year  is  not  sufficient  for  its  perpetual 
maintenance  and  without  an  additional  number  of  assessments  to 
pay  death  and  disability  claims  as  they  occur,  it  will  be  compelled 
to  go  out  of  business  within  eighteen  to  twenty-five  years  from 
September,  1905  ;"  and  "that  the  increase  in  the  rate,  or  the  number 
of  assessments,  was  necessary  for  the  continued  existence  of  the 
defendant."  The  contract  between  the  parties  consisted  of  the  ap- 
plication, certificate,  and  the  by-laws  in  force  when  the  certificate 
was  issued.  Seven  years  after  the  contract  was  made  the  by-laws 
were  changed  by  the  defendant,  without  the  consent  of  the  plaintifif, 
so  as  (1)  to  increase  the  monthly  assessments  from  $1.40  to  $3  and 
to  require  a  per  capita  tax  of  10  cents  per  month  together  with  a 
fraternal  tax  of  50  cents  per  annum,  the  provision  for  additional  as- 
sessments being  still  continued  in  force;  (2)  to  abolish  the  right 
of  a  member,  upon  reaching  the  age  of  70  years,  to  relief  from  the 
payment  of  any  further  dues  or  assessments;  (3)  to  abolish  the 
right  of  a  member  on  reaching  that  age  to  receive  annually  one- 
tenth  of  the  sum  named  in  his  certificate,  and  (4)  to  so  modify  the 
disability  clause  as  to  entitle  a  member  to  the  benefit  of  the  annual 
payment  of  one-tenth,  only  in  case  he  should  continue  to  pay  pre- 
cisely the  same  as  if  he  had  not  become  disabled,  and  even  to  con- 
tinue to  pay  after  he  had  received  the  full  amount  called  for  by  his 
certificate.  The  question  presented  for  decision  is  whether  the  res- 
ervation by  the  defendant  of  a  general  power  to  amend  its  by-laws, 
without  specifying  in  what  respects,  authorized  it  to  amend  them 
in  all  the  particulars  above  mentioned.  In  other  words,  can  such 
an  association  amend  a  specific  clause  under  a  general  power? 

The  amendments  involve  not  only  a  substantial  increase  in  the 
rate  of  assessment,  but  also  a  substantial  decrease  in  the  amount 
of  benefits.  While  the  member  is  now  required  to  pay  more  than 
twice  as  much  as  before,  he  is  to  receive  in  return  materially  less 
than  before.  He  is  deprived  altogether  of  the  benefit  to  which  he 
was  entitled  upon  reaching  the  age  of  70  and  is  deprived  of  a  ma- 
terial part  of  the  benefit  to  which  he  was  entitled  in  case  of  disabil- 
ity. While  it  was  specifically  provided  that  he  should  "pay  at  the 
same  rate  of  assessment  thereafter,"  the  rate  of  assessment  is  now 
more  than  doubled.    The  benefits  were  specified  and  the  rate  was 


Sec.  4)  MUTUAL    BENEFIT    INSURANCE  229 

specified,  and  can  such  a  contract  of  insurance  be  so  amended  by 
the  insurer,  under  a  general  power,  as  to  take  away  from  the  in- 
sured without  his  consent  an  essential  part  of  what  he  specifically 
contracted  for?  If  the  defendant  had  stated  in  the  body  of  the 
certificate  that  it  reserved  the  right  to  amend  by  increasing  assess- 
ments and  reducing  benefits,  the  plaintiff  would  have  had  notice 
of  what  he  might  expect,  but,  in  that  event,  it  is  doubtful  whether 
he  would  have  taken  out  the  insurance,  yet  the  defendant  is  forced 
to  claim  that  the  contract  now  has  precisely  the  same  meaning  and 
effect  as  if  it  had  been  drawn  in  that  form.  The  general  reserva- 
tion doubtless  authorized  the  defendant  to  amend  its  by-laws  so  as 
to  cover  subjects  not  therein  specifically  provided  for  and  even  in 
other  respects,  which  would  not  essentially  impair  the  contract  as 
made.  But  the  subjects  of  assessments  and  benefits  were  specifical- 
ly provided  for,  each  being  defined  in  express  terms  so  that  the 
member  knew  what  he  was  bound  to  pay  and  what  he  was  entitled 
to  receive.  After  he  had  acted  upon  those  specifications  in  the 
contract  by  paying  at  the  rate  provided  thereby  for  seven  years, 
the  plan  of  insurance  was  changed  from  term  to  life,  while  the  as- 
sessments were  so  advanced  and  the  benefits  so  reduced  as  to  make 
a  new  contract  of  much  less  value  to  him  than  the  old. 

Much  has  been  written  in  various  jurisdictions  upon  the  subject 
of  amendments  to  by-laws,  but  we  shall  confine  our  review  to  our 
own  decisions,  which  we  regard  as  conclusive  in  principle.  They 
show  determined  and  consistent  progression.  More  than  30  years 
ago  it  was  held  by  this  court,  in  a  carefully  considered  case,  that, 
even  when  the  power  to  amend  is  reserved  by  the  charter  of  a  busi- 
ness corporation,  a  by-law  could  not  be  repealed  so  as  to  impair 
rights  which  had  been  given  and  had  become  vested  by  virtue  of 
such  by-law.  Kent  v.  Quicksilver  Mining  Co.,  78  N.  Y.  159,  182. 
In  a  later  case,  brought  against  the  defendant  now  before  us,  the 
act  of  self-destruction  insured  against  according  to  the  by-laws  was 
held  beyond  the  power  of  amendment,  so  as  to  provide  that  such 
an  act  should  not  be  insured  against.  Weber  v.  Supreme  Tent  of 
the  Knights  of  Maccabees  of  the  World,  172  N.  Y.  490,  65  N.  E. 
258,  92  Am.  St.  Rep.  753.  In  Shipman  v.  Protected  Home  Circle, 
174  N.  Y.  398,  404,  67  N.  E.  83,  63  L.  R.  A.  347,  there  was  no  provi- 
sion in  the  certificate  or  by-laws  against  death  by  suicide,  but  act- 
ing under  a  power  reserved  by  express  consent  an  amendment  was 
adopted  making  the  certificate  void,  in  case  the  insured  "died  by 
suicide,  felonious  or  otherwise,  sane  or  insane."  The  court,  speak- 
ing through  Judge  Werner,  said :  "As  the  contract  was  silent  upon 
the  subject  of  self-destruction  by  the  insured  while  insane,  death 
from  that  cause  was  clearly  within  its  terms.  Upon  the  execution 
of  the  contract  the  insured,  therefore,  acquired  a  fixed  and  vested 
right  to  insurance  covering  that  risk.     No  subsequent  amendment 


230  MAKING   THE    CONTRACT  (Ch.  3 

of  the  by-laws  could  afifect  that  right  without  the  express  assent  of 
the  insured."    Citing  the  Weber  Case. 

In  another  case,  against  the  present  defendant,  Judge  Cullen, 
speaking  for  all  the  judges  but  one,  said:  "A  reference  to  the  laws 
of  the  order  informed  the  plaintiff  at  the  time  he  joined  the  order  ot 
the  character  of  the  disability  which  entitled  him  to  receive  half 
the  amount  of  the  certificate,  and  there  was  no  provision  therein 
to  the  efifect  that  the  payment  was  not  to  be  immediate  but  in  an- 
nual installments.  As  said  by  Judge  Gray  in  Langan  v.  Supreme 
Council  American  Legion  of  Honor,  174  N.  Y.  266,  66  N.  E.  932: 
'It  was  beyond  the  power  of  the  defendant  to  affect  the  obligation 
expressed  in  the  certificate,  without  the  consent  of  its  holder.'  The 
constitution  and  laws  of  the  defendant  constitute  a  book  of  over 
ninety  pages  and  the  provision  authorizing  an  amendment  of  the 
endowment  laws  is  found  not  in  the  endowment  laws,  but  in  a  brief 
section  of  the  constitution."  After  reviewing  certain  cases  he  con- 
tinued: "Under  the  doctrine  of  these  cases  we  think  that  the  obli- 
gations assumed  by  the  defendant  in  its  certificate  of  membership 
should  not  be  impaired  by  provisions  of  the  constitution  and  laws 
of  the  order  to  which  the  attention  of  the  member  might  never  be 
called,  or  at  least  they  should  not  be  cut  down  under  the  reserva- 
tion of  the  power  to  amend.  It  is  quite  easy  for  fraternal  organiza- 
tions, such  as  the  defendant,  if  they  deem  the  provisions  for  benefits 
to  their  members  tentative  only  and  desire  to  have  them  subject  to 
such  modifications  as  the  business  of  the  orders  may  require  to  ex- 
press that  in  the  certificate.  So,  in  the  present  case,  if  the  certifi- 
cate had  provided  that  the  payments  therein  specified  should  be 
subject  to  such  modification  as  to  amount,  terms,  and  conditions 
of  payment  and  contingencies  in  which  the  same  were  payable  as 
the  endowment  laws  of  the  order  from  time  to  time  might  provide, 
the  amendments  would  be  applicable  to  existing  members.  But  I 
think  that  nothing  less  explicit  than  this  appearing  in  the  certificate 
itself  should  be  effectual  for  such  a  purpose."  Beach  v.  Supreme 
Tent  of  the  Knights  of  the  Maccabees  of  the  World,  177  N.  Y.  100, 
104,  69  N.  E.  281. 

We  soon  had  the  subject  before  us  again  in  a  case  where  the  ap- 
plication contained  a  promise  similar  to  that  made  by  the  plaintifif 
in  this  case  "to  conform  in  all  respects  to  the  by-laws,  rules,  and 
regulations  of  the  association  now  in  force  or  which  may  hereafter 
be  adopted ;"  and  the  charter  provided  for  the  payment  to  the  ben- 
eficiary "of  such  sum  as  the  by-laws  of  such  association  may  from 
time  to  time  prescribe."  ■  By  an  amendment  of  the  by-laws  an  at- 
tempt was  made  to  cut  down  the  benefit  specified  in  the  certificate. 
Judge  Haight.  who  had  dissented  in  the  Beach  Case,  wrote  for  all 
the  judges  and  held  that  the  case  then  in  hand  could  not  be  distin- 
guished from  that  case.     He  said:    "The  opinion  in  that  case  re- 


Sec.  4)  MUTUAL  BENEFIT  INSURANCE  231 

ceived  the  approval  of  all  of  the  members  of  this  court  except  my- 
self. I  entertained  the  view  that  under  the  contract  entered  into 
in  that  case  the  right  to  amend  the  by-laws  was  reserved,  and  the 
certificate  holder,  or  those  for  whose  interest  he  procured  the  same, 
did  not  acquire  an  absolute  vested  right  under  existing  by-laws,  but 
that  they  were  subject  to  the  reasonable  amendments  that  should 
thereafter  be  found  necessary  and  proper.  But  a  contrary  view 
was  adopted  by  my  associates,  and  it,  therefore,  becomes  my  duty 
to  submit  to  the  views  of  the  majority."  After  holding  that  the 
two  cases  were  the  same  in  principle,  he  continued :  "It  is  true  that 
there  is  a  variation  in  the  certificates.  In  the  Maccabees  Case  the 
certificate  provided  for  payments  to  be  made  in  case  of  total  dis- 
ability. In  this  case  the  certificate  contains  no  provision  of  that 
character,  but  I  am  unable  to  see  that  this  distinguishes  the  two  cas- 
es in  principle.  In  the  Maccabees  Case  the  beneficiary  would  ulti- 
mately receive  the  full  amount  of  his  certificate.  In  this  case  the 
beneficiar}^  gets  only  about  one-third  of  the  amount  of  the  certifi- 
cate. We  think  that  the  former  case  is  controlling  upon  us. 
*  *  *  "  Evans  V.  Southern  Tier  Masonic  Relief  Association,  182 
N.  Y.  453,  456,  459,  75  N.  E.  317. 

All  these  cases,  among  others,  were  cited  and  relied  upon  in 
Ayers  v.  Ancient  Order  of  United  Workmen,  188  N.  Y.  280,  80  N. 
K.  1020.  In  that  case  power  to  amend  was  expressly  reserved  and 
an  amendment  provided  that  the  certificate  should  become  void  if 
the  insured  should  thereafter  "enter  into  the  business  or  occupation 
of  selling,  by  retail,  intoxicating  liquor  as  a  beverage."  All  the 
judges  who  sat  united  in  holding  the  amendment  void,  in  the  ab- 
sence of  a  reservation  of  the  specific  right  to  so  amend  the  by-laws 
as  to  restrict  the  occupation  or  business  of  the  insured,  upon  the 
ground  that  it  violated  a  vested  right.  Among  other  things  it  was 
said:  "An  amendment  of  by-laws  which  form  part  of  a  contract  is 
an  amendment  of  the  contract  itself,  and  when  such  a  power  is  re- 
served in  general  terms  the  parties  do  not  mean,  as  the  courts  hold, 
that  the  contract  is  subject  to  change  in  any  essential  particular  at 
the  election  of  the  one  in  whose  favor  the  reservation  is  made.  It 
would  be  not  reasonable  and  hence  not  within  their  contemplation, 
at  least  in  the  absence  of  stipulations  clearly  specifying  the  subjects 
to  be  aft'ected,  that  one  party  should  have  the  right  to  make  a  radi- 
cal change  in  the  contract,  or  one  that  would  reduce  its  pecuniary 
value  to  the  other.  A  contract  which  authorizes  one  party  to 
change  it  in  any  respect  that  he  chooses  would  in  effect  be  binding 
upon  the  other  party  only  and  would  leave  him  at  the  mercy  of 
the  former,  and  we  have  said  that  human  language  is  not  strong 
enough  to  place  a  person  in  that  situation.  Industrial  &  General 
Trust,  Limited,  v.  Tod,  180  N.  Y.  215,  225,  7Z  N.  E.  7.  While  the 
defendant  may  doubtless  so  amend  its  by-laws,  for  instance,  as  to 


232  MAKING   THE    CONTRACT  (Ch.  3 

make  reasonable  changes  in  the  methods  of  administration  the 
manner  of  conducting  its  business  and  the  like,  no  change  can  be 
made  which  will  deprive  a  member  of  a  substantial  right  conferred 
expressly  or  impliedly  by  the  contract  itself.  That  is  beyond  the 
power  of  the  Legislature  as  well  as  the  association,  for  the  obliga- 
tion of  every  contract  is  protected  from  state  interference  by  the 
federal  Constitution."  See,  also.  Parish  v.  New  York  Produce  Ex- 
change, 169  N.  Y.  34,  61  N.  E.  977,  56  L.  R.  A.  149;  Langan  v.  Su- 
preme Council  American  Legion  of  Honor,  174  N.  Y.  266,  66  N.  E. 
932;  Simons  v.  American  Legion  of  Honor,  178  N.  Y.  263,  70  N.  E. 
776;  Dowdall  v.  Catholic  Mutual  Benefit  Ass'n  (decided  herewith), 
196  N.  Y.  405,  89  N.  E.  1075,  31  L.  R.  A.  (N.  S.)  417. 

These  cases  establish  the  rule  that  benefits  cannot  be  reduced, 
or  new  conditions  forfeiting  the  benefits  added  by  an  amendment 
of  the  by-laws,  even  when  the  general  right  to  amend  is  expressly 
reserved.  They  are  controlling,  therefore,  so  far  as  all  the  amend- 
ments now  in  question  are  concerned,  except  that  providing  for  an 
increase  in  the  rate  of  assessments.  Following  the  authorities  cit- 
ed we  hold  that  the  amendments  which  assume-  to  cut  down  the 
benefits  to  which  the  plaintiff  became  entitled  by  his  contract  with 
the  defendant,  are  void  and  of  no  effect.  I  am,  personally,  of  the 
opinion  that  the  amendment  increasing  the  rate  of  assessment  is 
also  void,  for  I  can  see  no  difference  in  principle  between  reducing 
benefits  and  increasing  the  amount  to  be  paid  for  benefits.  The 
plaintiff  entered  into  the  contract  on  the  faith  of  the  promise  by 
the  association  that  he  should  "pay  at  the  same  rate  thereafter  so 
long  as  he  remains  continually  in  good  standing  in  the  order," 
which  he  had  the  right  to  assume  and  the  defendant  knew  that  he 
would  assume,  was  a  covenant  not  to  increase  the  rate.  The  cer- 
tificate states  that  "he  is  entitled  to  all  the  rights,  benefits,  and  priv- 
ileges" provided  by  the  laws  of  the  order,  which  are  thus  made  a 
part  of  the  certificate.  Hence  the  right  to  pay  at  the  old  rate  was 
one  of  the  rights  provided  for  and  that  he  contracted  for.  It  w^as  a 
vested  right,  immune  from  change  by  amendment,  in  the  absence 
of  a  specific  reservation  of  power  to  amend  in  that  particular.  On 
the  average,  such  contracts  would  be  impaired  by  doubling  assess- 
ments to  the  same  extent  as  by  cutting  off  one-half  of  the  benefit. 
The  price  to  be  paid  by  the  plaintiff  for  insurance  is  as  essential  a 
part  of  his  contract  as  the  amount  of  insurance  to  be  paid  to  him 
by  the  defendant  on  the  maturity  of  the  policy.  Whether  the  one 
is  increased  or  the  other  proportionately  decreased  makes  no  dif- 
ference in  principle,  or  in  the  final  result.  By  either  method  the 
pecuniary  value  of  the  contract,  which  is  property,  would  be  re- 
duced one-half. 

The  defendant  seeks  to  sustain  its  action  in  increasing  the  rate  of 
assessment,  by  invoking  the  general  power  to  amend  and  pleading 


Sec.  4)  MUTUAL   BENEFIT    INSURANCE  233 

that  the  exercise  thereof  was  essential  to  its  existence.  The  court 
did  not  find,  as  matter  of  fact  or  law,  that  a  reduction  of  benefits 
was  necessary,  nor  did  it  find  as  a  fact  that  an  increase  in  the  rate 
of  assessments  was  necessary,  but  found  that  "the  increase  in  the 
rate,  or  the  number  of  assessments,  was  necessary  for  the  continued 
existence  of  the  defendant."  Necessity  bears  only  on  the  question 
whether  the  amendments  are  reasonable.  While  they  were  desir- 
able as  a  matter  of  policy,  they  were  not  necessary,  for  the  old  by- 
laws gave  the  defendants  power  to  raise  all  the  money  needed  for 
every  purpose  by  simply  increasing  the  number  of  assessments.  It 
is  true  that  a  great  increase  in  this  respect  might  reduce  the  mem- 
bership, still  that  did  not  make  an  increase  in  the  rate  of  assess- 
ments necessary,  for  it  cannot  be  necessary  for  a  corporation  to 
violate  its  contract  in  order  to  preserve  its  existence.  Vought  v. 
Eastern  B.  &  L.  Association,  172  N.  Y.  508,  518,  65  N.  E.  496,  92 
Am.  St.  Rep.  761.  Moreover,  the  existence  of  the  defendant,  ac- 
cording to  the  findings  is  not  now  threatened,  nor  will  it  be  until 
after  the  lapse  of  from  18  to  25  years,  and  no  one  can  foresee  the 
changes  that  will  take  place  in  the  meantime.  If  the  wonderful 
growth  of  the  defendant  as  stated  by  its  counsel  continues,  the 
danger  now  apprehended  as  to  what  may  take  place  a  quarter  of  a 
century  hence,  may  wholly  disappear  before  that  period  expires. 

I  think  that  an  increase  in  the  rate  of  assessment  falls  under  the 
same  condemnation  of  the  law  as  a  reduction  in  the  amount  of  ben- 
efits. A  judgment  requiring  the  defendant  to  perform  according  to 
the  contract  as  made  and  not  as  amended,  yet  requiring  the  plain- 
tiff to  pay  according  to  the  contract  as  amended  and  not  as  made, 
would  contain  inconsistent  provisions,  one  of  which  would  neces- 
sarily violate  the  principle  upon  which  the  other  was  founded. 

The  judgment  should  be  reversed,  and  a  new  trial  granted,  with 
costs  to  abide  event. 

CuLLEN,  C.  J.,  and  Gray,  Werner,  Wileard  Bartlett,  Hiscock, 
and  Chase,  JJ.,  concur. 

Judgment  reversed,  etc."^ 

5  As  to  the  risht  of  mutual  benefit  societies  to  amend  their  hy-laws.  so  as  to 
change  rate  and  plan  of  insurance,  see  26  Harv.  Law  Rev.  ISO,  17  Id.  127 ;  1 
Cooley's  Briefs  on  Insurance,  pp.  703-720. 


23i  CONCEALMENT  (Ch.  4 

CHAPTER  IV 

CONCEALMENT 


SECTION  1.— GENERAL  PRINCIPLES 


OF  FRAUD   IN   POLICIES. 

Park  on  Insurance  (3d  Ed.,  1796)  174:  "In  treating  of  those  caus- 
es, which  make  policies  void  from  the  beginning,  or  in  other  words, 
which  absolutely  annul  the  contract,  it  will  be  proper  in  the  first 
place  to  consider,  how  far  it  will  be  affected  by  any  degree  of  fraud. 
In  every  contract  between  man  and  man,  openness  and  sincerity  are 
indispensably  necessary  to  give  it  its  due  operation ;  because,  fraud 
and  cunning  once  introduced,  suspicion  soon  follows,  and  all  con- 
fidence and  good  faith  are  at  an  end.  No  contract  can  be  good  unless 
it  be  equal ;  that  is,  neither  side  must  have  an  advantage  by  any  means, 
of  which  the  other  is  not  aware.  This  being  admitted  of  contracts  in 
general,  it  holds  with  double  force  in  those  of  insurance ;  because  the 
underwriter  computes  his  risk  entirely  from  the  account  given  by  the 
person  insured,  and  therefore  it  is  absolutely  necessary  to  the  justice 
and  validity  of  the  contract,  that  this  account  be  exact  and  complete. 
Accordingly  the  learned  judges  of  our  courts  of  law,  feeling  that  the 
very  essence  of  insurance  consists  in  a  rigid  attention  to  the  purest 
good  faith,  and  the  strictest  integrity,  have  constantly  held  that  it  is 
vacated  and  annulled  by  any  the  least  shadow  of  fraud  or  undue  con- 
cealment." 


CARTER    V.    BOEHM. 

(Court  of  King's  Bench,  1766.    3  Burr.  1905,  1  Bl.  593,  97  Eng.  Repr.  1162.) 

This  was  an  insurance-cause,  upon  a  policy  underwritten  by  Mr. 
Charles  iBoehm,  of  interest,  or  no  interest ;  without  benefit  of  sal- 
vage. The  insurance  was  made  by  the  plaintiff,  for  the  benefit  of  his 
brother.  Governor  George  Carter. 

It  was  tried  before  Lord  Mansfield  at  Guildhall:  and  a  verdict  was 
found  for  the  plaintiff  by  a  special  jury  of  merchants. 

On  Saturday  the  19th  of  April  last,  Mr.  Recorder  Eyre,  on  behalf 
of  the  defendant,  moved  for  a  new  trial. 

His  objection  was,  "That  circumstances  were  not  sufficiently  dis- 
closed," 


Sec.  1)  GENERAL  PRINCIPLES  ,      235 

A  rule  was  made  to  shew  cause :  and  copies  of  letters  and  deposi- 
tions were  ordered  to  be  left  with  Lord  Mansfield. 

N.  B.  Four  other  causes  depended  upon  this. 

The  counsel  for  the  plaintiff,  viz.  Mr.  Morton,  Mr.  Dunning  and 
Mr.  Wallace,  shewed  cause  on  Thursday  the  first  of  this  month.  But 
first, 

Lord  MansfiKld  reported  the  evidence — That  it  was  an  action 
on  a  policy  of  insurance  for  one  year;  viz.  from  16th  of  October 
1759  to  16th  of  October  1760,  for  the  benefit  of  the  Governor  of  Fort 
Marlborough,  George  Carter,  against  the  loss  of  Fort  Marlborough 
in  the  island  of  Sumatra  in  the  East  Indies,  by  its  being  taken  by  a 
foreign  enemy.  The  event  happened :  the  fort  was  taken,  by  Count 
D'Estaigne,  within  the  year. 

The  first  witness  was  Cawthorne,  the  policy-broker,  who  produced 
the  memorandum  given  by  the  governor's  brother  (the  plaintiff)  to 
him :  and  the  use  made  of  these  instructions  was,  to  shew  "That  the 
insurance  was  made  for  the  benefit  of  Governor  Carter,  and  to  insure 
him  against  the  taking  of  the  fort  by  a  foreign  enemy." 

Both  sides  had  been  long  in  chancery:  and  the  chancery-evidence 
on  both  sides  was  read  at  the  trial. 

It  was  objected,  on  behalf  of  the  defendant,  to  be  a  fraud,  by  con- 
cealment of  circumstances  which  ought  to  have  been  disclosed ;  and 
particularly,  the  weakness  of  the  fort,  and  the  probability  of  its  being 
attacked  by  the  French :  which  concealment  was  offered  to  be  proved 
by  two  letters.  The  first  was  a  letter  from  the  governor  to  his  brother 
Roger  Carter,  his  trustee,  the  plaintiff  in  this  cause :  the  second  was 
from  the  governor  to  the  East  India  Company. 

The  evidence  in  reply  to  this  objection  consisted  of  three  deposi- 
tions in  chancery,  setting  forth  that  the  governor  had  £20.000  in  ef- 
fects;  and  only  insured  £10,000:  and  that  he  was  guilty  of  no  fault 
in  defending  the  fort. 

The  first  of  these  depositions  was  Captain  Tryon's :  which  proved 
that  this  was  not  a  fort  proper  or  designed  to  resist  European  en- 
emies ;  but  only  calculated  for  defence  against  the  natives  of  the  is- 
land of  Sumatra ;  and  also  that  the  governor's  office  is  not  military, 
but  only  mercantile ;  and  that  fort  Marlborough  is  only  a  subordinate 
factory  to  fort  St.  George. 

There  was  no  evidence  to  the  contrary.  And  a  verdict  was  found 
for  the  plaintiff,  by  a  special  jury. 

After  his  lordship  had  made  his  report— 

The  counsel  for  the  plaintiff  proceeded  to  shew  cause  against  a 
new  trial. ^ 

Lord  Mansfii;ld  now  delivered  the  resolution  of  the  court. 

This  is  a  motion  for  a  new  trial. 

1  The  arguments  of  counsel  are  here  omitted. 


236  CONCEALMENT  (Ch.  4 

In  support  of  it,  the  counsel  for  the  defendant  contend,  "That  some 
circunislances  in  the  knowledge  of  Governor  Carter,  not  having  been 
mentioned  at  the  time  the  policy  was  underwrote,  amount  to  a  con- 
cealment, which  ought,  in  law  to  avoid  the  policy." 

The  counsel  for  the  plaintiff  insist,  "That  the  not  mentioning  these 
particulars,  does  not  amount  to  a  concealment,  which  ought,  in  law, 
to  avoid  the  policy;    either  as  a  fraud;    or,  as  varying  the  contract." 

1st.  It  may  be  proper  to  say  something,  in  general,  of  conceal- 
ments which  avoid  a  policy. 

2dly.  To  state  particularly  the  case  now  under  consideration. 

3dly.  To  examine  whether  the  verdict,  which  finds  this  policy  good 
although  the  particulars  objected  were  not  mentioned,  is  well  founded. 

First.  Insurance  is  a  contract  upon  speculation. 

The  special  facts,  upon  which  the  contingent  chance  is  to  be  com- 
puted, lie  most  commonly  in  the  knowledge  of  the  insured  only :  the 
under-writer  trusts  to  his  representation,  and  proceeds  upon  con- 
fidence that  he  does  not  keep  back  any  circumstance  in  his  knowl- 
edge, to  mislead  the  under-writer  into  a  belief  that  the  circumstance 
does  not  exist,  and  to  induce  him  to  estimate  the  risque,  as  if  it  did 
not  exist. 

The  keeping  back  such  circumstance  is  a  fraud,  and  therefore  the 
policy  is  void.  Although  the  suppression  should  happen  through  mis- 
take, without  any  fraudulent  intention;  yet  still  the  under-writer  is 
deceived,  and  the  policy  is  void :  because  the  risque  run  is  really  dif- 
ferent from  the  risque  understood  and  intended  to  be  run,  at  the  time 
of  the  agreement. 

The  policy  would  equally  be  void,  against  the  under-writer,  if  he 
concealed ;  as,  if  he  insured  a  ship  on  her  voyage,  which  he  privately 
knew  to  be  arrived :   and  an  action  would  lie  to  recover  the  premium. 

The  governing  principle  is  applicable  to  all  contracts  and  dealings. 

Good  faith  forbids  either  party,  by  concealing  what  he  privately 
knows,  to  draw  the  other  into  a  bargain,  from  his  ignorance  of  that 
fact,  and  his  believing  the  contrary. 

But  either  party  may  be  innocently  silent,  as  to  grounds  open  to 
both,  to  exercise  their  judgment  upon.  Aliud  est  celare;  aliud,  tacere: 
neque  enim  id  est  celare  quicquid  reticeas ;  sed  cum  quod  tu  scias, 
id  ignorare  emolumenti  tui  causa  velis  eos,  quorum  intersit  id  scire. 

This  definition  of  concealment,  restrained  to  the  efficient  motives 
and  precise  subject  of  any  contract,  will  generally  hold  to  make  it 
void,  in  favour  of  the  party  misled  by  his  ignorance  of  the  thing  con- 
cealed. 

There  are  many  matters,  as  to  which  the  insured  may  be  innocently 
silent — he  need  not  mention  what  the  under-writer  knows — scientia 
utrinque  par  pares  contrahentes  facit. 

An  under-writer  can  not  insist  that  the  policy  is  void,  because  the  in- 
sured did  not  tell  him  what  he  actually  knew;  what  way  soever  he 
came  to  the  knowledge. 


Sec.  1)  GENERAL   PRINCIPLES  237 

The  insured  need  not  mention  what  the  under-writer  ought  to 
know ;  what  he  takes  upon  himself  the  knowledge  of ;  or  what  he 
waives  being  informed  of. 

The  under-writer  needs  not  be  told  what  lessens  the  risque  agreed 
and  understood  ^to  be  run  by  the  express  terms  of  the  policy.  He 
needs  not  be  told  general  topics  of  speculation :  as  for  instance — 
the  under-writer  is  bound  to  know  every  cause  which  may  occasion 
natural  perils ;  as,  the  difficulty  of  the  voyage — the  kind  of  seasons — 
the  probability  of  lightning,  hurricanes,  earthquakes  &c.  He  is  bound 
to  know  every  cause  which  may  occasion  political  perils ;  from  the 
ruptures  of  states ;  from  war,  and  the  various  operations  of  it.  He 
is  bound  to  know  the  probability  of  safety,  from  the  continuance  or 
return  of  peace ;  from  the  imbecility  of  the  enemy,  through  the  weak- 
ness of  their  councils,  or  their  want  of  strength  &c. 

If  an  under-writer  insures  private  ships  of  war,  by  sea  and  on 
shore,  from  ports  to  ports,  and  places  to  places,  any  where — he  needs 
not  be  told  the  secret  enterprizes  they  are  destined  upon ;  because  he 
knows  some  expedition  must  be  in  view ;  and,  from  the  nature  of  his 
contract,  without  being  told,  he  waives  the  information.  If  he  in- 
sures for  three  years,  he  needs  not  be  told  any  circumstance  to  shew  it 
may  be  over  in  two :  or  if  he  insures  a  voyage,  with  liberty  of  devia- 
tion, he  needs  not  be  told  what  tends  to  shew  there  will  be  no  devia- 
tion. 

Men  argue  differently,  from  natural  phenomena,  and  political  ap- 
pearances :  they  have  different  capacities,  different  degrees  of  knowl- 
edge, and  different  intelligence.  But  the  means  of  information  and 
judging  are  open  to  both :  each  professes  to  act  from  his  own  skill 
and  sagacity ;  and  therefore  neither  needs  to  communicate  to  the 
other. 

The  reason  of  the  rule  which  obliges  parties  to  disclose,  is  to  pre- 
vent fraud,  and  to  encourage  good  faith.  It  is  adapted  to  such  facts 
as  vary  the  nature  of  the  contract ;  which  one  privately  knows,  and 
the  other  is  ignorant  of,  and  has  no  reason  to  suspect. 

The  question  therefore  must  always  be  "Whether  there  was,  under 
all  the  circumstances  at  the  time  the  policy  was  under-written,  a  fair 
representation  ;  or  a  concealment ;  fraudulent,  if  designed ;  or,  though 
not  designed,  varying  materially  the  object  of  the  policy,  and  chang- 
ing the  risque  understood  to  be  run." 

This  brings  me,  in  the  second  place,  to  state  the  case  now  under 
consideration. 

The  policy  is  against  the  loss  of  Fort  Marlborough,  from  being  de- 
stroyed by,  taken  by,  or  surrendered  unto,  any  European  enemy,  be- 
tween the  1st  of  October  1759,  and*  1st  of  October  1760.  It  was 
under-written  on  the  9th  of  May  1760. 

The  under-writer  knew  at  the  time,  that  the  policy  was  to  indem- 
nify, to  that  amount,  Roger  Carter  the  Governor  of  Fort  Marlbor- 
ough, in  case  the  event  insured  against  should  happen.     The  gov- 


238  CONCEALMENT  (Ch.  4 

ernor's  instructions  for  the  insurance,  bearing  date  at  Fort  Marlbor- 
ough the  22cl  of  September  1759,  were  laid  before  the  undcr-writer. 
Two  actions  upon  this  policy  were  tried  before  me  in  the  year  1762. 
The  defendants  then  knew  of  a  letter  written  to  the  East  India  Com- 
pany, which  the  company  offered  to  put  into  my  liands ;  but  would 
not  deliver  to  the  parties,  because  it  contained  some  matters  which 
they  did  not  think  proper  to  be  made  public. 

An  objection  occurred  to  me  at  the  trial,  "Whether  a  policy  against 
the  loss  of  Fort  Marlborough,  for  the  benefit  of  the  governor,  was 
good ;"  upon  the  principle  which  does  not  allow  a  sailor  to  insure  his 
wages. 

But  considering  that  this  place,  though  called  a  fort,  was  really  but 
a  factory  or  settlement  for  trade ;  and  that  he  though  called  a  gov- 
ernor, was  really  but  a  merchant — considering  too,  that  the  law  al- 
lows the  captain  of  a  ship  to  insure  goods  which  he  has  on  board,  or 
his  share  in  the  ship,  if  he  be  a  part-owner;  and  the  captain  of  a 
privateer,  if  he  be  a  part-owner,  to  insure  his  share — considering  too, 
that  the  objection  did  not  lie,  upon  any  ground  of  justice,  in  the  mouth 
of  the  under-writer,  who  knew  him  to  be  the  governor,  at  the  time 
he  took  the  premium.  And  as,  with  regard  to  principles  of  public 
convenience,  the  case  so  seldom  happens,  (I  never  saw  one  before,) 
any  danger  from  the  example  is  little  to  be  apprehended — I  did  not 
think  myself  warranted,  upon  that  point,  to  nonsuit  the  plaintiff; 
especially  too,  as  the  objection  did  not  come  from  the  bar. 

Though  this  point  was  mentioned,  it  was  not  insisted  upon,  at  the 
last  trial ;  nor  has  it  been  seriously  argued,  upon  this  motion,  as  suffi- 
cient, alone,  to  vacate  the  policy :  and  if  it  had,  we  are  all  of  opinion 
"That  we  are  not  warranted  to  say  it  is  void,  upon  this  account." 

Upon  the  plaintiff's  obtaining  these  two  verdicts,  the  underwriters 
went  into  a  court  of  equity ;  where  they  have  had  an  opportunity  to 
sift  every  thing  to  the  bottom,  to  get  every  discovery  from  the  gov- 
ernor and  his  brother,  and  to  examine  any  witnesses  who  were  upon 
the  spot.  At  last,  after  the  fullest  investigation  of  every  kind,  the 
present  action  came  on  to  be  tried  at  the  sittings  after  last  term. 

The  plaintiff  proved,  without  contradiction,  that  the  place  called 
Bencoolen  or  Fort  Marlborough  is  a  factory  or  settlement,  but  no 
military  fort  or  fortress.  That  it  was  not  established  for  a  place  of 
arms  or  defence  against  the  attacks  of  an  European  enemy;  but 
merely  for  the  purpose  of  trade,  and  of  defence  against  the  natives. 
That  the  fort  was  only  intended  and  built  with  an  intent  to  keep  off 
the  country  blacks.  That  the  only  security  against  European  ships 
of  war,  consisted  in  the  difficulty  of  the  entrance  and  navigation  of 
the  river,  for  want  of  proper  pilots.  That  the  general  state  and  con- 
dition of  the  said  fort,  and  of  the  strength  thereof,  was,  in  general 
well  known  by  most  persons  conversant  or  acquainted  with  Indian 
affairs,  or  the  state  of  the  company's  factories  or  settlements ;  and 
could  not  be  kept  secret  or  concealed  from  persons  who  should  en- 


Sec.  1)  GENERAL   PRINCIPLES  239 

deavoiir  by  proper  inquiry,  to  inform  themselves.  That  there  were 
no  apprehensions  or  intelhgence  of  any  attack  by  the  French,  until 
they  attacked  Nattal  in  Feb.  1760.  That  on  the  8th  of  February  1760, 
there  was  no  suspicion  of  any  design  by  the  French.  That  the  gov- 
ernor then  bought,  from  the  witness,  goods  to  the  value  of  £4000.  and 
had  goods  to  the  value  of  above  £20,000.  and  then  dealt  for  £50,000. 
and  upwards.  That  on  the  1st  of  April  1760,  the  fort  was  attacked  by 
a  French  man  of  war  of  64  guns  and  a  frigate  of  20  guns,  under  the 
count  d'Estaigne,  brought  in  by  Dutch  pilots ;  unavoidably  taken ; 
and  afterwards  delivered  to  the  Dutch ;  and  the  prisoners  sent  to  Ba- 
tavia. 

On  the  part  of  the  defendant — After  all  the  opportunities  of  inquiry, 
no  evidence  was  offered,  that  the  French  ever  had  any  design  upon 
Fort  Marlborough,  before  the  end  of  March  1760;  or  that  there 
was  the  least  intelligence  or  alarm  "That  they  might  make  the  at- 
tempt," till  the  taking  of  Nattal  in  the  year  1760. 

They  did  not  offer  to  disprove  the  evidence,  that  the  governor  had 
acted,  as  in  full  security,  long  after  the  month  of  September  1759; 
and  had  turned  his  money  into  goods,  so  late  as  the  8th  of  February 
1760.  There  was  no  attempt  to  shew  that  he  had  not  lost  by  the 
capture  very  considerably  beyond  the  value  of  the  insurance. 

But  the  defendant  relied  upon  a  letter,  written  to  the  East  India 
Company,  bearing  date  the  16th  of  September  1759,  which  was  sent  to 
England  by  the  Pitt,  captain  Wilson,  who  arrived  in  May  1760,  to- 
gether with  the  instructions  for  insuring;  and  also  a  letter  bearing 
date  the  22d  of  September  1759,  sent  to  the  plaintiff  by  the  same 
conveyance,  and  at  the  same  time,  (which  letters  his  lordship  re- 
peated.)^ 

They  relied  too  upon  the  cross-examination  of  the  broker  who  ne- 
gotiated the  policy,  "That,  in  his  opinion,  these  letters  ought  to  have 
been  shewn,  or  the  contents  disclosed;  and  if  they  had,  the  policy 
would  not  have  been  under-written." 

The  defendant's  counsel  contended  at  the  trial,  as  they  have  done 
upon  this  motion,  "That  the  policy  was  void" — 

1st.  Because  the  state  and  condition  of  the  fort,  mentioned  in  the 
governor's  letter  to  the  East  India  Company,  was  not  disclosed. 

'2  The  former  of  them  notifies  to  the  East  India  Company,  That  the  French 
had,  the  preceding  year,  a  design  on  foot,  to  attempt  taking  that  settlement 
by  surprise;  and  that  ft  was  very  probable  they  might  revive  that  design. 
It  confesses  and  represents  the  weakness  of  the  fort ;  its  being  badly  sup- 
plied with  stores,  arms  and  amnnmition ;  and  the  impracticability  of  main- 
taining it  (in  its  then  state)  against  an  European  enemy. 

The  latter  letter  (to  his  brother)  owns  that  he  is  "now  more  afraid  than  for- 
merly, that  the  French  should  attack  and  take  the  settlement;  for,  as  they 
can  not  muster  a  force  to  relieve  their  friends  at  the  coast,  they  may,  rather 
than  remain  idle,  pay  us  a  visit.  It  seems  they  had  such  an  intention  last 
year."  And  therefore  he  desires  his  brother  to  get  an  insurance  made  upon 
his  stock  there. — Rep. 


240  CONCEALMENT  (Cll.  4 

2dly.  Because  he  did  not  disclose,  that  the  French,  not  being  in  a 
condition  to  reUeve  their  friends  upon  the  coast,  were  more  Hkely  to 
make  an  attack  upon  this  settlement,  rather  than  remain  idle. 

3dly.  That  he  had  not  disclosed  his  having  received  a  letter  of  the 
4th  of  February  1759,  from  which  it  seemed  that  the  French  had  a 
design  to  take  this  settlement,  by  surprise,  the  year  before. 

They  also  contended,  that  the  opinion  of  the  broker  was  almost 
decisive. 

The  whole  was  laid  be|ore  the  jury;  who  found  for  the  plaintiff. 

Thirdly — It  remains  to  consider  these  objections,  and  to  examine 
"Whether  this  verdict  is  well  founded," 

To  this  purpose,  it  is  necessary  to  consider  the  nature  of  the  con- 
tract, at  the  time  it  was  entered  into. 

The  policy  was  signed  in  May  1760.  The  contingency  was,  "Wheth- 
er Fort  Marlborough  was  or  would  be  taken,  by  an  European  enemy, 
between  October  1759,  and  October  1760." 

The  computation  of  the  risque  depended  upon  the  chance,  "Wheth- 
er any  European  power  would  attack  the  place  by  sea."  If  they  did, 
it  was  incapable  of  resistance. 

The  under-writer  at  London,  in  May  1760,  could  judge  much  better 
of  the  probability  of  the  contingency,  than  Governor  Carter  could  at 
Fort  Marlborough,  in  September  1759.  He  knew  the  success  of  the  op- 
erations of  the  war  in  Europe.  He  knew  what  naval  force  the  English 
and  French  had  sent  to  the  East  Indies.  He  knew,  from  a  comparison 
of  that  force,  whether  the  sea  was  open  to  any  such  attempt  by  the 
French.  He  knew,  or  might  know,  every  thing  which  was  known  at 
Fort  Marlborough  in  September  1759,  of  the  general  state  of  affairs  in 
the  East  Indies,  or  the  particular  condition  of  Fort  Marlborough,  by 
the  ship  which  brought  the  orders  for  the  insurance.  He  knew  that 
ship  must  have  brought  many  letters  to  the  East  India  Company ;  and, 
particularly,  from  the  governor.  He  knew  what  probability  there  was 
of  the  Dutch  committing  or  having  committed  hostilities. 

Under  these  circumstances,  and  with  this  knowledge,  he  insures 
against  the  general  contingency  of  the  place  being  attacked  by  an 
European  power. 

If  there  had  been  any  design  on  foot,  or  any  enterprize  begun,  in 
September  1759,  to  the  knowledge  of  the  governor,  it  would  have 
varied  the  risque  understood  by  the  under-writer;  because,  not  being 
told  of  a  particular  design  or  attack  then  subsisting,  he  estimated  the 
risque  upon  the  foot  of  an  incertain  operation,  which  might  or  might 
not  be  attempted. 

But  the  governor  had  no  notice  of  any  design  subsisting  in  Sept. 
1759.  There  was  no  such  design,  in  fact :  the  attempt  was  made  with- 
out premeditation,  from  the  sudden  opportunity  of  a  favourable  oc- 
casion, by  the  connivance  and  assistance  of  the  Dutch,  which  tempted 
count  D'Estaigne  to  break  his  parol. 


Sec.  1)  GENERAL   PRINCIPLES  241 

These  being  the  circumstances  under  which  the  contract  was  en- 
tered into,  we  shall  be  better  able  to  judge  of  the  objections  upon  the 
foot  of  concealment. 

The  first  concealment  is,  that  he  did  not  disclose  the  condition  of 
the  place. 

The  under-writcr  knew  the  insurance  was  for  the  governor.  He 
knew  the  governor  must  be  acquainted  with  the  state  of  the  place. 
He  knew  the  governor  could  not  disclose  it,  consistent  with  his  duty. 
He  knew  the  governor,  by  insuring,  apprehended  at  least  the  pos- 
sibility of  an  attack.  With  this  knowledge,  without  asking  a  question, 
he  under-wrote. 

By  so  doing,  he  took  the  knowledge  of  the  state  of  the  place  upon 
himself.  It  was  a  matter  as  to  which  he  might  be  informed,  various 
ways :  it  was  not  a  matter  within  the  private  knowledge  of  the  gov- 
ernor only. 

But,  not  to  rely  upon  that — The  utmost  which  can  be  contended 
is,  that  the  under-writer  trusted  to  the  fort  being  in  the  condition  in 
which  it  ought  to  be :  in  like  manner,  as  it  is  taken  for  granted,  that 
a  ship  insured  is  sea-worthy. 

What  is  that  condition?  all  the  witnesses  agree  "That  it  was  only 
to  resist  the  natives,  and  not  ^n  European  force."  The  policy  insures 
against  a  total  loss ;  taking  for  granted  "That  if  the  place  was  at- 
tacked, it  would  be  lost." 

The  contingency  therefore  which  the  under-writer  has  insured 
against  is,  "Whether  the  place  would  be  attacked  by  an  European 
force ;"  and  not,  "Whether  it  would  be  able  to  resist  such  an  attack, 
if  the  ships  could  get  up  the  river." 

It  was  particularly  left  to  the  jury,  to  consider,  "Whether  this  was 
the  contingency  in  the  contemplation  of  the  parties :"  they  have  found 
that  it  was. 

And  we  are  all  of  opinion,  "That,  in  this  respect,  their  conclusion 
is  agreeable  to  the  evidence." 

In  this  view,  the  state  and  condition  of  the  place  was  material,  only 
in  case  of  a  land-attack  by  the  natives. 

The  2d  concealment  is — His  not  having  disclosed,  that,  from  the 
French  not  being  able  to  relieve  their  friends  upon  the  coast,  they 
might  make  them  a  visit. 

This  is  no  part  of  the  fact  of  the  case:  it  is  mere  speculation  of  the 
governor's  from  the  general  state  of  the  war.  The  conjecture  was 
dictated  to  him  from  his  fears.  It  is  a  bold  attempt,  for  the  con- 
quered to  attack  the  conqueror,  in  his  own  dominions.  The  prac- 
ticability of  it,  in  this  case,  depended  upon  the  English  naval  force  in 
those  seas;  which  the  under-writer  could  better  judge  of  at  London 
in  May  1760,  than  the  governor  could  at  Fort  Marlborough  in  Sep- 
tember 1759. 

Vance  Ins. — 16 


242  CONCEALMENT  (Ch,  4 

The  3d  concealment  is — That  he  did  not  disclose  the  letter  from 
Mr.  Winch,  of  the  4th  of  February  1759,  mentioning  the  design  of 
the  French,  the  year  before. 

What  the  letter  was ;  how  he  mentioned  the  design,  or  upon  what 
authority  he  mentioned  it;  or  by  whom  the  design  was  supposed  to 
be  imagined,  does  not  appear.  The  defendant  has  had  every  op- 
portunity of  discovery ;  and  nothing  has  come  out  upon  it,  as  to  this 
letter,  which  he  thinks  makes  for  his  purpose. 

The  plaintiff  offered  to  read  the  account  Winch  wrote  to  the  East 
India  Company :  which  was  objected  to ;  and  therefore  not  read. 
The  nature  of  that  intelligence  therefore  is  very  doubtful.  But  taking 
it  in  the  strongest  light,  it  is  a  report  of  a  design  to  surprize,  the  year 
before;    but  then  dropt. 

This  is  a  topic  of  mere  general  speculation ;  which  made  no  part 
of  the  fact  of  the  case  upon  which  the  insurance  was  to  be  made. 

It  was  said — If  a  man  insured  a  ship,  knowing  that  two  privateers 
were  lying  in  her  way,  without  mentioning  that  circumstance,  it  would 
be  a  fraud — I  agree  it.  But  if  he  knew  that  two  privateers  had  been 
there  the  year  before,  it  would  be  no  fraud,  not  to  mention  that  cir- 
cumstance :  because,  it  does  not  follow  that  they  will  cruise  this  year 
at  the  same  time,  in  the  same  place :  or  that  they  are  in  a  condition 
to  do  it.  If  the  circumstance  of  "this  design  laid  aside"  had  been 
mentioned,  it  would  have  tended  rather  to  lessen  the  risque,  than  in- 
crease it :  for,  the  design  of  a  surprize  which  has  transpired,  and  been 
laid  aside,  is  less  likely  to  be  taken  up  again ;  especially,  by  a  van- 
quished enemy. 

The  jury  considered  the  nature  of  the  governor's  silence,  as  to  these 
particulars :  they  thought  it  innocent ;  and  that  omission  to  mention 
them  did  not  vary  the  contract.  And  we  are  all  of  opinion,  "That,  in 
this  respect,  they  judged  extremely  right." 

There  is  a  silence,  not  objected  to  at  the  trial  nor  upon  this  mo- 
tion; which  might  with  as  much  reason  have  been  objected  to,  as  the 
two  last  omissions ;    rather  more. 

It  appears  by  the  governor's^  letter  to  the  plaintiff,  "That  he  was 
principally  apprehensive  of  a  Dutch  war."  He  certainly  had,  what  he 
thought,  good  grounds  for  this  apprehension.  Count  D'Estaigne  be- 
ing piloted  by  the  Dutch,  delivering  the  fort  to  the  Dutch,  and  send- 
ing the  prisoners  to  Batavia,  is  a  confirmation  of  those  grounds. 
And  probably,  the  loss  of  the  place  was  owing  to  the  Dutch.  The 
French  could  not  have  got  up  the  river  without  Dutch  pilots;  and 
it  is  plain,  the  whole  was  concerted  with  them.  And  yet,  at  the  time 
of  under-writing  the  policy,  there  was  no  intimation  about  the  Dutch. 

The  reason  why  the  council  have  not  objected  to  his  not  disclosing 
the  grounds  of  this  apprehension,  is,  because  it  must  have  arisen  from 

3  Dated  22d  Sept.  1759.  His  words  are :  "And  in  case  of  a  Dutch  war,  I 
would  have  it  [the  insurance]  done  at  any  rate." — Rep. 


Sec.  1)  GENERAL   PRINCIPLES  243 

political  speculation,  and  general  intelligence :  therefore,  they  agree, 
it  is  not  necessary  to  communicate  such  things  to  an  under-writer. 

Lastly — Great  stress  was  laid  upon  the  opinion  of  the  broker. 

But  we  all  think,  the  jury  ought  not  pay  the  least  regard  to  it.  It 
is  mere  opinion ;  which  is  not  evidence.  It  is  opinion  after  an  event. 
It  is  opinion  without  the  least  foundation  from  any  previous  prece- 
dent or  usage.  It  is  an  opinion  which,  if  rightly  formed,  could  only 
be  drawn  from  the  same  premises  from  which  the  court  and  jury 
were  to  determine  the  cause :  and  therefore  it  is  improper  and  ir- 
relevant in  the  mouth  of  a  witness. 

There  is  no  imputation  upon  the  governor,  as  to  any  intention  of 
fraud.  By  the  same  conveyance,  which  brought  his  orders  to  insure, 
he  wrote  to  the  company  every  thing  which  he  knew  or  suspected : 
he  desired  nothing  to  be  kept  a  secret,  which  he  wrote  either  to  them 
or  his  brother.  His  subsequent  conduct,  down  to  the  8th  of  Feb- 
ruary 1760,  shewed  that  he  thought  the  danger  very  improbable. 

The  reason  of  the  rule  against  concealments  is,  to  prevent  fraud  and 
encourage  good  faith. 

If  the  defendant's  objections  were  to  prevail,  in  the  present  case,  the 
rule  would  be  turned  into  an  instrument  of  fraud. 

The  under-writer,  here,  knowing  the  governor  to  be  acquainted 
with  the  state  of  the  place ;  knowing  that  he  apprehended  danger, 
and  must  have  some  ground  for  his  apprehension ;  being  told  noth- 
ing of  either ;   signed  this  policy,  without  asking  a  question. 

If  the  objection  "That  he  was  not  told"  is  sufficient  to  vacate  it, 
he  took  the  premium,  knowing  the  policy  to  be  void ;  in  order  to 
gain,  if  the  alternative  turned  out  one  way ;  and  to  make  no  satisfac- 
tion, if  it  turned  out  the  other:  he  drew  the  governor  into  a  false  con- 
fidence, "That,  if  the  worst  should  happen,  he  had  provided  against 
total  ruin ;"  knowing,  at  the  same  time,  "That  the  indemnity  to  which 
the  governor  trusted,  was  void." 

There  was  not  a  word  said  to  him,  of  the  affairs  of  India,  or  the 
state  of  the  war  there,  or  the  condition  of  Fort  Marlborough.  If  he 
thought  that  omission  an  objection,  at  the  time,  he  ought  not  to  have 
signed  the  policy,  with  a  secret  reserve  in  his  own  mind  to  make  it 
void :  if  he  dispensed  with  the  information,  and  did  not  think  this 
silence  an  objection  then ;   he  can  not  take  it  up  now,  after  the  event. 

What  has  often  been  said  of  the  statute  of  frauds  may,  with  more 
propriety,  be  applied  to  every  rule  of  law,  drawn  from  principles  of 
natural  equity,  to  prevent  fraud — "That  it  should  never  be  so  turned, 
construed,  or  used,  as  to  protect,  or  be  a  means  of  fraud." 

After  the  fullest  deliberation,  we  are  all  clear  that  the  verdict  is 
well  founded ;  and  there  ought  not  to  be  a  new  trial :  consequently, 
that  the  rule  for  that  purpose  ought  to  be  discharged. 

Rule  discharged. 


244  CONCEALMENT  (Cll.  4 


SECTION  2.— MARINE  INSURANCE 


DE  COSTA  V.  SCANDRET. 
(Court  of  Chancery,  1723.    2  P.  Wms.  170.) 

One  having  a  doubtful  account  of  his  ship  that  was  at  sea, 
(viz.)  that  a  ship  described  like  his,  was  taken,  insured  her,  with- 
out giving  any  information  to  the  insurers  of  what  he  had  heard, 
either  as  to  the  hazard,  or  circumstances  which  might  induce 
him  to  believe  that  his  ship  was  in  great  danger,  if  not  actually 
lost. 

The  insurers  bring  a  bill  for  an  injunction,  and  to  be  relieved 
against  the  insurance  as  fraudulent. 

Lord  Chance:i.i.or  [MaccIvESFie:ld].  The  insured  has  not  dealt 
fairly  with  the  insurers  in  this  case ;  he  ought  to  have  disclosed  to  them 
what  intelligence  he  had  of  the  ship's  being  in  danger,  and  which 
might  induce  him,  at  least,  to  fear  that  it  was  lost,  though  he 
had  no  certain  account  of  it;  for  if  this  had  been  discovered, 
it  is  impossible  to  think,  that  the  insurers  would  have  insured 
the  ship  at  so  small  a  prsemium  as  they  have  done,  but  either 
would  not  have  insured  at  all,  or  would  have  insisted  on  a  larger 
prsemium,  so  that  the  concealing  of  this  intelligence  is  a  fraud. 

Wherefore,  decree  the  policy  to  be  delivered  up  with  costs, 
but  the  prsemium  to  be  paid  back,  and  allowed  out  of  the  costs. 


PLANCHfi  et  al.  v.  FLETCHER. 

(Court  of  King's  Bench,  1779.    1  Doug.  251.) 

The  plaintififs,  Planche  and  Jacquery,  merchants  in  London,  in- 
sured goods,  "on  board  the  Swedish  ship  called  the  Maria  Mag- 
dalena,  lost  or  not  lost,  at  and  from  London  and  Ramsgate  to 
Nantz,  with  liberty  to  call  at  Ostend,  being  a  general  ship  in 
the  port  of  London  for  Nantz."  There  was  a  declaration  in  the 
policy,  that  the  insurance  was  made  on  account  of  "certain  per- 
sons carrying  on  trade  under  the  name  and  firm  of  Vallee  &  du 
Plessis  Monsieur  Lusseau  le  Jeune,  Guillaume  Albert,  et  Poitier 
de  la  Gueule."  The  defendant  underwrote  the  policy  for  £300. 
at  three  guineas  per  cent.  The  ship's  clearances  from  the  cus- 
tom-house in  London,  and  her  other  papers,  were  all  made  out 
as  for  Ostend  only,  but  the  ship  and  goods  were  intended  to  go 
directly  from  London  to  Nantz,  without  going  to  Ostend.  Bills 
of  lading,  in  the  French  language,   dated  the    18th  of  July   1778, 


Sec.  2)  MARINE  INSURANCE  245 

were  signed  by  the  captain  in  London,  but  purporting  to  be  made 
at  Ostend,  and  that  the  goods  were  shipped  there  to  be  delivered 
at  Nantz.  The  policy  was  subscribed  by  the  defendant  on  the 
7th  of  July,  and  the  lading  was  taken  in  between  the  24th  of 
July  and  the  17th  of  August.  The  proclamation  for  making  re- 
prisals on  French  ships,  &c.  bore  date  the  29th,  and  appeared  in 
the  Gazette  on  the  31st  of  July.  Two  underwriters  had  signed 
the  policy  after  the  proclamation,  at  the  same  premium  of  three 
guineas;  one  on  the  31st  of  July,  and  the  other  on  the  7th  of 
August.  The  ship  sailed  on  the  24th  of  August,  and  was  taken 
by  a  King's  cutter  on  her  way  to  Nantz.  After  her  departure 
from  Gravesend,  the  captain  threw  overboard  all  the  papers  he 
had  received  from  the  custom-house  at  London.  They  had  been 
obliterated  by  the  custom-house  officers  at  Gravesend,  and  were 
no  longer  of  any  use.  The  ship  was  released  by  the  Admiralty, 
but  the  goods  were  condemned.  The  plaintiff  had  no  connection 
or  share  in  the  ship. 

Such  were  the  material  facts  of  this  case,  as  they  were  stated 
this  day,  by  Lord  Mansfield  in  his  report,  upon  a  rule  to  shew 
cause  why  there  should  not  be  a  new  trial.  The  cause  had  been 
tried  at  the  last  sittings  at  Guildhall,  and  a  verdict  found  for  the 
plaintiffs.  The  grounds  of  the  application  for  a  new  trial  were 
two.  L  That  there  was  a  fraud  on  the  underwriters,  the  ship 
having  been  cleared  out  for  Ostend,  and  yet  never  having  been 
designed  for  that  place.  2.  That,  as  hostilities  were  declared  after 
the  policy  was  signed,  and  before  the  ship  sailed,  the  defendant 
ought  to  have  had  notice,  that  he  might  have  exercised  his  dis- 
cretion whether  he  would  chuse  for  a  peace  premium  to  run  the 
risk  of  capture.  Besides  the  facts  above-mentioned,  his  Lordship 
stated,  that  the  plaintiffs  had  produced  evidence  to  shew,  that 
all  ships  going  with  goods  of  British  manufacture  to  France  clear 
out  for  Ostend  without  meaning  to  go  thither,  and  that  this  is 
universally  understood  by  persons  concerned  in  that  branch  of 
commerce.  The  reason  suggested  for  clearing  out  for  Ostend, 
and  afterwards  making  bills  of  lading  as  from  that  place,  were, 
that  the  light-house  duties  are  saved,  which  are  payable  when  the 
voyage  is  known  to  be  directly  down  the  Channel,  and  that  the 
French  duties  are  less  upon  goods  from  Ostend,  than  from  Eng- 
land.* 

Lord  MansFie;ld.  This  verdict  is  impeached  upon  two  grounds. 
L  It  is  said,  there  was  a  fraud  on  the  underwriters  in  clearing- 
out  the  ship  for  Ostend  when  she  was  never  intended  to  go  thither. 
But  I  think  there  was  no  fraud  on  them, — perhaps  not  on  any 
body.  What  had  been  practised  in  this  case  was  proved  to  be 
the   constant  course   of   the   trade,    and   notoriously   so    to   every 

4  Arguments  of  counsel  are  omitted. 


246  CONCEALMENT  (Ch.  4 

body.  The  reason  for  clearin.f^  for  Ostcnd,  and  signing  bills  of 
lading  as  from  thence,  did  not  fully  appear.  But  it  was  guessed 
at.  The  Fermiers  Generaux  have  the  management  of  the  taxes  in 
France.  As  we  have  laid  a  large  duty  on  French  goods,  the  French 
may  have  done  the  same  on  ours,  and  it  may  be  the  interest  of 
the  farmers  to  connive  at  the  importation  of  English  commodities, 
and  take  Ostend  duties,  rather  than  stop  the  trade,  by  exacting 
a  tax  which  amounts  to  a  prohibition.  But,  at  any  rate,  this  was 
no  fraud  in  this  country.  One  nation  does  not  take  notice  of 
the  revenue  laws  of  another.  With  regard  to  the  evasion  of  the 
light-house  duties,  the  ship  was  not  liable  to  confiscation  on  that 
account.  2.  The  second  objection  is,  that  the  policy  was  made 
before,  and  the  ship  sailed  after,  the  proclamation  for  reprisals. 
But  every  man  in  England  and  France,  on  the  17th  of  July, 
expected  the  immediate  commencement  of  a  war.  I  will  not  say 
it  was  actually  commenced ;  but  the  ambassadors  of  both  coun- 
tries were  recalled;  the  Pallas  and  Licorne  were  taken;  the  fleets 
at  sea;  and,  as  it  appeared  afterwards,  waiting  for  each  other  to 
fight.  It  does  not  appear  that  the  goods  were  French  property ; 
an  Englishman  might  be  sending  his  goods  to  France  in  a  neutral 
ship.  But  it  is  indifferent  whether  they  were  English  or  French. 
The  risk  insured  extends  to  all  captures  and  as  two  other  under- 
writers signed  at  the  same  premium,  after  the  proclamation,  it 
appears  that  the  war  risk  was  in  view  when  the  defendant  signed. 
Shall  he  avail  himself  of  an  event  which  encreases  the  risk,  but 
which  he  had  in  contemplation  when  he  underwrote  the  policy? 
I  am  of  opinion  that  there  should  not  be  a  new  trial. 
The  rule  discharered.^ 


RATCLIFFE  v.  SHOOLBRED. 

(Court  of  King's  Bench,  17S0.     Park,  Ins.   [2d  Am.  Ed.]  181.) 

An  action  was  brought  on  a  policy  of  assurance  on  goods, 
on  board  the  Matty  and  Betty,  at  and  from  the  coast  of  Africa 
to  her  last  discharging  port  in  the  British  West  Indies.  The 
objection  made  to  paying  the  loss  was,  that  there  had  been  a 
material  concealment,  or  misrepresentation  of  the  true  state  or 
situation  of  the  ship  and  voyage  at  the  time  of  underwriting 
the  policy.  The  ship  had  been  sent  out  to  trade  on  the  coast  of 
Africa,  with  directions  to  proceed  from  thence  to  the  British 
West  Indies,  and  to  stop  at  Barbadoes,  if  she  could  get  a  sale ; 
if  not,  to  proceed  to  Montego-Bay.  On  the  2d  of  October  she 
sailed  from  St.  Thomas's  on  the  coast  of  Africa,  with  a  cargo  of 
slaves,  and  was  taken  on  the  6th  of  December  following  by  an 

5  See  Henkle  v.  Royal  Exchange  Assur.  Co.,  1  Ves.  317  (1749). 


Sec.  2)  MARINE  INSURANCE  247 

American  privateer.  A  letter  was  received  by  a  house  at  Liver- 
pool on  the  21st  of  February,  mentioning,  that  the  ship  was  well, 
and  had  sailed  from  St.  Thomas's  on  the  2d  of  October.  This 
information  was  communicated  next  day  to  the  plaintififs,  who, 
in  consequence  of  it,  wrote  the  same  evening  to  two  different  bro- 
kers, to  get  a  new  insurance  on  the  ship,  there  having  been  one 
before,  and  another  on  the  cargo,  which  last  was  the  subject  of 
the  present  action.  In  the  instructions  to  the  brokers,  the  plain- 
tiffs say  nothing  of  the  ship  from  the  time  of  her  first  sailing; 
but  to  one  of  the  brokers,  they  wrote  thus :  "We  should  be  glad 
if  you  would  get  us  £600.  more  on  the  ship,  as  she  is  rather 
long;  and  we  think  it  not  prudent  to  run  so  large  a  risk  at  so 
critical  a  time.  We  expect  to  hear  soon  of  her."  It  had  after- 
wards occurred,  that  the  policy  might  be  affected,  if  intimation 
was  not  given  of  the  letter,  which  had  been  received.  The  broker, 
therefore,  by  direction  of  the  plaintiffs,  added  to  the  instructions: 
"The  above  ship  was  on  the  coast  the  2d  of  October;"  but  said 
nothing  of  her  having  sailed  from  St.  Thomas.  The  policy  was 
dated  the  21st  of  March. 

Lord  Mansfield.  The  insured  is  bound  to  represent  to  the 
underwriter  all  the  material  circumstances  of  the  ship  and  voy- 
age. If  he  do  not,  though  by  accident  only,  or  neglect,  the  under- 
writers are  not  liable :  a  fortiori,  if  he  suppress  or  misrepresent 
from  fraud.  The  question  is,  whether  this  be  one  of  those  cases, 
which  is  affected  by  misrepresentation  or  concealment?  If  the 
plaintiffs  concealed  any  material  part  of  the  information  they  re- 
ceived, it  is  a  fraud ;    and  the  insurers  are  not  liable. 

The  jury  found  for  the  defendant  agreeably  to  his  lordship's 
direction. 


MAYNE  V.  WALTER. 

(Court  of  King's  Bench,  1785.     Park,  Ins.  [6th  Ed.]  263.) 

Action  on  a  policy  of  insurance  on  a  Portuguese  ship,  at  and 
from  Madeira  to  her  port  of  discharge  in  Jamaica,  with  liberty 
to  touch  at  the  Leeward  Islands.  The  defendant  underwrote 
£150.  upon  it:  The  ship  was  captured  by  a  French  privateer, 
and  condemned  in  the  court  of  Admiralty  in  France,  on  the  ground 
of  having  an  English  supercargo  on  board.  The  action  was 
brought  to  recover  this  loss  from  the  underwriter,  who  refused 
to  pay,  alleging,  that  the  plaintiff  should  have  disclosed  to  him, 
that  the  supercargo  was  English.  At  the  trial,  a  verdict  was  given 
for  the  plaintiff,  upon  a  case  reserved  for  the  opinion  of  the  court, 
and  containing  in  substance  the  facts  just  stated. 

For  the  defendant  it  was  insisted,  upon  the  argument,  that  the 
agent-  for   the    insured    ought    to    have    disclosed    this    fact;     and 


248  ,  CONCEALMENT  (Cll.  4 

that  it  was  the  more  material  in  this  case,  because  during  the 
present  war,  an  ordinance  passed  in  France,  similar  to  the  one 
made  in  the  last  war  in  1756,  which  declares,  that  no  Dutch  ship 
shall  be  allowed  to  take  on  board  a  supercargo,  belonging  to  any 
nation  at  enmity  with  the  court  of  France :  and  that  if  any  ship, 
having  such  supercargo,  be  taken,  it  shall  be  condemned  as  law- 
ful prize. 

Lord  MansFiEIvD.  It  is  an  oppressive  and  arbitrary  rule,  and 
contrary  to  the  law  of  nations.  If  both  parties  were  ignorant  of 
it,  the  underwriter  must  run  all  risks :  and  if  the  defendant  knew 
of  such  an  edict,  it  was  his  duty  to  inquire,  if  such  a  supercargo 
were  on  board.  It  must  be  a  fraudulent  concealment  of  circum- 
stances, that  will  vitiate  a  policy.  But  it  is  remarkable,  that 
neither  party  has  said  a  word  respecting  the  treaties  between 
France  and  Portugal. 

Judgment  was  accordingly  given  for  the  plaintiff. 


NEPTUNE  INS.  CO.  v.  ROBINSON. 

(Court  of  Appeals  of  Maryland,  1840.     11  Gill  &  J.  256.) 

Action  of  assumpsit  brought  by  plaintiff  against  the  defend- 
ant upon  certain  policies  of  insurance  issued  by  the  defendant  on 
the  schooner  "Wildee,"  at  and  from  Richmond,  Va.,  to  Portland, 
Me.  The  plaintiff  declared  for  a  total  loss,  and  the  defendant 
pleaded  non  assumpsit.  The  case  was  submitted  to  the  county 
court  on  a  statement  of  facts  in  substance  as  follows :  ^ 

The  plaintiff,  as  owner  of  the  schooner,  secured  from  the  defend- 
ant a  policy  of  insurance  on  the  afternoon  of  April  20,  1837.  The 
vessel  sailed  from  Richmond  on  April  16th.  On  the  17th  she 
was  driven  by  winds  and  currents  upon  the  rocks  and  became 
a  total  loss  by  perils  of  the  sea.  On  the  same  day  the  captain 
addressed  to  the  plaintiff  a  letter  stating  that  the  vessel  had 
run  on  the  rocks  but  that  she  did  not  appear  to  be  injured,  al- 
though the  cargo  probably  was.  This  letter  was  received  at  the 
Richmond  post  office  on  the  afternoon  of  April  17th.  It  arrived 
at  the  Baltimore  post  office  early  in  the  morning  of  April  20th, 
and  could  have  been  had  at  that  office  as  early  as  7  o'clock  if 
it  had  been  called  for.  The  plaintiff  was  a  resident  of  Baltimore, 
but  he  was  not  a  merchant  and  had  no  regular  place  of  business 
other  than  his  private  residence.  His  letters  were  not  taken  to 
him  by  a  letter  carrier,  but  were  called  for  by  him  at  the  post 
office  in  Baltimore  or  sent  for  thence  by  him.  On  April  19th 
he  called  at  the  post  office  and  then  received  a  letter  dated  April 
14th,  wherein  the  captain  stated  that  the  "Wildee"  would  prob- 

6  The  statement  of  facts  is  much  abbreviated. 


Sec.  2)  MARINE  INSURANCE  249 

ably  sail  on  April  16th  or  17th.  It  was  on  the  basis  of  this  letter 
that  the  plaintiff  obtained  the  insurance  on  April  20th.  He  did 
not  call  again  at  the  post  office  between  April  19th  and  April 
24th,  on  which  latter  date  he  received  the  letter  of  April  17th. 
It  is  admitted  that  the  information  contained  in  the  letter  of  April 
17th,  if  known  to  the  plaintiff,  would  have  been  material  to  the 
risk.  If  the  court  shall,  on  the  facts  as  stated,  be  of  the  opinion 
that  the  plaintiff  had  notice,  either  actually  or  constructively,  of 
the  loss  of  the  schooner,  or  the  contents  of  said  letter  of  April 
17th,  prior  to  the  making  of  said  insurance,  or  shall  be  of  the 
opinion  that  the  plaintiff  was  guilty  of  such  laches  in  not  regularly 
calling  for  his  letter  at  the  post  office  and  receiving  the  intelli- 
gence of  the  loss  communicated  by  said  letter,  as  will  vitiate  said 
insurance,  then  and  in  either  case  their  judgment  must  be  for 
the  defendant;    otherwise  for  the  plaintiff. 

The  county  court  on  this  statement  rendered  judgment  for 
the  plaintiff,  and  the  insurance  company  appealed  to  this  court. 

Chambers,  J.,  delivered  the  opinion  of  the  court. 

The  claim  of  the  appellee  upon  this  policy  of  insurance,  has 
been  resisted  on  the  ground,  that  under  the  circumstances  of  this 
case,  he  is  to  be  charged  with  notice  of  the  loss  prior  to  the 
insurance,  or  at  least  with  such  neglect  as  will  vitiate  the  policy. 
That  the  contents  or  existence  of  the  letter  of  the  17th  April,  were 
known  to  him  in  fact,  is  not  alleged  in  the  statement  of  facts, 
nor  could  it  by  any  just  inference  be  deduced  therefrom,  if  indeed, 
the  court  could  make  inferences  of  fact,  which  is  certainly  not 
the  case.  The  statement  in  reference  to  this  matter  is,  that  the 
appellee,  on  the  19tli  of  April,  applied  at  the  post  office,  (where 
his  letters  remained  till  he  called  for  them,)  and  received  the 
letter  of  14th  of  April,  and  on  the  following  day,  the  20th,  effected 
the  insurance ;  and  that  he  did  not  call  again  at  the  post  office, 
until  24th  April,  when  he  received  the  letter  of  17th',  informing 
him  of  the  loss.  It  being  then  conceded,  that  the  facts  stated  do 
not  prove  actual  knowledge  of  the  letter  of  17th  of  April,  and 
consequently  of  the  loss  of  the  schooner,  we  are  to  decide  wheth- 
er they  make  a  case,  from  which  the  law  will  impute  the  con- 
sequences of  knowledge,  and  imply  concealment,  suppression  or 
negligence,  on  the  part  of  the  assured  to  vitiate  the  policy. 

The  principles  advanced  on  the  part  of  the  appellant,  on  the 
authorities  cited,  may  all  be  admitted,  and  yet  we  do  not  think 
they  will  furnish  an  affirmative  answer  to  this  question.  That 
the  assured  acted  with  entire  good  faith,  and  without  any  design 
to  impose  upon  himself  a  condition  of  ignorance,  the  facts  afford 
sufficient  evidence  to  prove.  It  is  very  true,  that  in  many  in- 
stances negligence  will  be  visited  with  the  same  penalty,  as  wil- 
ful design  to  do  wrong.  Thus,  if  a  party,  with  knowledge  that 
his   agent   is    in   treaty    for    insurance,    obtains    information    of    a 


250  CONCEALMENT  (Ch.  4 

material  fact,  he  is  bound  promptly  to  use  the  means  of  com- 
municating it.  The  impossibility  of  fixing  a  definite  limit,  be- 
tween prompt  attention  and  unreasonable  delay,  and  the  diffi- 
culty of  certainly  ascertaining  the  motives  and  excuses,  for  all 
intervening  grades  of  despatch,  in  performing  an  admitted  duty, 
make  such  a  rule  imperatively  necessary.  When  the  principles 
of  fair  dealing,  as  well  as  the  rules  of  law,  require  a  fact  to  be 
communicated,  if  known,  and  time  enough  had  elapsed  within 
which  to  communicate  it,  and  a  means  of  conveying  it  had  pre- 
sented, it  would  be  fatal  to  the  rights  of  the  party  to  require  him 
to  prove  bad  motives  for  the  delay.  Justice  requires  the  same 
standard  in  this  respect  for  the  man  of  active  industry  as  for 
the  habitually  indolent,  and  wisely  says,  what  a  man  is  thus 
obliged  to  do,  he  must  do  promptly,  and  diligently,  or  bear  the 
consequences  of  his  neglect. 

But  we  do  not  think  the  case  before  us  is  one  where  the  party 
has  neglected  a  duty.  He  was  under  no  obligation  to  go  to  the 
post  office,  nor  had  he,  as  far  as  the  facts  are  disclosed,  any  cause 
to  expect  information.  In  point  of  fact,  it  was  solely  in  conse- 
quence of  the  loss  of  the  schooner  that  the  captain  did  write. 

The  principle  relied  on  by  the  appellant  is,  that  the  assured  is 
bound  to  use  all  accessible  means  of  information,  at  the  very 
last  instant  of  time,  to  ascertain  the  condition  of  the  property 
insured.  We  do  not  think  this  principle  recognized  by  any  ad- 
judged case,  and  if  carried  out  to  its  legitimate,  indeed,  necessary, 
results,  would  embarrass  the  whole  doctrine  of  insurance,  with 
complicated  and  endless  difficulties. 

We  approve  the  opinion  expressed  by  the  county  court  of  Balti- 
more, and  affirm  the  judgment. 

Judgment  affirmed. 


PROUDFOOT    V.    MONTEFIORE. 

(Court  of  Queen's  Bench,  1S67.     L.  R.  2  Q.  B.  511.) 

CocKBURN,  C.  J.  This  was  an  action  against  the  defendant,  as 
chairman  of  the  Alliance  Marine  Insurance  Company,  for  the  recov- 
ery of  damages  from  the  company  in  respect  of  the  company  not  hav- 
ing delivered  to  the  plaintiff  a  policy  of  insurance  on  certain  goods 
shipped  on  board  a  vessel  called  the  Anne  Duncan,  pursuant  to  an 
agreement  alleged  by  the  plaintiff  to  have  been  entered  into  between 
him  and  the  company,  and  in  respect  of  the  company  not  having  paid 
the  sum  of  money  which  the  plaintiff  alleges  would  have  become  due 
on  such  policy  if  the  same  had  been  so  delivered. 

The  agreement  was  for  insurance  on  a  cargo  of  madder,  lost  or  not 
lost,  shipped  at  Smyrna,  on  a  voyage  from  Smyrna  to  Liverpool,  on 


Sec.  2)  MARINE  INSURANCE  251 

board  the  ship  Anne  Duncan,  for  and  on  account  of  the  plaintifY,  and 
consigned  to  him  by  one  T.  B.  Rees,  of  Smyrna. 

The  plaintifT,  a  merchant  at  Manchester  and  Liverpool,  dealt  largely 
in  madders  in  the  Smyrna  market,  and  Rees,  being  resident  at  Smyr- 
na, was  employed  by  him  at  a  salary  of  iSOO  a  year  to  make  pur- 
chases of  madder  on  his  account,  and  to  ship  and  consign  the  cargoes 
to  him.  The  cargo  in  question  was  purchased  and  shipped  by  Rees 
in  the  course  of  his  employment  as  such  agent.  The  ship,  with  the 
cargo  on  board,  sailed  from  Smyrna  on  the  21st  of  January,  1861, 
but  again  brought  up  in  the  Gulf  of  Smyrna  on  the  same  day.  She 
set  sail  again  on  the  23rd,  but  was  stranded  in  the  course  of  that  day, 
and  became  a  wreck.  The  cargo  became  a  total  loss.  Intelligence  of 
the  stranding  of  the  ship  was  communicated  to  Rees  on  the  morning 
of  the  24th.  On  the  26th,  which  was  the  first  post  day,  he  communi- 
cated by  letter  to  the  plaintiff  the  loss  of  the  vessel ;  and  the  fact  that 
though  the  cargo  had  been  got  out,  yet  as  the  vessel  had  had  12  feet 
of  water  in  the  hold,  the  greater  part  of  the  cargo  would  be  seriously 
damaged. 

Having  communicated  this  information,  the  letter  proceeds  thus : 
"I  hope  to  goodness  you  are  fully  insured.  On  the  12th  instant  I 
forwarded  you  invoice  and  weights  of  the  shipment  by  her,  which 
gave  you  plenty  of  time  to  effect  insurance.  Lloyd's  agents  have  tele- 
graphed the  disaster,  which  will  reach  London  before  my  letter  of  the 
19th  instant,  inclosing  bill  of  lading.'^  I  did  not  dare  telegraph  to 
you,  for  when  once  you  had  the  intelligence  in  hand  you  were  pre- 
vented from  insuring."  On  the  31st  of  January  the  plaintifif,  after 
receipt  of  the  letters  from  Rees  of  the  12th  and  19th  of  January,  but 
prior  to  the  receipt  of  that  of  the  26th,  gave  instructions  to  efifect  the 
policy,  and  the  slip  was  signed  on  the  same  day  by  the  company's 
agent  at  Manchester. 

There  was,  therefore,  no  fraud  or  undue  concealment  by  the  plain- 
tiff of  a  material  fact  within  his  personal  knowledge.  On  the  other 
hand,  it  is  clear  that  the  fact  of  the  loss  of  the  vessel  and  damage  to 
the  cargo  might  have  been  communicated  to  him  by  Rees  by  means 
of  the  telegraph,  but  was  purposely  kept  back  by  the  agent  for  the 
fraudulent  purpose  of  enabling  the  plaintiff  to  insure.  We  think  it 
clear,  looking  to  the  position  of  Rees  as  agent  to  purchase  and  ship 
the  cargo  for  the  plaintiff,  that  it  was  his  duty  to  communicate  to  his 
principal  the  disaster  which  had  happened  to  the  cargo ;  and,  looking 
to  the  now  general  use  of  the  electric  telegraph,  in  matters  of  mer- 
cantile interest,  between  agents  and  their  employers,  we  think  it  was  the 
duty  of  the  agent  to  communicate  wdth  his  employers  by  this  speedier 
means  of  communication.  From  the  letter  of  the  agent  it  appears 
that  but  for  the  fraudulent  motive  for  his  silence,  he  would,  in  the 

7  The  telegram  was  received,  and  the  loss  published  in  Lloyd's  List  of  the 
29th  of  January ;  but  neither  the  plaintiff  nor  the  company's  agent  was  aware 
of  it. 


252  CONCEALMENT  (Ch.  4 

ordinary  course  of  his  duty,  have  conveyed  the  intellij:!^ence  of  the  loss 
to  his  employer,  and  would  have  availed  himself  of  the  telegraph  for 
that  purpose. 

Upon  the  above  facts,  the  question  arises  whether  the  plaintiff,  the 
assured,  is  so  far  affected  by  the  knowledge  of  his  agent  of  the  loss 
of  the  vessel  and  damage  to  the  cargo  as  that  the  fraud  thus  com- 
mitted on  the  underwriter,  through  the  intentional  concealment  of 
the  agent,  though  innocently  committed  so  far  as  the  plaintiff  is  con- 
cerned, will  afford  a  defence  to  the  underwriter  on  a  claim  to  enforce 
the  policy. 

Two  cases  decided  in  this  court,  one  in  the  time  of  Lord  Mansfield, 
the  other  in  that  of  Lord  EHenborough,  established  the  affirmative 
of  this  proposition.  In  the  case  of  Fitzherbert  v,  Mather,  1  Term  R. 
12,  16,  where  an  agent  of  the  assured  was  employed  to  ship  a  cargo 
of  oats,  and  to  communicate  the  shipment  to  another  agent  who  was 
employed  to  effect  an  assurance,  an  omission  on  the  part  of  the  for- 
mer, who  had  written  to  announce  the  sailing  of  the  ship,  on  the  ship 
having  afterwards  got  on  shore,  to  communicate  that  fact,  which  he 
might  have  done  by  the  same  post,  was  held  fatal  to  the  insurance. 
Ashurst,  J.,  observes :  "On  general  principles  of  policy,  the  act  of  the 
agent  ought  to  bind  the  principal ;  because  it  must  be  taken  for  grant- 
ed that  the  principal  knows  whatever  the  agent  knows.  And  there  is 
no  hardship  on  the  plaintiff;  for  if  the  fact  had  been  known  the  policy 
could  not  have  been  effected."  Buller,  J.,  says :  "Though  the  plain- 
tiff be  innocent,  yet  if  he  built  his  information  on  that  of  his  agent, 
and  his  agent  be  guilty  of  a  misrepresentation,  the  principal  must  suf- 
fer. It  is  the  common  question  every  day  at  Guildhall,  when  one  of 
two  innocent  persons  must  suffer  by  the  fraud  or  negligence  of  a 
third,  which  of  the  two  gave  credit.  Here  it  appears  that  the  plaintiff' 
trusted  Thomas  (the  agent),  and  he  must  therefore  take  the  conse- 
quences." 

In  the  case  of  Gladstone  v.  King,  1  Maule  &  S.  35,  38,  which  was 
an  action  on  a  policy  on  a  ship,  "lost  or  not  lost,"  the  master  had 
omitted  to  communicate,  when  writing  to  his  owners,  the  fact  of  the 
ship  having  been  driven  on  a  rock,  a  fact  as  to  which,  on  arriving  at 
the  port  of  discharge,  he  made  a  protest,  detailing  the  accident,  and 
stating  that  the  ship's  bottom  must  have  been  chafed ;  and  the  own- 
ers, in  ignorance  of  the  accident,  had  effected  an  insurance.  On  these 
facts  it  was  held  that  the  captain  was  bound  to  communicate  the  fact, 
and,  for  want  of  such  communication,  the  antecedent  damage  was  an 
implied  exception  from  the  insurance,  and  the  plaintiffs  could  not  re- 
cover the  loss  arising  from  the  repairs  rendered  necessary  by  the  ac- 
cident. "If,"  says  Lord  Ellenborough,  "the  captain  might  be  per- 
mitted to  wink  at  these  circumstances  without  hazard  to  the  owners, 
the  latter  would  in  all  such  cases  instruct  their  captain  to  remain  si- 
lent ;  by  which  means  the  underwriter  at  the  time  of  subscribing  the 
policy  would  incur  a  certainty  of  being  liable  for  an  antecedent  aver- 


Sec.  2)  MARINE   INSURANCE  253 

age  loss.  To  prevent  such  a  consequence,  and  considering  that  what 
is  known  to  the  agent  is  impHedly  known  to  the  principal,  and  that 
the  captain  knew,  and  might  have  actually  communicated  to  the  plain- 
tiffs, the  cause  of  damage,  so  as  to  have  apprised  them  of  it  before 
the  time  of  effecting  the  policy,  I  think  that  no  mischief  will  ensue 
from  holding  in  this  case  that  the  antecedent  damage  was  an  implied 
exception  out  of  the  policy.  If  the  principle  be  new,  it  is  consistent 
with  justice  and  convenience;  and  there  being  no  fraud  imputed  to 
the  captain  in  the  concealment  will  not  alter  the  case." 

An  eminent  authority,  the  late  Mr.  Justice  Story,  has,  however, 
declined  to  be  bound  by  these  decisions.  In  a  case  (Ruggles  v.  Gen- 
eral Interest  Insurance  Co.,  4  Mason,  74,  Fed.  Cas.  No.  12,119)  tried 
before  him  on  a  policy  of  insurance  effected  after  a  total  loss,  where 
the  master  had  omitted  to  give  intelligence  of  the  loss  to  his  owner, 
with  the  fraudulent  design  of  enabling  him  to  make  an  insurance,  and 
the  insurance  had  been  effected  by  the  owner  in  ignorance  of  the  loss, 
that  learned  judge  held  that,  as  the  owner  at  the  time  of  procuring 
the  insurance  had  no  knowledge  of  the  loss,  but  acted  with  an  entire 
good  faith,  he  was  not  precluded  from  recovering,  and  that  the  pol- 
icy was  not  rendered  void  by  the  omission  of  the  master  to  com- 
municate intelligence  of  the  loss,  although  such  omission  was  wilful 
and   fraudulent.^      The    case   being  taken    to    a    court   of   error   (12 

8  Story,  J.,  thus  states  his  reason  for  so  holding: 

"The  principle  contended  for  is  new.  If  well  founded,  it  must  have  often 
occurred.  The  general  silence,  therefore,  is  against  it,  but  not  decisive  of  its 
merits.  Upon  what  grounds  does  it  stand?  Not  upon  the  ground  of  agency, 
for  the  master  was  not  the  agent  as  to  the  insurance.  Not  upon  the  ground 
of  imputed  knowledge  or  fraudulent  concealment,  for  that  is  excluded  by  the 
argument.  It  must  then  be  upon  the  ground  that  the  act  of  the  master  binds 
the  owner,  and  that  an  omission  of  duty  to  his  owner,  by  which  third  persons 
are  prejudiced,  destroys  the  rights  of  his  owner,  however  innocent  he  may  be. 
There  is  certainly  no  public  policy  or  convenience  in  such  a  principle.  The 
owner  does  not  guaranty  the  fidelity  of  the  master  to  all  the  world,  or  to  the 
insurer  in  particular.  On  the  contrary,  the  insurer  sometimes  insures  against 
the  misconduct  of  the  master.  In  England  it  is  generally  so  as  to  barratry, 
and  in  some  cases  as  to  negligence.  For  what  reason  should  the  law  inter- 
fere between  two  innocent  persons  to  change  a  loss,  which,  by  contract,  one 
has  engaged  to  bear? 

"It  is  said  that  he  who  reposes  the  confidence  in  such  a  one  should  bear  the 
loss.  But  underwriters,  equally  with  owners,  repose  confidence  in  the  mas- 
ters. The  master  is  the  agent  for  all  concerned.  In  case  of  lo.ss.  lie  acts  for 
all  concerned.  In  the  case  of  an  abandonment,  he  is  retroactively  the  agent 
of  the  underwriter,  from  the  time  of  the  loss  on  which  the  abandonment  is 
founded.  What  reason  is  there  why  owners,  acting  innocently,  may  not  In- 
sure against  bona  fide  losses,  of  which  the  master  withholds  the  knowledge? 

"It  is  said,  it  may  encourage  fraud.  But  this  argument  supposes  too  much. 
Most  losses  in  this  age  must  be  public.  The  first  port  of  arrival  brings  all  out. 
The  crew  and  officers,  and  other  persons,  are  not  bound  to  silence.  In  fact, 
but  few  cases  of  this  defence  have  yet  occurred.  But  suppose  it  to  be  so.  If 
there  may  be  frauds,  may  there  not  be  also  ruinous  losses  to  innocent  own- 
ers? Is  it  a  good  public  policy  to  endanger  the  interests  of  commerce  by  new 
implied  warranties?  The  underwriter  can  require  a  warranty,  or  except  the 
master's  acts,  or  require  his  negligence  to  be  fatal.     This  very  case  shows 


254  CONCEALMENT  .  (Ch.  4 

Wheat.  408,  6  L.  Ed.  674),  the  latter  upheld  the  decision ;  not,  indeed, 
on  the  grounds  taken  by  Mr.  Justice  Story,  but  on  the  very  unsatis- 
factory, and,  as  we  think,  untenable  ground,  that  by  the  total  loss  of 
the  vessel  the  master  had  wholly  ceased  to  be  the  agent  of  the  owner, 
and  had  become  the  agent  of  the  underwriters.  From  the  language  of 
the  judgment,  it  may  be  inferred  that  if  the  Court  had  considered 
that  the  relation  of  the  master  to  his  owners  had  not  been  interrupted 
by  the  loss  of  the  vessel,  they  would  not  have  upheld  the  decision 
appealed  from. 

The  ruling  of  Mr.  Justice  Story  has  been  discussed  by  Mr.  Duer, 
in  his  admirable  work  on  Insurance  (volume  2,  p.  418),  and  we  think 
the  reasoning  of  the  learned  writer  fully  establishes  his  conclusion  as 
to  the  ruling  having  been  erroneous.  Notwithstanding  the  dissent 
of  so  eminent  a  jurist  as  Mr.  Justice  Story,  we  are  of  opinion  that 
the  cases  of  Fitzherbert  v.  Mather,  1  Term  R.  12,  and  Gladstone  v. 
King,  1  Maule  &  S.  35,  were  well  decided ;  and  that  if  an  agent, 
whose  duty  it  is,  in  the  ordinary  course  of  business,  to  communicate 
information  to  his  principal  as  to  the  state  of  a  ship  and  cargo,  omits 
to  discharge  such  duty,  and  the  owner,  in  the  absence  of  information 
as  to  any  fact  material  to  be  communicated  to  the  underwriter,  ef- 
fects an  insurance,  such  insurance  will  be  void,  on  the  ground  of  con- 
cealment or  misrepresentation.  The  insurer  is  entitled  to  assume,  as 
the  basis  of  the  contract  between  him  and  the  assured,  that  the  latter 
will  communicate  to  him  every  material  fact  of  which  the  assured 
has,  or,  in  the  ordinary  course  of  business,  ought  to  have  knowledge ; 
and  that  the  latter  will  take  the  necessary  measures,  by  the  employ- 
ment of  competent  and  honest  agents,  to  obtain,  through  the  ordinary 
channels  of  intelligence  in  use  in  the  mercantile  world,  all  due  infor- 
mation as  to  the  subject-matter  of  the  insurance.  This  condition  is 
not  complied  with  where,  by  the  fraud  or  negligence  of  the  agent, 
the  party  proposing  the  insurance  is  kept  in  ignorance  of  a  material 
fact,  which  ought  to  have  been  made  known  to  the  underwriter,  and 
through  such  ignorance  fails  to  disclose  it. 

It  has  been  said,  indeed,  that  a  party  desiring  to  insure  is  entitled, 
on  paying  a  corresponding  premium,  to  insure  on  the  terms  of  re- 
ceiving compensation  in  the  event  of  the  subject-matter  of  the  in- 
surance being  lost  at  the  time  of  the  insurance,  and  that  he  ought  not 
to  be  deprived  of  the  advantage,  which  he  has  paid  to  secure,  by  the 
misconduct  of  his  agent.  But  to  this  there  are  two  answers :  First, 
that,  as  we  have  already  pointed  out,  the  implied  condition  on  which 
the  underwriter  undertakes  to  insure — not  only  that  every  material 
fact  which  is,  but  also  that  every  fact  which  ought  to  be,  in  the  knowl- 
edge of  the  assured,  shall  be  made  known  to  him — is  not  fulfilled; 
secondly,  as  was  said  by  the  court  in  Fitzherbert  v.  Mather,  1  Term 

how  difficult  it  is  to  conceal  the  facts  even  in  an  obscure  place.  They  were 
universally  known  in  twenty  days,  and  reported  in  a  loose  rumor  in  twehe 
days." 


Sec.  2)  MARINE   INSURANCE  255 

R.  12,  16,  where  a  loss  must  fall  on  one  of  two  innocent  parties 
through  the  fraud  or  netj^ligence  of  a  third,  it  ought  to  be  borne  by 
the  party  by  whom  the  person  guilty  of  the  fraud  or  negligence  has 
been  trusted  or  employed. 

By  thus  holding,  we  shall  prevent  the  tendency  to  fraudulent  con- 
cealment on  the  part  of  masters  of  vessels  and  agents  at  a  distance, 
in  matters  on  which  they  ought  to  communicate  information  to  their 
principals,  as  also  any  tendency  on  the  part  of  principals  to  encourage 
their  servants  and  agents  so  to  act.  For  these  reasons  our  judgment 
must  be  for  the  defendant. 

Judgment  for  the  defendant. 


SNOW  V.  MERCANTILE  MUT.  INS.  CO. 

(Commission  of  Appeals  of  New  York,  1S74.     61  N.  Y.  160.) 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court,  in  the  second  judicial  department,  affirming  a  judgment  en- 
tered at  the  circuit. 

This  action  was  brought  upon  a  policy  of  marine  insurance.  At 
the  trial  certain  facts  were  admitted  by  the  parties  for  the  pur- 
poses of  the  action,  in  substance  as  follows: 

On  October  25,  1866,  William  Fry  Angell  was  the  owner  of  an 
insurable  interest  in  the  ship  Sunda,  which  was  then  lying  in  the 
port  of  Liverpool,  and  was  perfectly  seaworthy.  Angell  request- 
ed his  broker  in  Liverpool  (one  Gilchrist)  to  write  to  the  plaintiffs 
in  the  city  of  New  York,  to  effect  an  insurance  on  the  ship  in  a 
marine  insurance  company.  In  accordance  with  this  direction,  Gil- 
christ on  October  27,  1866,  wrote  to  the  plaintiffs  requesting  them 
to  effect  an  insurance,  describing  the  ship,  and  stating  that  she  was 
loaded  for  Aden,  and  that  she  would  probably  be  out  of  the  chan- 
nel before  the  letter  was  received.  This  letter  was  received  by  the 
plaintiffs  on  November  8,  1866,  in  due  course  of  mail  by  ocean 
steamship.  On  the  9th  day  of  November  the  plaintiffs  eft'ected  an 
insurance  for  one  year  from  that  date  with  the  defendants,  for  $5,- 
000.  On  October  29th  the  ship  sailed  from  Liverpool  on  a  voyage 
to  Aden,  and  while  proceeding  to  sea  was  wrecked  and  lost  on  the 
English  coast.  The  loss  was  known  to  Angell  as  early  as  October 
30,  1866.  The  value  of  the  ship  exceeded  $5,000.  On  the  31st  day 
of  October  Gilchrist,  as  the  agent  of  Angell,  wrote  by  the  first  mail 
to  the  United  States  after  the  loss  of  the  ship  the  following  letter, 
received  by  them  November  13th,  in  due  course  of  mail: 

"I  wrote  you  on  the  27th  inst.  per  Java  as  per  copy  annexed, 
and  am  sorry  now  to  inform  you  that  said  ship  was  a  total  loss  on 
Monday,  the  29th  instant.  She  was  in  tow  of  a  steamer  wath  a 
pilot  on  board,  and  when  she  had  reached  the  Queen's  channel 
struck  on  the  bar,  where  she  remained  until  low  water  and  then 


256  CONCEALMENT  (Ch.  4 

fell  over  on  her  beam  ends,  and  heavy  gale  coming  on  at  the  time 
with  heavy  sea,  which  caused  her  to  become  a  total  wreck.  *  *  * 
Pro])ably  you  may  hear  of  this  1)y  telegram  before  you  receive  my 
letter,  but  if  you  do  not  and  have  the  insurance  effected,  I  suppose 
it  will  be  all  right,  as  the  owner  has  nothing  more  on  the  ship,  and 
only  il,100  on  the  freight,  as  he  is  a  person  who  never  insures 
much.  *  *  *  I  do  not  suppose  it  is  my  duty  to  telegram  the 
loss  of  said  ship,  do  you?  If  so,  I  shall  better  know  how  to  act  in 
the  future.     Please  inform  me  on  this  point.    R.  S.  Gilchrist." 

It  was  further  admitted  that  the  city  of  New  York  had  been  ever 
since  and  not  before  July  30,  1866,  in  telegraphic  communication 
with  Liverpool,  England,  and  that  the  loss  of  the  Sunda  could  have 
been  communicated  by  Angell  to  the  plaintiffs  on  October  13th  by 
telegraph,  and  that  no  such  communication  was  made,  and  that  the 
loss  was  not  known  to  the  defendant  until  after  the  issuing  of  the 
policy.  The  only  other  statement  on  the  subject  of  the  telegraph, 
admitted  by  the  parties,  was  in  the  following  words:  "The  tele- 
graph between  said  places"  (New  York  and  Liverpool)  "was,  in 
October  and  November,  1866,  used  by  merchants  and  others  as  a 
mode  of  communication  whenever,  in  their  judgment,  the  interest 
of  their  business  required  the  necessary  expense  for  that  purpose." 

A  table  was  offered  in  evidence  showing  the  statistics  of  tele- 
graphic traffic.  In  the  months  of  July,  August  and  September, 
1866,  under  a  twenty  pounds  tariff,  the  average  number  of  messag- 
es per  day  was  twenty-nine.  For  the  next  twelve  months  under  a 
ten  pounds  tariff,  the  daily  number  was  sixty-four.  As  the  tariff 
diminished,  the  number  increased.  In  some  of  the  months  in  1870, 
under  a  tariff  of  thirty  shillings,  the  average  number  was  nearly 
500  per  day. 

The  defendant's  counsel  moved  to  dismiss  the  complaint.  The 
motion  was  denied  and  the  defendant  excepted. 

The  court  thereupon  directed  the  jury  to  find  a  verdict  for  the 
plaintiff.    This  direction  was  excepted  to  by  the  defendant. 

DwiGHT,  C.  The  general  rule  of  law  is  well  settled,  that  if 
intelligence  of  a  fact  enhancing  the  risk  or  of  a  loss  is  received  aft- 
er an  order  has  been  given  for  a  marine  insurance  and  before  the 
contract  is  executed,  it  must  be  communicated  to  the  underwriters 
with  due  diligence,  or  the  order  be  countermanded.  1  Phillips  on 
Ins.,  §  561. 

The  question  open  to  controversy  in  the  above  proposition  is, 
the  meaning  of  the  expression  "due  diligence,"  or  "due  and  reason- 
able diligence,"  as  found  in  some  of  the  authorities.  It  is  claimed 
by  the  defendant  that  it  means  extreme  diligence.  To  support 
this  view  a  dictum  in  Andrews  v.  Marine  Ins.  Co.,  9  Johns.  34,  is 
referred  to;  also,  2  Duer  on  Insurance,  note  4,  p.  530. 

In  order  to  determine  this  question  a  general  view  should  be 
taken  of  the  authorities. 


Sec.  2)  MARINE  INSURANCE  257 

The  defendant  urges  that  the  rules  of  mortaHty  require  that  the 
insured  should  use  the  same  diligence  to  prevent  the  insurance  as 
he  would  to  prevent  the  payment  of  the  premium  if  the  vessel  were 
safe,  citing  2  Duer  on  Insurance,  §§  13  and  19,  p.  410. 

This  consideration  would  address  itself  to  us  with  much  force  if 
the  question  were  new  and  open  to  be  considered  on  purely  theoret- 
ical grounds.  The  law  on  this  subject  seems  to  be  easily  ascer- 
tained from  the  decisions,  and  it  is  incumbent  upon  us  to  apply  and 
enforce  it  as  we  find  it. 

One  of  the  earliest  cases  on  this  subject  is  Grieve  v.  Young,  in 
the  Scotch  Court  of  Sessions,  reported  in  Millar  on  Insurance.  On 
December  10,  1779,  Grieve,  a  merchant  in  Eyemouth,  wrote  to  his 
correspondent  in  Edinburgh  to  take  out  an  insurance  on  his  ship, 
which  had  just  sailed,  and  was  then  out  of  danger.  As  Eyemouth 
was  not  a  post  town,  Grieve  sent  the  letter  to  a  place  on  the  Lon- 
don post  road,  whence  it  would  be  sent  by  post  to  Edinburgh.  It 
was  sent  on  the  evening  of  the  10th,  and  arrived  at  six  o'clock,  p. 
m.,  on  the  11th.  The  insurance  was  taken  at  eight  o'clock.  The 
ship  was  in  danger  on  the  evening  of  the  10th,  and  went  to  the  bot- 
tom at  ten  o'clock  of  the  morning  of  the  11th.  Grieve  was  aw^are 
of  all  the  facts  of  the  case.  The  court  held  that  it  was  not  incum- 
bent upon  him  to  send  by  express  to  Edinburgh  to  give  information 
of  the  facts,  but  only  to  make  use  of  the  mail  and  post  a  letter  at 
once,  countermanding  the  order. 

This  case  was  approved  in  Watson  v.  Delafield,  2  Caines,  224; 
s.  c,  1  Johns.  150;  and  in  the  Court  of  Errors,  2  Johns.  526.  It  was 
held  in  this  case  that  if  an  insured,  having  written  letters  ordering 
an  insurance,  learns  of  a  loss  he  is  bound,  if  practicable,  to  counter- 
mand his  order  by  the  same  mail. 

The  Supreme  Court  of  the  United  States,  through  Mr.  Justice 
Story,  lays  down  the  correct  rule  upon  this  subject  in  the  case  of 
McLanahan  v.  The  Universal  Ins.  Co.,  1  Pet.  170,  7  L.  Ed.  98,  as 
follows:  Where  a  party  orders  insurance  and  afterward  receives 
intelligence  material  to  the  risk,  or  has  knowledge  of  a  loss,  he 
ought  to  communicate  it  to  the  agent  by  "due  and  reasonable  dili- 
gence," to  be  judged  under  all  the  circumstances  of  each  particular 
case,  for  the  purpose  of  countermanding  the  order  or  laying  the 
circumstances  before  the  underwriters.  The  "extreme  diligence" 
recognized  in  Andrews  v.  Marine  Ins.  Co.  may  be  reconciled  with 
the  views  of  Justice  Story  by  assuming  that,  in  special  cases,  ex- 
treme care  may  be  requisite  to  constitute  due  and  reasonable  dili- 
gence. 

The  case  of  Green  v.  Merchants'  Ins.  Co.,  10  Pick.  (Mass.)  402, 
presents  this  question  in  a  clear  light.  The  proposition  is  there 
laid  down  that  if  a  person  who  has  directed  insurance  to  be  pro- 
cured at  a  distant  place,  on  a  risk  already  commenced,  receives,  be- 
Vance  Ins. — 17 


258  CONCEALMENT  (Ch.  4 

fore  the  contract  is  made,  intelligence  of  a  loss,  he  is  bound  to 
transmit  the  intelligence  by  the  earliest  and  most  expeditious  usual 
route  of  mercantile  communication,  in  order  that  it  may  be  laid 
before  the  person  requested  to  underwrite ;  but  the  omission  to 
send  by  an  unusual  and  extraordinary  conveyance,  although  by 
possibility  it  might  arrive  before  the  policy  was  effected,  will  not 
vitiate  the  policy.  The  question  whether  a  particular  mode  of  com- 
nmnication  is  a  usual  one  is  matter  of  fact,  and  must  in  general  be 
found  by  a  jury.  Green  v.  Merchants'  Ins.  Co.,  10  Pick.  (Mass.) 
402;  McLanahan  v.  Universal  Ins.  Co.,  1  Pet.  186,  7  L.  Ed.  98; 
Byrnes  v.  Alexander,  1  Brev,  (S.  C.)  213. 

Following  these  authorities  we  must  hold  that  the  plaintiff  was 
not  bound  to  resort  to  the  telegraph  to  communicate  the  loss  of  the 
Sunda  to  the  defendant,  unless  that  was  at  the  time  a  usual  means 
of  mercantile  communication. 

The  statement  of  facts  on  which  the  court  below  acted  contains 
no  finding  upon  this  subject.  In  fact,  it  seems  studiously  to  avoid 
any  such  finding.  Had  there  been  a  distinct  proposition  submitted 
that  the  telegraph  was  then  a  "usual  mode  of  mercantile  communi- 
cation," the  plaintiff  must  clearly  have  failed  to  establish  a  case  for 
recovery.  Instead  of  that  the  statement  is,  that  the  telegraph  be- 
tween said  places  (Liverpool  and  New  York)  was  used  by  mer- 
chants and  others  as  a  mode  of  communication  whenever,  in  their 
judgment,  the  interests  of  their  business  required  the  necessary 
expense  for  that  purpose.  This  is,  by  no  means,  equivalent  to  a 
statement  that  it  is  a  "usual"  mode  of  mercantile  communication. 
Nor  do  the  statistics  of  the  traffic  help  the  case.  At  the  time  of  the 
disaster  the  rates  were  very  high  between  New  York  and  Liver- 
pool, and  the  telegraph  messages  were  infrequent.  All  the  mes-, 
sages  between  Valentia  and  Heart's  Content,  or  in  other  words, 
between  America  and  Europe,  averaged  but  twenty-nine  per  day 
both  ways,  or  fifteen  from  Europe  to  America.  This  was  the  entire 
telegraphic  correspondence  between  the  two  countries  for  all  forms 
of  business,  and  for  all  the  requirements  of  friendship  and  affec- 
tion. This  average  had  prevailed  for  three  months.  The  messages 
for  the  last  of  the  three  months  averaged  ten  less  than  for  the  first. 
Under  this  state  of  facts  I  can  see  no  reason  for  finding  that  the 
telegraph  was  at  that  time  a  usual  means  of  mercantile  communi- 
cation, within  the  meaning  of  the  authorities  that  have  been  cited. 

The  case  of  Proudfoot  v.  Montefiore,  L.  R.  2  Q.  B.  513,  is  not  op- 
posed to  this  view.  In  that  case  the  appellate  court,  by  agreement 
of  counsel,  was  authorized  "to  draw  inferences  of  fact  as  they 
thought  proper."  It  was  held,  accordingly,  that  as  the  entire  tele- 
graph between  the  places  referred  to  in  that  case  was  in  "general 
use"  between  agents  and  their  employers,  it  was  the  duty  of  the 
insured  to  make  use  of  it.  That  decision  is  in  entire  conformity 
with  the  principles  followed  in  the  case  at  bar,  as  it  turns  upon 


Sec.  2)  MARINE  INSURANCE  259 

the  special  circumstances  presented  to  the  court.  It  would  be  fol- 
lowed in  this  cause  if  we  could  be  satisfied  (as  the  English  court 
was  on  the  facts  submitted  to  it)  that  the  telej^raph  between  Liver- 
pool and  New  York  was,  on  October  31,  1866,  a  usual  means  of 
mercantile  communication. 

The  judgment  of  the  court  below  should  be  affirmed," 


BLACKBURN,  LOW  &  CO.  v.  VIGORS. 

(House  of  Lords,  1SS7.     L.  R.  12  App.  Cas.  531.) 

Appeal  from  the  Court  of  Appeal. 

The  facts  are  stated  in  the  judgments  of  Lord  Esher,  M.  R.,  and 
Lindley,  L.  J.,  17  Q.  B.  D.  553.  The  following  outline  will  suffice 
for  this  report : 

The  appellants  having  brought  an  action  against  the  respondent 
upon  a  policy  of  re-insurance  subscribed  by  him  for  £50.,  claiming 
for  a  total  loss  by  perils  of  the  sea,  the  substantial  defense  was 
that  the  defendant  was  induced  to  subscribe  the  policy  by  the 
wrongful  concealment  by  the  plaintiffs  and  their  agents  of  certain 
material  facts  known  to  the  plaintiffs  or  their  agents  and  unknown 
to  the  defendant. 

At  the  trial  before  Day,  J.,  and  a  special  jury  in  July,  1885,  the 
following  facts  were  proved  or  admitted : 

The  plaintiffs,  underwriters  and  insurance  brokers  at  Glasgow, 
had  underwritten  the  steamship  State  of  Florida  for  £1500.,  the 
policy  having  been  effected  by  the  usual  brokers  for  the  ship,  Rose, 
Murison  &  Thomson,  who  were  underwriters  and  insurance  bro- 
kers in  Glasgow.  The  ship  had  left  New  York  on  the  11  th  of  April 
1884  bound  for  Glasgow  where  she  was  due  about  the  24th  or  25th. 
On  the  30th  the  plaintiffs  tried  to  re-insure  through  their  London 
brokers,  Roxburgh,  Currie  &  Co.,  but  the  terms  asked  were  higher 
than  the  plaintiffs  would  give.  On  the  next  day,  May  1st,  the 
plaintiff's  asked  Rose,  Murison  &  Thomson  to  effect  a  re-insurance 
for  £1500.  at  fifteen  guineas  through  Rose,  Thomson,  Young  &  Co., 
the  London  agents  of  Rose,  Murison  &  Thomson.  The  latter  tele- 
graphed accordingly  to  Rose,  Thomson,  Young  &  Co.  After  the 
telegram  and  before  any  answer  came  Murison,  a  member  of  the 
firm  of  Rose,  Murison  &  Thomson,  became  aware  of  certain  facts 
concerning  the  ship  which  were  material  to  the  risk,  but  these  facts 
were  never  communicated  to  the  plaintiff's  or  to  Roxburgh,  Currie 
&  Co.  After  learning  these  facts  Rose,  Murison  &  Thomson  re- 
ceived the  following  answer  to  their  telegram ;  "Twenty  guineas 
paying  freely  and  market  very  stiff;    likely  to  advance  before  day 

9  Lott,  Ch.  C,  and  Earl,  C,  concurred  with  Dwight,  C.  The  disseuting  opin- 
ion of  Reynolds,  C,  with  whom  Gray,  C,  concurred,  is  omitted. 


260  CONCEALMENT  (Ch,  4 

is  out."  This  answer  they  shewed  to  the  plaintiffs,  and  then  sent 
in  the  plaintiffs'  names  the  following  telegram  to  Rose,  Thomson, 
Young  &  Co. :  "Pay  20  guineas."  The  answer  to  this  was  sent  di- 
rect to  the  plaintiffs,  who  ultimately  re-insured  for  £800.  at  25  guin- 
eas through  Rose,  Thomson,  Young  &  Co.  This  was  not  the  policy 
sued  on. 

On  the  2d  of  May  the  plaintiffs  through  Roxburgh,  Currie  &  Co. 
effected  a  policy  of  re-insurance  for  £700.  at  30  guineas  lost  or  not 
lost.  This  was  the  policy  sued  on.  The  ship  had  in  fact  been  lost 
some  days  before  the  plaintiffs  tried  to  re-insure.  It  was  admitted 
that  the  plaintiff's  and  Roxburgh,  Currie  &  Co.  acted  in  good  faith 
throughout. 

The  jury  having  been  discharged  by  consent,  Day,  J.,  gave  judg- 
ment for  the  plaintiffs  for  the  amount  claimed. 

The  Court  of  Appeal  (Lindley  and  Lopes,  L.  JJ.,  Lord  Esher,  M. 
R.,  dissenting)  reversed  this  decision  and  gave  judgment  for  the 
defendant. 

Against  this  judgment  the  plaintiffs  appealed. 

Lord  Halsbury,  L.  C.  j\Iy  Lords,  in  this  case  the  plaintiffs 
sue  upon  a  policy  of  marine  insurance,  and  the  only  question  arises 
upon  the  state  of  defence  that  the  defendant  was  induced  to  enter 
into  the  contract  by  concealment  of  material  facts  by  the  plaintiffs 
and  their  agents. 

The  facts  are  not  in  dispute.  Neither  the  plaintiffs  nor  the  agent 
through  whom  the  policy  was  effected  had  any  knowledge  of  the 
material  fact  the  concealment  or  non-disclosure  of  which  is  relied 
on  as  vitiating  the  policy ;  but  an  agent,  who  did  not  effect  the 
policy,  at  an  earlier  period  received  information,  admitted  to  be  ma- 
terial, while  he  was  acting  as  agent  to  effect  an  insurance  for  the 
plaintiffs,  which  he  did  not  communicate. 

Day,  J.,  before  whom  the  case  was  decided  without  a  jury,  held 
that  this  did  not  affect  the  validity  of  the  policy.  A  majority  of 
the  Court  of  Appeal  reversed  Day,  J.'s,  judgment,  and  held  that  the 
non-disclosure  was  fatal  to  the  plaintiffs'  claim. 

So  far  as  I  can  understand  the  judgment  of  the  Court  of  Appeal, 
it  is  intended  to  lay  down  a  principle  that  would  not,  I  think,  be 
contested,  but  it  applies  that  principle  to  a  state  of  facts  to  which 
I  think  it  is  inapplicable.  Lindley  L.  J.,  says,  I  think  correctly  : 
"It  is  a  condition  of  the  contract  that  there  is  no  misrepresentation 
or  concealment  either  by  the  assured  or  by  any  one  who  ought  as  a 
matter  of  business  and  fair  dealing  to  have  stated  or  disclosed  the 
facts  to  him  or  to  the  underwriter  for  him."  17  Q.  B.  D.  578. 
And  Lopes,  L.  J.,  after  stating  the  principle  upon  which  the  knowl- 
edge of  the  agent  is  the  knowledge  of  the  principal,  explains  it  to 
mean  that  the  principal  is  to  be  as  responsible  for  any  knowledge  of 
a  material  fact  acquired  by  his  agent  employed  to  obtain  the  in- 
surance as  if  he  had  acquired  it  himself.     17  Q.  B.  D.  579.    To  the 


Sec.  2)  MARINE   INSURANCE  -201 

propositions  thus  stated  I  think  no  objection  could  be  made;  but 
it  is  obvious  that  the  words  in  the  one  judgment  "agent  employed 
to  obtain  the  insurance,"  or  in  the  other  judgment  the  words  "the 
underwriter,"  import  that  the  particular  contract  obtained  was,  in 
the  language  of  the  statement  of  defense,  a  policy  which  the  defend- 
ant was  induced  to  subscribe  by  the  wrongful  concealment  by  the 
plaintiffs  and  their  agents  of  certain  facts  then  known  to  the  plain- 
tift"s  or  their  agents,  and  unknown  to  the  defendant,  and  which 
were  material  to  the  risk. 

I  doubt  very  much  whether  the  solution  of  the  controversy  as  to 
what  is  the  true  principle  upon  which  the  contract  of  insurance  is 
avoided  by  concealment  or  misrepresentation,  whether  by  consider- 
ing it  fraudulent  or  as  an  implied  term  of  the  contract,  helps  one 
very  much  in  deciding  the  present  case.  If  one  were  to  adopt  in 
terms  the  language  of  Lord  Ellenborough  in  Gladstone  v.  King,  1 
M.  &  S.  35,  I  do  not  think  it  could  justify  the  judgment  of  the  ma- 
jority of  the  Court  of  Appeal.  In  that  case  a  policy  lost  or  not  lost 
was  effected  on  the  25th  of  October.  On  the  previous  25th  of  July 
the  ship  had  run  upon  a  rock.  On  the  5th  of  August  the  captain 
wrote  to  his  owners,  the  plaintiffs ;  they  received  his  letter  on  the 
5th  of  October.  Whatever  may  be  said  of  the  logic  of  that  case, 
which  acquitted  the  captain  of  all  ill  intention,  but  decided  upon 
the  ground  that  otherwise  owners  might  direct  their  captains  to 
remain  silent,  and  which  upon  a  policy  lost  or  not  lost  assumes  any 
antecedent  damage  to  have  been  an  implied  exception  out  of  the 
policy,  it  does  not  proceed  upon  any  such  ground  as  the  Court  of 
Appeal  appear  to  rely  on  here.  Lord  Ellenborough  says:  "No 
mischief  will  ensue"  (a  somewhat  strange  mode  of  enunciating  a 
proposition  of  law)  "from  holding  in  this  case  that  the  antecedent 
damage  was  an  implied  exception  out  of  the  policy.  If  the  princi- 
ple be  new,  it  is  consistent  with  justice  and  convenience."  Unfor- 
tunately his  Lordship  does  not  state  what  is  the  principle  which  he 
apparently  admits  to  be  new.  I  can  quite  understand  that  when  a 
man  comes  for  an  insurance  upon  his  ship  he  may  be  expected  to 
know  both  the  then  condition  and  the  history  of  the  ship  he  seeks 
to  insure.  If  he  takes  means  not  to  know,  so  as  to  be  able  to  make 
contracts  of  insurance  without  the  responsibility  of  knowledge, 
this  is  fraud.  But  even  without  fraud,  such  as  I  think  this  would 
be,  the  owner  of  the  ship  cannot  escape  the  necessity  of  being  ac- 
quainted with  his  ship  and  its  history  because  he  has  committed 
to  others, — his  captain  or  his  general  agent  for  the  management  of 
his  shipping  business, — the  knowledge  which  the  underwriter  has 
a  right  to  assume  the  owner  possesses  when  he  comes  to  insure  his 
ship. 

With  respect  to  agency  so  limited,  I  am  not  disposed  to  differ 
with  the  proposition  laid  down  b}-  Cockburn,  C.  J.,  in  Proudfoot  v. 
Montefiore,  Law  Rep.  2  Q.  B.  5n,  521.    A  part  of  the  proposition  is 


262  CONCEALMENT  (Ch.  4 

"that  the  insurer  is  entitled  to  assume  as  the  basis  of  the  contract 
between  him  and  the  assured  that  the  latter  will  communicate  to 
him  every  material  fact  of  which  the  assured  has,  or  in  the  ordinary- 
course  of  business  ought  to  have  knowledge."  I  think  these  last 
are  the  cardinal  words  and  contemplate  such  an  agency  as  I  have 
described  above.  I  am  unable  however  to  see  that  the  present  case 
is  governed  by  any  such  principle. 

A  broker  is  employed  to  effect  a  particular  insurance.  While  so 
employed  he  receives  material  information — he  does  not  effect  the 
insurance  and  he  does  not  communicate  the  information.  How  is 
it  possible  to  suggest  that  the  assured  could  rely  upon  the  commun- 
ication to  the  principal  of  every  piece  of  information  acquired  by 
any  agent  through  whom  the  assured  has  unsuccessfully  endeav- 
oured to  procure  an  insurance?  I  am  unable  to  accept  the  criticism 
by  the  Master  of  the  Rolls  upon  the  proposition  that  the  knowledge 
of  the  agent  is  the  knowledge  of  the  principal.  When  a  person  is 
the  agent  to  know,  his  knowledge  does  bind  the  principal.  But  in 
this  case  I  think  the  agency  of  the  broker  had  ceased  before  the 
policy  sued  upon  was  effected.  The  principal  himself  and  the  bro- 
ker through  whom  the  policy  sued  on  was  effected  were  both  admit- 
ted to  be  unacquainted  with  any  material  fact  which  was  not  dis- 
closed. I  cannot  but  think  that  the  somewhat  vague  use  of  the 
word  "agent"  leads  to  confusion.  Some  agents  so  far  represent  the 
principal  that  in  all  respects  their  acts  and  intentions  and  their 
knowledge  may  truly  be  said  to  be  the  acts,  intentions,  and  knowl- 
edge of  the  principal.  Other  agents  may  have  so  limited  and  nar- 
row an"  authority  both  in  fact  and  in  the  common  understanding  of 
their  form  of  employment  that  it  would  be  quite  inaccurate  to  say 
that  such  an  agent's  knowledge  or  intentions  are  the  knowledge  or 
intentions  of  his  principal ;  and  whether  his  acts  are  the  acts  of 
his  principal  depends  upon  the  specific  authority  he  has  received. 

In  Fitzherbert  v.  Mather,  1  T.  R.  12,  the  consignor  and  the  shipper 
of  the  goods  insured  was  the  agent  whose  knowledge  was  in  ques- 
tion. In  Gladstone  v.  King,  1  M.  &  S.  35,  the  master  of  the  ship 
was  the  agent;  and  in  Proudfoot  v.  Montefiore,  Law  Rep.  2  Q.  B. 
511,  the  agent  was  the  accepted  representative  of  the  principal,  in 
eft'ect  trading  and  acting  for  him  in  Smyrna,  the  owner  himself  car- 
rying on  business  in  Manchester.  And  though  the  decision  in  Rug- 
gles  V.  General  Insurance  Co.,  12  Wheaton,  408,  before  the  Su- 
preme Court  of  the  United  States  may  not  be  very  satisfactory  in 
what  they  held  under  the  circumstances  of  that  case  to  be  the  re- 
lation between  the  captain  of  the  ship^  and  his  owners,  the  principle 
upon  which  that  case  was  decided  was  the  supposed  termination  of 
the  agency  between  them. 

Where  the  employment  of  the  agent  is  such  that  in  respect  of  the 
particular  matter  in  question  he  really  does  represent  the  principal, 
the  formula  that  the  knowledge  of  the  agent  is  his  knowledge  is  I 


Sec.  2)  MARINE   INSURANCE  -^^ 

think  correct,  but  it  is  obvious  that  that  formula  can  only  be  ap- 
plied when  the  words  "agent"  and  "principal"  are  limited  in  their 
application. 

To  lay  down  as  an  abstract  proposition  of  law  that  every  agent, 
no  matter  how  limited  the  scope  of  his  agency,  would  bind  every 
principal  even  by  his  acts,  is  obviously  and  upon  the  facts  of  it  ab- 
surd; and  yet  it  is  by  the  fallacious  use  of  the  word  "agent"  that 
plausibility  is  given  to  reasoning  which  requires  the  assumption  of 
some  such  proposition. ^'^ 

What  then  is  the  position  of  the  broker  in  this  case,  whose  knowl- 
edge, though  not  communicated,  is  held  to  be  that  of  the  principal? 

He  certainly  is  not  employed  to  acquire  such  knowledge,  nor  can 
any  insurer  suppose  that  he  has  knowledge  in  the  ordinary  course 
of  employment  like  the  captain  of  a  ship,  or  the  owner  himself,  as 
to  the  condition  or  history  of  the  ship.  In  this  particular  case  the 
knowledge  was  acquired,  not  because  he  was  the  agent  of  the  as- 
sured, but,  from  the  accident  that  he  was  general  agent  for  another 
person.  The  reason  why,  if  he  had  effected  the  insurance,  his 
knowledge,  unless  he  communicated  it,  would  have  been  fatal  to 
the  policy,  is  because  his  agency  was  to  effect  an  insurance,  and 
the  authority  to  make  the  contract  drew  with  it  all  the  necessary 
powers  and  responsibilities  which  are  involved  in  such  an  employ- 
ment; but  he  had  no  general  agency — he  had  no  other  authority 
than  the  authority  to  make  the  particular  contract,  and  his  author- 
ity ended  before  the  contract  sued  on  was  made.  When  it  was 
made  no  relation  between  him  and  the  shipowner  existed  which 
made  or  continued  him  an  agent  for  whose  knowledge  his  former 
principal  was  responsible.  There  was  no  material  fact  known  to 
any  agent  which  was  not  disclosed  at  the  point  of  time  at  which 
the  contract  was  made;  there  was  no  one  possessed  of  knowledge 
whose  duty  it  was  to  communicate  such  knowledge. 

For  these  reasons,  I  am  of  opinion  that  the  judgment  of  the  Court 
of  Appeal  should  be  reversed,  and  the  judgment  of  Day,  J.,  restor- 
ed;  and  I  move  your  Lordships  accordingly.^^ 

10  See  Wilson  v.  Salamandra  Assurance  Co.,  K.  B.  88  L.  T.  96  (190.3),  in 
which  it  was  held  that  knowledge  possessed  by  an  agent  of  Lloyd's  in  a  dis- 
tant port  is  not  to  be  so  imputed  to  an  underwriter,  who  is  a  member  of 
Lloyd's,  as  to  render  void  a  policy  of  reinsurance  innocently  obtained  by  him. 

11  The  concurring  opinions  of  Lord  Watson,  Lord  Fitzgerald,  and  Lord  Mc- 
Naghten  are  omitted. 


204  CONCEALMENT  (Ch.  4 

THAMES   &  MERSEY  MARINE  INS.  CO.,   Limited,  v.   GUN- 
FORD  SHIP  CO.,  Limited. 

(House  of  Lords,  1911.     App.  Cas.  529.) 

Lord  AIvVErstone;,  C.  J.  My  Lords,  this  is  an  appeal  in  an 
action  brought  in  the  Scottish  Court  upon  two  policies  of  insurance 
for  ilOOO.  each  effected  with  the  appellants,  the  Thames  and  Mersey 
Marine  Insurance  Company,  on  behalf  of  the  owners  of  the  sailing 
ship  Gunford.  The  defenders,  the  present  appellants,  resisted  pay- 
ment of  the  amounts  insured  on  these  grounds:  (1.)  That  there  was 
a  breach  of  the  warranty  of  seaworthiness ;  (2.)  on  the  ground  of 
non-disclosure  of  material  facts — (a)  as  to  the  captain  of  the  vessel, 
(b)  as  to  the  other  insurances  effected  in  connection  with  the  ship. 

The  facts  material  to  the  above-mentioned  points  are  not  in  dis- 
pute. The  Gunford  Shipping  Company,  Limited,  was  managed  by 
Francis  Briggs,  by  whom  all  the  business  of  the  ship,  including  the 
employment  of  her  olBcers  and  the  effecting  of  insurances,  was  trans- 
acted. 

The  captain  of  the  vessel  on  the  voyage  in  question  was  A.  W. 
Sember.  The  Gunford  sailed  from  Hamburg  on  October  12,  1907, 
with  a  full  cargo  of  patent  fuel,  coke,  and  thirteen  tons  of  machinery, 
on  a  voyage  round  Cape  Horn  to  Santa  Rosalia.  In  the  course  of 
this  voyage,  upon  the  incidents  of  which  it  is  not  necessary  to  dwell, 
she  on  December  10,  1907,  went  ashore  near  Cape  San  Roque  and 
became  a  total  loss. 

All  the  policies,  both  voyage  and  time,  contained  a  warranty  of 
seaworthiness.  The  appellants  alleged  that  this  warranty  was  broken, 
in  that  the  ship  was  not  seaworthy,  because  Captain  Sember,  who, 
as  already  stated,  sailed  in  charge  of  her,  was  not  a  competent  mas- 
ter. Lord  Salvesen,  the  Lord  Ordinary,  before  whom  the  case  was 
tried  in  the  first  instance,  came  to  the  conclusion  that  there  was  no 
breach  of  the  warranty  of  seaworthiness.  He  found,  after  consider- 
ing the  evidence  on  this  question,  the  captain  himself  being  a  witness, 
and  after  carefully  discussing  all  the  incidents  of  the  voyage,  that 
the  Gunford  was  not  unseaworthy  by  reason  of  the  captain's  incom- 
petence. Upon  this  part  of  the  case  your  Lordships  did  not  call  upon 
the  learned  counsel  for  the  respondents.  There  was,  in  my  opinion, 
ample  evidence  on  which  the  learned  judge  could  find  as  he  did,  that 
the  captain  was  not  incompetent,  and  the  appeal,  so  far  as  it  is  based 
upon  that  ground,  fails. 

Upon  the  second  ground,  namely,  that  there  was  concealment  of 
material  facts  in  connection  with  the  employment  of  the  captain,  there 
was  a  great  deal  of  evidence  on  both  sides.  The  facts  relied  upon  by 
the  appellants  were  that  a  period  of  twenty-two  years  had  elapsed 
since  Captain  Sember  had  last  been  at  sea,  he  during  that  time  hav- 
ing been  engaged  as  a  stevedore ;   it  was  further  said  that  his  engage- 


Sec.  2)  MARINE  INSURANCE  265 

ment  as  captain  was  made  without  sufficient  in(iuiry,  and  the  cir- 
cumstances under  which  he  was  engaged  were  such  that  it  was  ma- 
terial to  the  underwriter  to  be  informed  of  the  previous  history  and 
experience  of  the  captain.  A  great  many  witnesses  were  called  for 
the  appellants,  who  stated  that,  in  their  opinion,  it  was  material  to 
the  underwriters  that  they  should  be  informed  of  the  circumstances 
connected  with  the  captain's  experience  above  referred  to.  The  mat- 
ter formed  the  subject  of  some  correspondence  after  the  vessel  had 
sailed  and  before  the  loss.  The  Lord  Ordinary  in  his  judgment  came 
to  the  conclusion  that,  under  ordinary  circumstances,  underwriters 
rely  upon  the  information  at  their  disposal  with  regard  to  the  com- 
petency of  masters,  that  the  name  of  the  master  is,  as  a  rule,  not  in- 
serted in  the  policy,  and  that  it  is  only  on  very  rare  occasions  that 
underwriters  make  any  inquiry  as  to  his  name  or  history,  and  that 
they  rely  on  the  shipowners  to  engage  a  competent  master. 

There  is  no  doubt  that  in  this  case  the  information  at  the  disposal 
of  the  underwriters  would  not  have  afforded  the  necessary  informa- 
tion, because  Captain  Sember  was  not  appointed  master  of  the  Gun- 
ford  until  July  19,  and  the  records  of  information  as  to  masters  at 
the  disposal  of  the  underwriters  at  the  date  the  policies  were  effected 
would  not  have  contained  his  name.  I  am,  however,  not  prepared 
to  differ  from  the  Lord  Ordinary  and  the  Court  of  Session  upon  this 
part  of  the  case.  The  fact  upon  which  most  reliance  was  placed  was 
that  the  underwriters  were  not  told  that  the  master  had  been  on  shore 
for  twenty-two  years ;  but  this  fact  could  not  well  be  stated  by  itself 
without  further  information  as  to  other  matters  put  before  Mr.  Briggs 
as  to  the  qualifications  of  Captain  Sember,  and,  looking  to  the  well- 
established  usage,  I  concur  in  the  view  taken,  as  appears  in  the  judg- 
ments in  the  Court  below,  that  there  was  no  concealment  of  any  ma- 
terial facts  in  regard  to  the  captain. 

I  have  now  to  deal  v\?ith  the  remaining  point  in  the  case,  and  that 
is  whether  or  not  there  was  concealment  of  material  facts  by  reason 
of  the  non-disclosure  of  the  insurances  effected  upon  the  ship.  Be- 
fore discussing  this  matter  it  is  desirable  to  state  briefly  the  law  ap- 
plicable to  the  case. 

It  is,  in  my  opinion,  quite  vmnecessary  to  do  more  than  refer  to  the 
sections  of  the  Marine  Insurance  Act,  1906.  Section  17  is  in  the 
following  terms :  "A  contract  of  marine  insurance  is  a  contract  based 
upon  the  utmost  good  faith,  and,  if  the  utmost  good  faith  be  not  ob- 
served by  either  party,  the  contract  may  be  avoided  by  the  other 
party." 

Section  18:  "{1)  Subject  to  the  provisions  of  this  section,  the  as- 
sured must  disclose  to  the  insurer,  before  the  contract  is  concluded, 
every  material  circumstance  which  is  known  to  the  assured,  and  the 
assured  is  deemed  to  know  every  circumstance  which,  in  the  ordinary 
course  of  business,  ought  to  be  known  by  him.  If  the  assured  fails 
to  make  such  disclosure,  the  insurer  may  avoid  the  contract.     (2)  Ev- 


266  CONCEALMENT  (Ch.  4 

ery  circumstance  is  material  which  would  influence  the  judgment  of 
a  prudent  insurer  in  fixing  the  premium,  or  determining  whether  he 
will  take  the  risk.  (3)  In  the  absence  of  inquiry  the  following  cir- 
cumstances need  not  be  disclosed,  namely :  (a)  Any  circumstance 
which  diminishes  the  risk :  (b)  any  circumstance  which  is  known  or 
presumed  to  be  known  to  the  insurer.  The  insurer  is  presumed  to 
know  matters  of  common  notoriety  or  knowledge,  and  matters  which 
an  insurer  in  the  ordinary  course  of  his  business,  as  such,  ought  to 
know ;  (c)  any  circumstance  as  to  which  information  is  waived  by 
the  insurer;  (d)  any  circumstance  which  it  is  superfluous  to  disclose 
by  reason  of  any  express  or  implied  warranty.  (4)  Whether  any 
particvdar  circumstance,  which  is  not  disclosed,  be  material  or  not  is, 
in  each  case,  a  question  of  fact.  (5)  The  term  'circumstance'  includes 
any  communication  made  to,  or  information  received  by,  the  assured." 

Section  19:  "Subject  to  the  provisions  of  the  preceding  section  as 
to  circumstances  which  need  not  be  disclosed,  where  an  insurance  is 
effected  for  the  assured  by  an  agent,  the  agent  must  disclose  to  the 
insurer — (a)  every  material  circumstance  which  is  known  to  himself, 
and  an  agent  to  insure  is  deemed  to  know  every  circumstance  w^hich 
in  the  ordinary  course  of  business  ought  to  be  known  by,  or  to  have 
been  communicated  to,  him." 

The  two  policies  to  which  the  appeal  now  under  consideration  re- 
lated were  dated  on  August  30  and  31,  1907,  but  the  material  date 
for  the  purpose  of  the  question  under  consideration,  namely,  the  date 
of  the  initialling  of  the  slip,  was  on  August  3.  The  policies  were  ef- 
fected upon  the  instructions  of  Mr.  Briggs.  The  actual  amount  of 
freight  due  under  the  charter  party  was  £4790.,  of  which  one-half, 
i2395.,  was  paid  in  advance  at  Hamburg.  The  disbursements  and 
other  outlay,  which  had  been  incurred  in  order  to  earn  the  freight, 
was  stated  to  amount  to  £5280.  Some  portion  of  this  amount  would 
not  have  created  any  insurable  interest  having  regard  to  the  pro- 
visions of  section  16,  but  in  the  view  I  take  of  this  case  it  is  unneces- 
sary to  say  how  much.  Moreover,  it  was  conceded  that  the  only 
source  from  which  these  disbursements  could  be  repaid  was  the 
freight  earned  by  the  ship,  which  freight  was  itself  insured.  The  in- 
surances which  were  effected  on  behalf  of  the  owners  amounted  to 
£29,300.,  as  follows : 

Hull,  valued  at  £18.500 £19,000 

Freight,  valued  at  £.5.500 5,500 

Master's  effects,  valued  at  £200 200 

Disbursements,  p.  p.  i.  policy 4,600 

£29,300 

In  addition  Mr.  Briggs  took  out,  for  his  own  protection,  insurances 
to  the  amount  of  £6500.,  by  p.  p.  i.  honour  policies,  making  in  all 
£35,800.  The  evidence  established  that  the  actual  value  of  the  prop- 
erty at  risk  was  hull  £9000.,  and  freight  about  £5000.,  but,  as  already 
stated,  the  underwriters  accepted  a  policy  upon  which  the  hull  was 


Sec.  2)  MARINE  INSURANCE  267 

valued  at  £18,500.  Assuming  that  no  part  of  the  disbursements  should 
be  taken  into  consideration  as  l)eing  inchided  in  the  difference  be- 
tween £9000.,  the  actual  value  of  the  hull,  and  il8,500.,  the  insured 
value  of  the  ship,  there  was  still  a  double  insurance  in  respect  of  the 
alleged  disbursements  to  the  extent  of  £4600.  in  addition  to  the  £6500. 
insurances  effected  by  Mr.  Briggs. 

If  the  difference  between  the  declared  £18,500.  and  actual  £9000. 
value  was  represented  by  any  insurable  interest  in  disbursements,  the 
over-insurance  or  over-valuation  would  be  correspondingly  increased. 

It  was  proved  in  evidence  that  no  dividends  had  been  earned  by 
the  ship  for  about  seven  years;  it  was  further  established  that  the 
object  of  the  insurances  was  to  cover  debts  owing  by  the  company 
in  the  event  of  the  loss  of  the  vessel.  There  was  further  evidence  that 
the  profits  which  were  being  earned  by  the  ship  could  not  stand  the 
amount  paid  in  respect  of  premiums  of  insurance.  All  the  disburse- 
ment policies  were  valued  policies — that  is  to  say,  in  the  event  of  the 
ship  being  lost  the  full  amount  would  be  paid — and  it  was  admitted 
by  Mr.  Briggs  that  it  would  be  a  great  deal  better  for  the  sharehold- 
ers if  they  lost  their  ship  under  the  policies  than  if  they  had  to  real- 
ize their  ship  by  sale,  unless  they  got  the  Spanish  Government  to  buy 
or  a  war  took  place.  Even  assuming  the  value  of  the  ship  to  be  taken 
at  £18,500.,  the  total  amount  at  risk  did  not  exceed  £23,500.  before 
the  moiety  of  the  freight  was  paid  at  Hamburg  and  a  little  over  £21,- 
000.  after  the  vessel  left  Hamburg.  Some  distinction  was  attempted 
to  be  made  between  over-valuation  and  over-insurance,  but,  inasmuch 
as  all  the  policies  were  valued  policies,  the  question  becomes  imma- 
terial. There  was  on  the  evidence  over-valuation  to  the  extent  of 
£11,100.,  without  taking  into  consideration  the  difference  between  the 
declared  value,  £18,500.,  and  the  actual  value,  £9000.  Apart,  then, 
from  evidence  in  the  particular  case,  it  seems  to  me  that  the  statement 
of  the  above  facts  is  sufficient  to  shew  that,  looking  to  the  provisions 
of  the  Act  of  1906,  the  circumstances  above  stated  were  material  as 
being  those  which  would  influence  the  judgment  of  a  prudent  insurer 
in  fixing  the  premium  or  determining  whether  he  would  take  the  risk. 

Before  proceeding  to  examine  the  evidence  bearing  upon  this  part 
of  the  case  I  think  it  well  to  consider  the  grounds  upon  which  judg- 
ment has  been  given  for  the  pursuers  in  the  Court  below.  Lord  Sal- 
vesen,  in  the  first  instance,  left  out  of  view  the  honour  policies ;  he 
further  held  that  the  pursuers  were  not  concerned  with  the  policies 
of  £6500.  taken  out  by  Mr.  Briggs,  because  their  manager  entered 
into  the  contracts  for  his  own  behoof  and  without  the  authority  of 
the  pursuers ;  and  he  also  held  that  it  is  not  in  accordance  with  the 
principles  and  calculations  on  which  underwriters  in  practice  act  that 
there  should  be  any  disclosure  with  regard  to  policies  covering  other 
risks  which  the  particular  underwriter  is  not  asked  to  accept.  The 
Lord  President  adopted  in  terms  the  reasoning  of  Lord  Salvesen,  and 


268  CONCEALMENT  (Cll.  4 

further,  in  the  passage  at  the  end  of  liis  judgment,  appears  also  to  put 
out  of  view  the  poHcies  whicli  were  effected  by  Mr.  Briggs. 

Lord  Johnston  considered  that  as  soon  as  it  was  ascertained  that 
the  policies  in  question  were  valued  policies  the  case  was  at  an  end. 

I  refer  to  these  reasons,  because,  with  the  greatest  respect  for  the 
opinions  of  the  learned  judges,  they  do  not  seem  to  me  to  have  suffi- 
ciently considered  the  question  of  concealment  as  it  arises  upon  the 
sections  of  the  statute  to  which  I  have  called  attention,  and  had  not, 
so  far  as  I  can  follow  their  judgments,  considered  the  evidence  bear- 
ing upon  this  part  of  the  case. 

Before  I  refer  to  that  evidence  I  think  it  well  to  say  that  I  cannot 
accept  the  view  that  the  i6500.  honour  policies,  effected,  it  is  said,  by 
Mr.  Briggs  for  his  own  protection,  can  be  put  out  of  view  on  the 
grounds  suggested  by  the  judgments.  Mr.  Briggs  was  the  manag- 
ing owner  of  the  ship,  the  disbursements,  in  respect  of  which  he  was 
purporting  to  insure,  were  moneys  due  from  the  ship  to  him,  and  in 
considering  whether  there  was  over-valuation  or  over-insurance  (and 
in  this  case,  as  I  have  pointed  out,  the  terms  are  synonymous),  which 
ought  to  have  been  disclosed  to  the  underwriters,  I  cannot,  having 
regard  to  the  provisions  of  section  19,  put  out  of  view  the  £6500.  poli- 
cies effected  by  Briggs,  nor  does  it,  to  my  mind,  make  any  difference  in 
regard  to  the  duty  of  disclosure  that  the  policies  covering  this  £6500. 
and  the  policies  for  the  £4600.,  also  for  disbursements,  were  honour 
policies.  These  policies  were  void  under  section  4  of  the  Act,  but 
they  go  to  swell  the  sum  which  would  be  payable  in  the  event  of  the 
ship  being  lost,  and  the  total  amount  being  upwards  of  £35,000., 
w'hereas  the  value  actually  at  risk  did  not  exceed  £14,000.,  there  was 
a  very  large  over-valuation  which  might  well  make  a  prudent  under- 
writer hesitate  both  as  to  undertaking  the  risk  and  consider  the  pre- 
mium which  he  should  require  before  doing  so.  I  am  aware  of  the 
doubt  suggested  by  the  Court  of  Appeal  in  Roddick  v.  Indemnity 
Mutual  Marine  Insurance  Co.  [1895]  2  O.  B.  380,  as  to  whether 
the  effecting  of  honour  policies  was  a  breach  of  a  warranty  not  to  in- 
sure; but  in  my  opinion  the  view  taken  by  Kennedy,  J.,  in  that  case 
was  correct,  and  at  any  rate  the  point  does  not  affect  the  question 
now  under  consideration. 

Dealing  now  with  the  evidence  in  the  case,  the  whole  of  which  1 
have  carefully  considered,  though,  having  regard  to  the  terms  of  the 
statute  and  the  duty  of  the  assured,  I  doubt  whether  a  great  part  of 
it  was  relevant  or  admissible.  The  practice  of  underwriters  as  to  accept- 
ing any  risks  or  not  making  inquiries  on  particular  points  cannot,  in  my 
opinion,  affect  the  duty  as  defined  by  statute,  and  cannot  properly  be 
received  as  evidence  of  waiver  in  any  particular  case.  I  have,  how- 
ever, come  to  the  conclusion  that  the  evidence  as  given  establishes, 
beyond  any  reasonable  doubt,  that  the  matters  to  which  I  have  re- 
ferred were  material  to  be  disclosed.  Taking  first  the  evidence  of  the 
pursuer,  it  is  to  be  noted  that,  although  Mr.  Lockhart,  one  of  the 


Sec.  2)  MARINE   INSURANCE  269 

principal  witnesses  for  the  pursuer,  stated  that  it  is  not  the  practice 
for  underwriters  now  to  be  informed  or  to  inquire  as  to  what  are  the 
current  insurances  on  other  interests,  such  as  freights  or  disburse- 
ments, the  witness  admitted  in  cross-examination  that,  had  he  not 
known,  he  would  want  a  satisfactory  explanation  as  to  the  large 
amount  of  the  total  insurances,  and  that  without  explanation  he  would 
probably  not  take  the  risk.  It  is  to  be  noted  that  Mr.  Lockhart  was 
well  acquainted  with  all  the  facts  of  the  case,  and  knew  the  reasons 
which  had  induced  Messrs.  Briggs  to  insure  to  the  extent  which  they 
had  done.  Mr.  Dixie,  who  was  the  manager  to  Messrs.  Howard 
H'oulder  &  Co.,  had  done  the  Gunford's  insurance  ever  since  1893 
and  knew  all  the  facts,  and  it  was  his  firm  that  had  effected  the  pol- 
icies with  the  underwriter.  Mr.  Boyd,  also  a  witness  for  the  pursuers, 
stated  that  the  value  of  the  hull  was  far  too  high ;  and  Mr.  Shankland, 
who  stated  that  the  underwriters  would  not  be  in  the  least  concerned 
by  other  policies  for  disbursements,  does  not  appear  to  have  given 
satisfactory  answers  to  the  questions  put  to  him  in  cross-examina- 
tion. On  the  other  hand,  the  evidence  of  Mr.  Jervis,  Mr.  Douglas, 
and  Mr.  Lemon  seems  to  me  to  be  entitled  to  great  weight,  as  well  as 
that  of  Mr.  Swan  and  Mr.  White. 

I  have  referred  to  this  evidence  in  some  detail,  I  felt  it  right  to  con- 
sider how  far  the  view  which,  apart  from  the  evidence,  I  had  formed 
as  to  the  materiality  of  the  facts  not  disclosed  is  borne  out  by  the 
testimony  given  in  Court,  and,  speaking  for  myself,  I  unhesitatingly 
come  to  the  conclusion  that,  both  from  the  point  of  view  of  fixing  the 
premium  and  determining  whether  he  would  undertake  the  risk,  the 
over-valuation  was  a  matter  material  to  be  considered  by  the  under- 
writer. As  regards  the  amount  of  premium  this  view  is  confirmed  by 
the  correspondence  which  passed  between  the  brokers,  Howard  Hould- 
er  &  Co.  and  Francis  Briggs  &  Co.,  when  the  insurances  were  being 
effected.  I  will  not  refer  to  the  letters  in  detail,  but  when  the  brokers 
were  being  asked  on  July  30  to  insure  £13,000.  on  hull,  i6000.  on 
freight,  £6000.  on  disbursements,  and  £200.  effects  they  replied :  "The 
market  is  very  difficult  for  this  outward  voyage,  and,  as  we  have  al- 
ready mentioned  to  you,  we  see  no  possible  chance  of  placing  the 
lines  you  wish  covered  on  freight  and  disbursements  at  anything  like 
a  reasonable  price ;  indeed,  we  would  go  further  and  say  we  do  not 
think  there  is  a  market  for  such  amounts  at  any  price." 

Your  Lordships  were  informed  by  counsel  for  the  respondents  that 
this  correspondence  was  not  referred  to  during  the  arguments  in  the 
Courts  below.  I  have  only  mentioned  it  because  it  cannot  be  said 
in  any  way  to  displace  the  inference  of  fact  which  I  have  drawn  from 
the  evidence  which  I  have  quoted. 

A  distinction  was  drawn  in  argument  by  Mr.  Clyde  between  in- 
surances on  hull,  or  hull  and  materials,  and  insurance  on  ship.  For 
some  purposes,  I  agree,  there  may  be  a  distinction,  but  it  is  wholly 
immaterial  in  this  case,  having  regard  to  the  difference  between  the 


270  CONCEALMENT  (Ch.  4 

valuation  of  the  interests  and  the  amount  insured  as  contrasted  with 
the  vahie  actually  at  risk.  In  my  opinion  the  appeal  should  be  al- 
lowed and  judgment' given  for  the  defenders  on  the  ground  that  the 
policies  were  void  owing  to  concealment  of  material  facts.  *  *  *  12 
Ordered  that  the  interlocutors  appealed  from  be  reversed. 


SECTION  3.— FIRE  INSURANCE 


BUFE  V.  TURNER. 

(Court  of  Common  Pleas,  1815.     6  Taunt.  338.)  is 

This  was  an  action  of  covenant  brought  against  the  directors 
of  the  Phoenix  Fire  Insurance  Office,  upon  a  policy  of  insurance, 
dated  the  25th  of  July,  1814,  effected  by  the  plaintiff  on  a  certain 
warehouse  in  Heligoland.  The  policy  referred  to  a  letter  of  the 
plaintiff's,  of  the  11th  of  July,  1814,  containing  the  instructions 
for  the  insurance  and  certain  conditions  to  the  policy  annexed, 
amongst  which  was,  that  if  any  person  should  insure  his  buildings 
or  goods,  and  should  cause  the  same  to  be  described  in  the  policy 
otherwise  than  as  they  really  were,  so  as  the  same  were  charged 
at  a  lower  premium  than  was  therein  proposed,  such  insurance 
should  be  of  no  force,  and  that  persons  insured  should  give  in  a 
particular  of  their  losses,  signed,  and  verified  upon  oath ;  and  if 
there  appeared  any  fraud,  or  false  swearing,  the  claimant  should 
forfeit  his  claim  to  restitution  or  payment.  The  defendants,  among 
several  pleas,  pleaded,  2dly,  that  immediately  before  and  at  the 
time  of  the  writing  the  plaintiff's  letter  referred  to  in  the  declara- 
tion, to  wit,  on  the  11th  of  July,  the  warehouse  in  the  declaration 
mentioned,  and  the  merchandizes  contained  therein,  being  the 
premises  intended  to  be  insured  by  the  policy,  were  in  imminent 
peril  of  being  consumed  by  fire,  which  the  plaintiff'  at  the  time  of 
writing  the  letter  very  well  knew;  that  the  policy  was  effected 
upon  the  representation  contained  in  the  letter,  but  that  the  plain- 
tiff fraudulently  and  deceitfully,  and  with  intent  to  induce  the  de- 
fendants to  effect  the  policy,  before  and  at  the  time  of  effecting 
the  same,  concealed  from  the  defendants  the  fact  that  the  prem- 
ises were  in  such  peril ;  by  reason  of  which  concealment  the  de- 
fendants averred  that  the  policy  was  void.  The  plaintiff  replied, 
that  at  the  time  of  writing  his  letter,  he  did  not  know  that  the 
premises  were  in  imminent  danger  of  being  consumed  by  fire,  and 

12  The  concurring  opinions  of  Lord  Loreburn,  L.  C,  Lord  Shaw  of  Dunferm- 
line, and  Lord  Robson  are  omitted. 

13  S.  c.  2  Marsh.  46. 


Sec.  3)  FIRE    INSURANCE 


271 


did  not  fraudulently  and  deceitfully,  and  with  intent  to  induce  the 
defendants  to  effect  the  policy,  conceal  from  the  defendants  the 
fact  that  the  premises  were  in  such  peril.  The  defendants  joined 
issue  on  this  replication. 

The  cause  was  tried  at  Guildhall,  at  the  sittings  after  Trinity 
term,  1815,  before  Gibbs,  C.  J.  It  appeared  that  the  plaintiff  was 
possessed  of  two  warehouses  at  Heligoland,  one  of  which  was  sepa- 
rated by  only  one  other  building  from  the  workshop  of  Jasper,  a 
boat-builder,  wherein  a  fire  broke  out  about  seven  o'clock  in  the 
evening  of  the  11th  of  July.  That  fire,  however,  was  apparently 
extinguished  in  half  an  hour,  and  four  persons  were  employed  by 
the  plaintiff,  who  was  a  magistrate  there,  to  watch  during  the 
night  lest  the  fire  should  again  break  out.  The  plaintiff  on  the 
same  evening  wrote  the  letter  referred  to  in  the  declaration  to  his 
agent  in  London,  requesting  him  to  effect  the  insurance  against 
fire  for  three  months,  of  £400.,  upon  the  plaintiff's  warehouse,  No. 
1,  situate  on  the  South  quarter  of  the  lower  town,  between  the 
warehouse  of  Mr.  John  Leader,  to  the  South,  and  that  of  Mr.  Nico- 
laus  Peter  Krohn,  to  the  North,  as  also  upon  the  coffee  and  casks 
and  bags  then  stored  in  the  same  warehouse,  value  £3500.  The 
mail  for  England,  was  to  sail  that  day,  and  was  then  closed ;  but 
the  plaintiff  procured  the  master  of  the  packet-boat  to  take  the  let- 
ter with  him,  and  put  it  into  the  post-office  at  Cuxhaven,  so  that  the 
letter  left  Heligoland,  at  a  late  hour  on  the  same  night,  and  it 
reached  England,  by  the  same  packet  on  the  24th,  and  the  plain- 
tiff's agent,  on  the  following  day,  effected  the  policy  in  question. 
Early  on  the  morning  of  the  13th,  a  fire  again  broke  out  in  the 
workshop  of  Jasper,  the  boat-builder,  and  consumed  the  premises 
insured.  The  jury  acquitted  the  plaintiff'  of  any  fraud  or  dishon- 
est design,  the  fire  being  apparently  extinguished  when  he  ordered 
the  insurance,  but  thought  that  the  circumstance  of  the  fire  on  the 
11th,  ought  to  have  been  communicated  to  the  defendants,  who 
without  this  information  did  not  engage  on  fair  grounds  with  the 
plaintiff,  and  for  whom,  under  these  circumstances,  they  gave 
their  verdict. 

Lens,  Serjt.,  now  moved  to  set  aside  the  verdict  and  have  a 
new  trial,  but  th^  Court  refused  the  rule. 


WALDEN  V.  LOUISIANA  INS.  CO. 

(Supreme  Court  of  Louisiana,  1S3S.    12  La.  134,  32  Am.  Dec.  116.) 

Martin,  J.,  delivered  the  opinion  of  the  court. ^* 

The  plaintiff  is  appellant  from  a  judgment,  which  rejected  his 
claim  for  the  value  of  a  house,  insured  by  the  defendants,  and  which 
was  destroyed  by  fire. 

1*  The  facts  are  sufficiently  stated  in  the  opinion  of  the  court. 


272  CONCEALMENT  (Ch.  4 

The  facts  of  tlie  case  are  these:  a  ropewalk,  which  was  so  con- 
tiguous to  the  house,  that  the  destruction  of  the  former  by  fire, 
must  necessarily  have  involved  the  latter  in  the  like  calamity ;  it 
was  rumored,  that  an  attempt  had  been  made  to  set  fire  to  the  rope- 
walk,  which  induced  the  plaintiff  to  insure  the  house.  The  defend- 
ants resisted  his  claim,  on  the  ground,  that  he  had  not  communi- 
cated the  circumstance,  which  had  excited  his  alarm  and  deter- 
mined him  to  insure. 

It  appears  to  us,  the  district  court  did  not  err.  The  underwriter 
has  an  undoubted  right  to  be  informed  of  every  circumstance, 
which  creating  or  increasing  the  risk  against  which  insurance  is 
sought,  may  induce  him  to  decline  the  insurance,  or  demand  a  higher 
premium.  It  appears,  from  the  defendant's  own  confession,  that  the 
attempt  which  had  been  made,  to  set  on  fire  a  building,  which  could 
not  have  been  consumed  without  materially  endangering  his  house, 
created  in  him  an  alarm,  which  prompted  him  to  guard  against  the 
danger. 

It  is  true,  he  evidently  acted  in  good  faith ;  for  when  he  called 
on  the  defendants  for  indemnification,  he  candidly  informed  them 
of  the  circumstance  which  had  alarmed  him.  His  ignorance  of  his 
duty  cannot  protect  him  against  his  omission  to  give  information 
of  a  material  fact,  which  the  defendants  had  a  right  to  know,  in 
order  to  establish  the  proper  rate  of  insurance. 

It  is,  therefore,  ordered,  adjudged  and  decreed,  that  the  judgment 
of  the  District  Court  be  afiirmed,  with  costs. 


BURRITT  v.  SARATOGA  COUNTY  MUT.  FIRE  INS.  CO. 

(Supreme  Court  of  New  York,  1S4.3.    5  Hill,  188,  40  Am.  Dec.  345.) 

Assumpsit  on  a  policy  of  insurance.  The  judge  charged  the 
jury,  in  relation  to  the  survey  or  application,  that  "it  did  not 
amount  to  a  warranty;  that  there  must  be  evidence  to  the  jury 
(which  is  disclaimed  in  this  cause),  of  fraudulent  misrepresenta- 
tion, or  fraudulent  concealment  of  facts;  that  an  accidental  omis- 
sion to  insert  in  the  application  (without  fraud)  a  building  with- 
in the  ten  rods  did  not  make  void  the  policy;  and  that  therefore 
the  mere  omission  to  insert  the  cabinet  shop,  under  the  facts  of 
this  case,  where  fraud  is  disclaimed,  did  not  avoid  the  policy." 
The  jury  found  a  verdict  for  the  plaintiff,  and  the  defendants  now 
moved  for  a  new  trial  on  a  bill  of  exceptions. ^^ 

Bronson,  J.  In  the  law  of  insurance  a  representation  is  not 
a  part  of  the  contract,  but  is  collateral  to  it.  An  express  warran- 
ty is  always  part  of  the  contract,  and  a  reference  in  the  policy  to 

15  The  statement  of  facts  is  abbreviated. 


Sec.  3)  FIRE    INSURANCE  273 

a  survey  or  other  paper  will  not  make  such  paper  a  part  of  the 
contract,  so  as  to  change  what  would  otherwise  he  a  mere  rep- 
resentation into  a  warranty.  Jefferson  Ins.  Co.  v.  Cotheal,  7  Wend. 
72,  22  Am.  Dec.  567;  Snyder  v.  Farmers'  Ins.  &  Loan  Co.,  13 
Wend.  92.  and  s.  c.  in  error,  16  Wend.  481,  30  Am.  Dec.  118;  De- 
longuemare  v.  Tradesmen's  Ins.  Co.,  2  Hall,  629;  1  Marsh.  Ins. 
(Condy)  346-350,  451 ;  1  Phil.  Ins.  346,  347  (Ed.  of  '40).  But  these 
cases  admit,  what  no  one  could  well  deny,  that  the  policy  may  so 
speak  of  another  writing  as  to  make  it  a  part  of  the  contract,  al- 
though not  actually  embodied  in  the  policy.  And  to  that  effect, 
see  Routedge  v.  Burrell,  1  H.  Black.  254;  Worsley  v.  Wood,  6 
T.  R.  710;  Roberts  v.  Chenango  Mut.  Ins.  Co.,  3  Hill,  501.  Now 
here  the  policy  not  only  refers  to  the  plaintiff's  written  applica- 
tion "for  a  more  particular  description"  of  the  property  insured, 
but  it  refers  to  it  "as  forming  a  part  of  this  policy."  The  applica- 
tion was  thus,  by  express  words,  made  part  and  parcel  of  the  con- 
tract, and  the  two  instruments  must  be  read  in  the  same  manner 
as  though  they  had  been  actually  moulded  into  one. 

How  then  stands  the  question  of  warranty?  The  plaintiff  was 
required  by  the  "conditions  of  insurance,"  and  by  the  form  of 
application  with  which  he  was  furnished,  to  state  the  "relative 
situation  [of  the  store]  as  to  other  buildings — distance  from  each, 
if  less  than  ten  rods."  To  this  he  answered  by  mentioning  five 
buildings  as  standing  within  the  ten  rods.  Although  he  did  not 
in  terms  say  there  was  no  other  building  within  the  ten  rods,  he 
must  have  intended  that  his  answer  should  be  received  and  under- 
stood by  the  company  as  affirming  that  fact;  and  as  the  answer 
is  to  be  regarded  as  parcel  of  the  contract,  I  find  it  difficult  to 
resist  the  conclusion  that  the  plaintiff  has  agreed  that  there  were 
no  other  buildings  within  the  ten  rods  than  those  mentioned  in 
the  application.  Men  are  not  at  liberty  to  put  a  different  con- 
struction upon  their  language  when  the  contract  is  to  be  enforced, 
from  that  in  which  they  intended  the  words  should  be  received 
by  the  other  party  at  the  time  the  contract  was  made.  I  am 
strongly  inclined  to  the  opinion  that  there  was  a  warranty;  but 
there  is  another  feature  in  the  case  which  renders  it  unnecessary 
to  settle  that  question. 

In  marine  insurance  the  misrepresentation  or  concealment  by 
the  assured  of  a  fact  material  to  the  risk  will  avoid  the  policy, 
although  no  fraud  was  intended.  It  is  no  answer  for  the  assured 
to  say  that  the  error  or  suppression  was  the  result  of  mistake, 
accident,  forgetfulness  or  inadvertence.  It  is  enough  that  the 
insurer  has  been  misled,  and  has  thus  been  induced  to  enter  into 
a  contract  which,  upon  correct  and  full  information,  he  would 
either  have  declined,  or  would  have  made  upon  dift'erent  terms. 
Although  no  fraud  was  intended  by  the  assured,  it  is  nevertheless 
Vance  Ins. — 18 


274  CONCEALMENT  (Ch.  4 

a  fraud  upon  the  underwriter,  and  avoids  the  policy.  Bridges 
V.  Hunter,  1  Maule  &  Selw.  15;  Macdowall  v.  Fraser,  Doug.  260; 
Fitzherbert  v.  Mather,  1  T.  R.  12;  Carter  v.  Boehm,  3  Burr. 
1905;  Bufe  v.  Turner,  6  Taunt.  338;  Curry  v.  Commonwealth 
Ins.  Co.,  10  Pick.  (Mass.)  535,  20  Am.  Dec.  547;  New  York 
Bowery  Ins.  Co.  v.  New  York  Fire  Ins.  Co.,  17  Wend.  359;  1 
Marsh.  Ins.  (Condy)  451-453,  465;  1  Thil.  Ins.  214,  303.  The 
assured  is  bound,  although  no  inquiry  be  made,  to  disclose  every 
fact  within  his  knowledge  which  is  material  to  the  risk. 

But  this  doctrine  cannot  be  applicable,  at  least  not  in  its  full 
extent,  to  policies  against  fire.  If  a  man  is  content  to  insure  my 
house  without  taking  the  trouble  to  inquire  of  what  materials 
it  is  constructed,  how  it  is  situated  in  reference  to  other  build- 
ings, or  to  what  uses  it  is  applied,  he  has  no  ground  for  complaint 
that  the  hazard  proves  to  be  greater  than  he  had  anticipated, 
unless  I  am  chargeable  with  some  misrepresentation  concerning 
the  nature  or  extent  of  the  risk.^*'     It  is   therefore  the   practice 

16  "But  the  relation  of  the  parties  seems  entirely  changed,  if  the  insurer  asks 
no  information  and  the  insured  makes  no  representations.  That  is  the  chief 
novelty  in  this  question,  as  hypothetically  stated  in  the  bill  of  exceptions.  We 
think  that  the  governing  test  on  it  must  be  this :  It  must  be  presumed  that 
the  insurer  has  in  person  or  by  agent  in  such  a  case  obtained  all  the  infor- 
mation desired  as  to  the  premises  insured,  or  ventures  to  take  the  risk  with- 
out it,  and  that  the  insured,  being  asked  nothing,  has  a  right  to  presume  that 
nothing  on  the  risk  is  desired  from  him.  This  rule  must  not  be  misappre- 
hended and  supposed  to  rest  on  a  principle  different  and  somewhat  ordinary, 
that  insurers  are  always  to  be  expected  to  possess  some  general  knowledge  of 
such  matters  as  they  deal  with,  independent  of  inquiries  to  the  assured.  Haz- 
ard V.  New  England  Marine  Ins.  Co.,  8  Pet.  582,  8  L.  Ed.  1043  (18.34).  Nor  on 
the  position  well  settled,  that  the  insurer  must  be  presumed  to  know  what  is 
material  in  the  course  of  any  particular  trade — its  usages  at  home  and  abroad, 
and  those  transactions  which  are  public,  and  equally  open  to  the  knowledge  of 
both  parties.  Hazard  v.  New  England  Marine  Ins.  Co.,  8  Pet.  557,  8  L.  Ed. 
1043  (1834) ;  2  Duer  on  Ins.  379,  478 ;  3  Kent's  Com.  285,  286 ;  Green  v.  Mer- 
chants' Ins.  Co.,  10  Pick.  (Mass.)  402  (1830) ;  Tidmarsh  v.  Washington  Fire  & 
Marine  Ins.  Co.,  4  Mason,  439.  Fed.  Cas.  No.  14,024  (1827) ;  Buck  v.  Chesa- 
peake Ins.  Co.,  1  Pet.  160,  7  L.  Ed.  90  (1828).  Nor  on  any  special  usage  proved, 
as  in  Long  v.  Duff,  2  Bos.  &  Pul.  210  (1800),  that  it  was,  in  a  case  like  this, 
the  duty  of  'the  underwriter  to  obtain  this  information  for  himself.' 

"But  when  representations  are  not  asked  or  given,  and  with  only  this  gen- 
eral knowledge  the  insurer  chooses  to  assume  the  risk,  he  must  in  point 
of  law  be  deemed  to  do  it  at  his  peril.  It  has  been  justly  remarked,  in  a 
case  somewhat  like  this  in  principle:  'With  this  knowledge,  and  without 
asking  a  question,  the  defendant  underwrote ;  and  by  so  doing,  he  took  the 
knowledge  of  the  state  of  the  place  upon  himself,'  etc.  1  Marshall  on  Ins. 
481,  482;  Carter  v.  Boehm,  3  Burr.  1905  (1766).  In  cases  of  fire  insurance, 
also,  the  underwriters  may  be  considered  as  more  likely  to  do  this  than  in 
marine  insurance;  because  the  subject  insured  is  usually  situated  on  land 
and  nearer,  so  as  to  be  examined  easier  by  them  or  their  agents ;  and  the 
circumstances  connected  with  it  are  more  uniform  and  better  known  to  all. 
Jolly's  Adm'rs  v.  Baltimore  Equitable  Society,  1  Har.  &  G.  (Md.)  295,  18 
Am.  Dec.  288  (1827) ;  Burrit  v.  Saratoga  County  Mut.  Fire  Ins.  Co.,  5  Hill, 
192,  40  Am.  Dec.  345  (1843). 

"It  is  true,  that,  from  what  is  reasonable  and  just,  some  exceptions  must 
exist  to  this  general  rule,  though  none  of  them  are  believed  to  cover  the 
present  case.  Thus  the  insurer  must  be  supposed,  if  no  special  information 
has  been  asked  or  obtained,  to  take  the  risk,  on  the  hypothesis  that  nothing 


Sec.  3)  FIRE   INSURANCE  275 

of  companies  which  insure  against  fire  to  make  inquiries  of  the 
assured,  in  some  form,  concerning  all  such  matters  as  are  deemed 
material  to  the  risk,  or  which  may  afifect  the  amount  of  premium 
to  be  paid.  This  is  sometimes  done  by  the  conditions  of  insur- 
ance annexed  to  the  policy,  and  sometimes  by  requiring  the  ap- 
plicant to  state  particular  facts  in  a  written  application  for  insur- 
ance. When  thus  called  upon  to  speak,  he  is  bound  to  make  a 
true  and  full  representation  concerning  all  the  matters  brought 
to  his  notice,  and  any  concealment  will  have  the  like  effect  as 
in  the  case  of  a  marine  risk.  See  1  Phil.  Ins.  284,  285  (Ed. 
of  1840).  It  is  not  necessary,  for  the  purpose  of  avoiding  the 
policy,  to  show  that  any  fraud  was  intended.  It  is  enough  that 
information  material  to  the  risk  was  required  and  withheld. 

This  doctrine  is  fatal  to  the  present  action.  The  plaintiff  was 
plainly  and  directly  called  upon  to  state  the  relative  situation  of 
the  store  as  to  all  other  buildings  within  the  distance  of  ten  rods ; 
and  he  omitted  to  mention  several  buildings  which  stood  within 
that  distance,  and  among  the  number  was  one  which  was  far 
more  hazardous  than  that  to  which  the  policy  applied.  If  there 
could  be  any  doubt  that  the  facts  concealed  were  material  to 
the  risk,  the  question  should  be  left  to  the  jury. 

But  there  is  a  further  view  of  the  case  which  is  still  more 
decisive  against  the  action ;  and  it  is  one  in  which  the  material- 
ity of  the  concealment  is  not  open  for  discussion.  The  plaintiff 
was  required  by  the  conditions  annexed  to  the  policy,  and  by 
the  printed  form  of  application  which  he  used,  to  give  the  infor- 
mation which  he  withheld.  And  it  was  one  of  the  "conditions  of 
insurance"  that  if  he  should  "make  any  misrepresentation  or  con- 
cealment in  the  application"  the  policy  should  be  "void,  and  of  no  ef- 
fect." Nothing  is  said  about  fraud;  but  any  concealment  in  the  ap- 
plication avoids  the  policy.  And  yet  the  jury  was  instructed  that  there 
must  be  a  fraudulent  concealment  of  facts.  That  position  cannot  be 
maintained  without  making  a  new  contract  for  the  parties. 

A   warranty   by   the   assured   in   relation   to   the   existence   of   a 

unusual  exists  enhancing  the  risk;  and  hence,  as  in  this  case,  if  lamps  are 
used  in  the  picking-room,  which  do  enhance  it,  he  must  show  thnt  their  use 
in  the  manner  practised  was  unusual  or  not  customary,  and  then,  though 
no  representations  had  been  asked  or  made,  he  would  make  out  a  case,  where 
it  was  the  duty  of  the  insured  to  inform  him  of  the  fact,  and  where  sup- 
pressio  veri  would  be  as  improper  and  injurious  as  suggestio  falsi.  Livingston 
V.  Maryland  Ins.  Co.,  6  Cranch,  281,  3  L.  Ed.  222  (ISIO).  So,  if  any  extrinsic 
peril  existed,  outside  and  near  a  building  insured,  and  which  increased  the 
risk,  the  insured  should  communicate  that,  though  not  requested.  Bufe  v. 
Turner,  6  Taunt.  338  (1815) ;  Walden  v.  Louisiana  Ins.  Co.,  12  La.  134,  32  Am. 
Dec.  116  (1S3S).  But  as  to  the  ordinary  risks  connected  with  the  property 
insured,  if  no  representations  whatever  are  asked  or  given,  the  insurer  must, 
as  before  remarked,  be  supposed  to  assume  them ;  and,  if  he  acts  without 
inquiry  anywhere  concerning  them,  seems  quite  as  negligent  as  the  insured, 
who  is  silent  when  not  requested  to  speak."  *  *  * — Woodbury,  J.,  in 
Clark  V.  Manufacturers'  Ins.  Co.,  8  How.  235,  12  L.  Ed.  1061  (18.50). 


276  CONCEALMENT  (Ch.  4 

particular  fact  must  be  strictly  true,  or  the  policy  will  not  take 
effect;  and  this  is  so  whether  the  thing  warranted  be  material 
to  the  risk  or  not.  It  would,  perhaps,  be  more  proper  to  say, 
that  the  parties  have  agreed  on  the  materiality  of  the  thing  war- 
ranted, and  that  the  agreement  precludes  all  inquiry  on  the  sub- 
ject. See  the  cases  already  cited,  and  Fowler  v.  ^*Etna  Fire  Ins. 
Co.,  6  Cow.  673,  16  Am.  Dec.  460,  and  7  Wend.  270,  S.  C. ;  1 
Phil.  Ins.  351,  354.  Here  the  parties  have  by  their  contract  placed 
a  misrepresentation  or  concealment  in  relation  to  particular  facts 
upon  the  same  footing  as  a  warranty.  They  have  agreed  that 
the  misrepresentation  or  concealment  shall  avoid  the  policy,  and 
we  have  nothing  to  do  with  the  inquiry  whether  the  fact  mis- 
represented or  concealed  was  material  to  the  risk.  The  jury 
should  have  been  instructed  to  find  a  verdict  for  the  defendants. 

The  Chie;f  Justice:  and  Cowijn,  J.,  being  members  of  the  com- 
pany, gave  no  opinion. 

New  trial  granted. 


HARTFORD  PROTECTION  INS.  CO.  v.  HARMER. 

(Supreme  Court  of  Ohio,  185.3.    2  Ohio  St.  4.52,  ,59  Am.  Dec.  684.) 

RannEy,  J.,  delivered  the  opinion  of  the  court  :^'^ 
This  suit  was  brought  on  two  policies  of  insurance,  dated  and 
issued  March  13,  1851.  By  the  first,  numbered  74,  three  build- 
ings, situated  in  Hendrysburg,  Belmont  county,  and  a  stock  of 
goods  in  one  of  them,  were  insured  for  one  year,  from  noon  of 
that  day ;  and  by  the  other,  numbered  75,  a  lot  of  unmanufac- 
tured tobacco,  stored  in  one  of  the  buildings,  was  insured  for  four 
months. 

Upon  trial,  in  the  district  court  of  the  county,  a  verdict  was 
found,  and  judgment  given  for  defendant  in  error,  upon  both 
policies ;  to  reverse  which,  this  writ  is  prosecuted.  The  record 
presents  an  unusual  number  of  interesting  questions,  arising  upon 
exceptions  taken  to  the  rulings  and  opinions  of  that  court,  which 
have  been  argued  here  at  much  length,  and  with  great  industry 
and  research,  by  counsel  on  both  sides.  As  these  questions  re- 
late to  a  contract  of  great  importance  and  very  general  use,  I 
shall  endeavor  to  state,  as  clearly  as  I  may  be  able  to  do,  the 
conclusions  to  which  the  court  has  come ;  founded,  as  we  think, 
upon  settled  principles;  without  attempting  to  canvass,  at  length, 
the  wilderness  of  adjudged  cases  cited  in  argument,  or  the  con- 
flicting opinions  of  jurists  and  elementary  writers;  from  which, 
confusion,  rather  than  certainty  and  precision,  has  very  often  re- 
sulted.    *     *     * 

17  Only  such  parts  of  the  opinion  as  refer  to  concealment  are  here  printed. 


Sec.  3)  FIRE   INSURANCE  277 

It  was  proved  that  one  of  tlie  buildings  insured  had,  shortlx' 
before  the  risk  was  taken,  been  on  fire ;  and  at  the  time  was 
suspected,  by  the  insured,  to  have  been  fired  by  an  incendiary. 
This  fact  was  not  communicated  to  the  agent  of  the  company 
when   the   policy   was   issued,   and   was   claimed   to   have   been    a 

material    fact,   which    the    insured   was   bound    to    have   disclosed. 

*     *     * 

At  the  hazard  of  incurring  the  imputation  of  prolixity,  I  have 
thus  stated  at  length  the  view  of  the  court  below,  with  the  facts 
to  which  they  were  applied,  in  order  that  our  own  may  be  the 
more  clearly  understood.  They  involve,  as  will  be  seen,  the  doc- 
trines of  warranty,  misrepresentation,  and  concealment,  as  ap- 
plied in  the  law  of  insurance.  The  consequences  of  each,  in  marine 
insurance,  may  be  regarded  as  well  settled  by  the  great  current 
of  authority.  Every  undertaking  of  the  assured,  in  the  body  of 
the  policy,  amounting  to  a  warranty,  whether  material  to  the  risk 
or  not,  must  be  strictly  and  literally  true ;  and  every  represen- 
tation of  a  material  fact  which  might  have  influenced  the  judgment 
of  the  underwriter,  in  assuming  the  risk,  must  be  substantially 
true.  For  the  same  reason,  the  assured  is  bound  to  communicate 
every  material  fact  within  his  knowledge,  not  known,  or  pre- 
sumed to  be  known  to  the  underwriter,  whether  inquired  for  or 
not;  and  a  failure  in  either  particular,  although  it  might  have 
arisen  from  mistake,  accident,  or  forgetfulness,  is  attended  with 
the  rigorous  consequences,  that  the  policy  never  attaches  and  is 
void ;  for  the  reason,  that  the  risk  assumed  is  not  the  one  in- 
tended to  be  assumed  by  the  parties.  Much  of  this  doctrine  is 
peculiar  to  this  contract.  In  other  contracts,  it  is  enough  that 
warranties  even  are  substantially  performed ;  and  they  cannot, 
in  general,  be  impeached  for  misrepresentation,  or  concealment, 
unless  fraud  was  intended. 

Fire  insurance  sprung  up  at  a  later  period ;  and  the  courts 
finding  a  system  of  rules  already  constructed  for  marine  risks, 
at  once  transferred  them  to  this  new  species  of  insurance. 

Almost  all  the  diversity  of  opinion  to  be  found  in  the  later  cases, 
has  resulted  from  a  growing  conviction  with  most  courts,  that 
a  substantial  difference  exists  in  the  nature  and  essential  ele- 
ments of  the  contract  of  marine  and  fire  insurance,  which  ren- 
ders some  of  these  rules  inapplicable  to  the  latter;  and  from  a 
disinclination  with  others,  to  depart  from  the  strict  rules  applied 
to  marine  insurance.     *     *     * 

The  charge  as  to  the  concealment  of  the  previous  fire,  is  also 
objected  to,  because  it  directed  the  jury,  in  determining  the  ma- 
teriality of  the  fact,  to  inquire  for  and  be  governed  by  the  true 
cause  of  the  fire,  and  not  the  belief  of  Harmer  as  to  the  cause. 
So  far  as  his  belief  was  of  any  value,  as  an  admission  of  the  true 
cause,  it  went  to  the  jury  for  what  it  was  worth,  and  the  com- 


278  CONCEALMENT  (Cll.  4 

pany  had  the  full  benefit  of  it;  and  if  his  belief  corresponded 
with  the  true  cause,  of  course  no  injury  was  done  them.  If  it 
did  not,  of  what  importance  was  his  belief  or  suspicion  to  them? 
Before  the  duty  of  disclosure  arises,  the  fact  must  be  material 
to  the  risk;  that  is,  it  must  increase  the  chances  of  loss.  If  it 
was  not  in  truth  material,  could  his  erroneous  suspicions  make 
it  so?  It  was  not  pretended  that  he  knew  the  cause,  or  had 
received  any  information,  either  true  or  false,  which  he  failed  to 
communicate.  Under  such  circumstances  the  marine  rule  is,  that 
"the  assured  is  not  bound  to  communicate  his  own  expectations, 
and  opinions,  and  speculations  upon  facts."     1  Phil,  on  Ins.  315. 

The  balance  of  the  instruction  upon  the  subject  of  conceal- 
ment, is  not  complained  of;  but,  although  not  necessary  to  the 
decision  of  the  case,  I  cannot  let  it  pass  without  expressing-  my 
decided  conviction  that  the  law  was  laid  down  too  favorably  to 
the  underwriter,  and  too  strongly  against  the  assured.  It -is  not 
now  true,  whatever  may  be  thought  of  the  older  authorities,  that 
there  is  no  difference. in  this  respect,  between  marine  and  fire 
insurance ;  nor  that  a  failure  to  disclose  every  fact  material  to 
the  risk,  upon  which  information  is  not  asked  for,  or  suppressed 
with  a  fraudulent  intent,  will  avoid  a  policy  of  the  latter  descrip- 
tion. The  reason  of  the  rule,  and  the  policy  in  which  it  was 
founded,  in  its  application  to  marine  risks,  entirely  fail  when 
applied  to  fire  policies.  In  the  former,  the  subject  of  insurance 
is  generally  beyond  the  reach,  and  not  open  to  the  inspection 
of  the  underwriter,  often  in  distant  ports  or  upon  the  high  seas, 
and  the  peculiar  perils  to  which  it  may  be  exposed,  too  numerous 
to  be  anticipated  or  inquired  about,  known  only  to  the  owners 
and  those  in  their  employ ;  while  in  the  latter,  it  is,  or  may  be, 
seen  and  inspected  before  the  risk  is  assumed,  and  its  construc- 
tion, situation  and  ordinary  hazards,  as  well  appreciated  by  the 
underwriter  as  the  owner. 

In  marine  insurance,  the  underwriter,  from  the  very  necessi- 
ties of  his  undertaking,  is  obliged  to  rely  upon  the  assured,  and 
has,  therefore,  the  right  to  exact  a  full  disclosure  of  all  the  facts 
knozvn  to  him,  which  may  in  any  v^ay  affect  the  risk  to  be  as- 
sumed. But  in  fire  insurance,  no  such  necessity  for  reliance  ex- 
ists, and  if  the  underwriter  assumes  the  risk  without  taking  the 
trouble  to  either  examine  or  inquire,  he  cannot  very  well,  in  the 
absence  of  all  fraud,  complain  that  it  turns  out  to  be  greater 
than  he  anticipated.  And  so  are  the  latest  and  best  authorities. 
Mr.  Angell  (Ang.  on  Ins.  209,)  says :  "The  strictness  and  nicety 
required  in  questions  arising  on  policies  of  marine  insurance,  are 
not,  to  their  full  extent,  applicable  to  policies  of  fire  insurance; 
the  former  being  entered  into  by  the  underwriter,  almost  exclu- 
sively on  the  statements  and  information  given  by  the  assured  him- 
self;  in  the  latter,  the  underwriters  assume  the  risk  on  the  knowl- 


Sec.  3)  FIRE    INSURANCE  279 

edge   acquired    by    an    actual    survey    and    examination    made    by 
themselves,   and   not   on   representations   coming   from  the   assur- 

Q^»        *         *         *   18 

In  Clark  v.  Manufacturers'  Ins.  Co.,  8  How.  235,  12  L.  Ed. 
1061,  the  insurance  w^as  upon  a  cotton  factory,  and  one  question 
was  as  to  the  use  of  lamps  in  the  picker-room.  The  Supreme 
Court  of  the  United  States  held,  that  "if  no  representations  were 
made  or  asked,  it  would  not  be  the  duty  of  the  insured  to  make 
known  the  fact  that  lamps  were  used  in  the  picker-room,  although 
the  risk  might  have  been  thereby  increased,  unless  the  use  of 
them  in  that  way  was  unusual."  Justice  Woodbury,  in  delivering 
the  opinion  of  the  court,  says:  "As  to  the  ordinary  risks  con- 
nected with  the  property  insured,  if  no  representations  what- 
ever are  asked  or  given,  the  insurer  must  be  supposed  to.  assume 
them ;  and  if  he  acts  without  inquiry  anywhere  concerning  them, 
seems  quite  as  negligent  as  the  insured,  who  is  silent  when  not 
requested  to  speak."  And  finally,  the  Court  of  Appeals  in  New 
York,  in  the  case  of  Gates  v.  Madison  County  Mut.  Ins.  Co.,  5 
N.  Y.  469,  55  Am.  Dec.  360,  Judge  Jewett  delivering  the  opin- 
ion, has  held,  that  in  the  absence  of  special  provisions  in  the 
policy  relating  to  the  disclosure  of  facts  material  to  the  risk,  all 
that  is  required  of  the  insured  is,  that  he  shall  not  misrepresent 
or  designedly  conceal  any  such  facts,  and  that  he  answer  fully 
and  in  good  faith,  all  inquiries  addressed  to  him  by  the  insurer. 

This,  I  confess,  seems  to  me  the  true  rule ;  perhaps,  with  the 
qualification  more  distinctly  indicated  by  the  Supreme  Court  of 
the  United  States,  that  the  insured  does  not  withhold  informa- 
tion of  such  unusual  and  extraordinary  circumstances  of  peril  to 
the  property,  as  could  not,  with  reasonable  diligence,  be  discov- 
ered by  the  insurer,  or  reasonably  anticipated  by  him,  as  a  foun- 
dation for  specific  inquiries.  As  this  is  not  necessary  to  the  de- 
cision of  the  case,  I  express  it  but  as  my  own  opinion,  and  I  am 
led  to  do  so,  from  being  now  satisfied  that  I  expressed  an  errone- 
ous opinion  at  the  circuit,  by  adhering  too  closely  to  the  doctrine 
of  marine  insurance,  in  a  point  where  the  reason  of  that  rule 
does  not  apply.     *     *     * 

Judgment  of  the  district  court  affirmed. 

18  Here  the  court  quotes  from  Burritt  v.  Saratoga  County  Mut.  Fire  Tns. 
Co.,  5  Hill.  ISS,  192.  40  Am.  Dec.  345  (184.3),  ante,  p.  273,  and  from  Clark 
V.  Manufacturers'  Ins.  Co.,  8  How.  (U.  S.)  235,  12  L.  Ed.  1061  (1850). 


280  CONCEALMENT  (Cll.  4 


WASHINGTON  MILLS  EMERY  MFG.  CO.  v.  WEYMOUTH 
&  BRAINTREE  MUT.  FIRE  INS.  CO. 

(Supreme  Judicial  Court  of  Massachusetts,  1883.     135  Mass.  503.) 

Contract  upon  a  policy  of  insurance  for  $2,400,  against  loss  by 
fire,  issued  by  the  defendant  company,  dated  February  5,  1878,  for 
the  term  of  one  year,  upon  a  frame  building  in  Ashland,  which  was 
totally  destroyed  by  fire  on  August  17,  1878.  At  the  trial  in  the 
superior  court,  before  Putnam,  J.,  the  only  evidence  put  in  by  ei- 
ther side  was  the  report  of  an  auditor.  The  judge  declined  to  give 
certain  rulings  requested  by  the  defendant ;  ordered  a  verdict  for 
the  plaintiff  in  the  sum  of  $2,400 ;  and  reported  the  case  for  the  de- 
termination of  this  court.  The  facts  and  rulings  requested  appear 
in  the  opinion. 

The  case  was  argued  at  the  bar  in  November,  1882,  and  was  aft- 
erwards considered  on  briefs  by  all  the  justices. 

Morton,  C.  J.  1.  Upon  the  facts  found  by  the  auditor,  it  is 
admitted  that,  at  the  time  the  insurance  was  effected,  and  at  the 
time  of  the  loss,  the  plaintiff  had  an  insurable  interest  in  the  prop- 
erty covered  by  the  policy.  The  extent  and  value  of  that  interest 
are  in  controversy.  The  plaintiff,  being  the  owner  of  the  buildings 
and  of  the  land  on  which  they  stood,  made  a  deed  of  the  land  to 
the  city  of  Boston,  dated  November  20,  1877,  which  contained  the 
following  clause :  "The  grantor  corporation  excepts  and  reserves 
to  itself  all  of  the  buildings  and  structures  standing  on  the  granted 
lands  with  all  machinery  and  fixtures ;  provided  however  that  the 
same  shall  be  removed  from  the  granted  premises  by  the  grantor 
corporation,  at  its  sole  expense,  before  the  first  day  of  October 
next,  and  if  not  so  removed  the  grantor  forfeits  all  right  thereto, 
and  the  same  shall  thenceforth  be  the  absolute  property  of  said 
city."  There  can  be  no  reasonable  doubt  that  the  intention  of  the 
parties  was  that  the  buildings  should  remain  the  property  of  the 
grantor,  with  the  right  to  remove  and  dispose  of  them  at  any  time 
before  the  first  day  of  October.     *     *     * 

2.  The  plaintiff  had  held  a  previous  policy  issued  by  the  defend- 
ant at  the  time  the  plaintiff"  owned  the  land  as  well  as  the  build- 
ings ;  and  the  defendant  asked  the  court  to  rule  that  the  plaintiff 
could  not  recover,  because  he  did  not  disclose  the  change  of  title 
at  the  time  of  procuring  the  policy  in  suit.  The  court  rightly  re- 
fused this  ruling. 

The  facts  found  by  the  auditor,  being  uncontrolled,  are  to  be  tak- 
en as  true.  He  has  found  that  no  fraud  was  committed  or  attempt- 
ed by  the  plaintiff  or  any  of  its  agents.  The  plaintiff  made  no  mis- 
representations and  no  concealment  as  to  its  title.  The  policy  is 
upon   the   buildings.     The  defendant   saw  fit  to  issue   this  policy 


Sec.  3)  FIRE    INSURANCE  281 

without  any  specific  inquiries  of  the  phiintiff  as  to  the  title  to  tlie 
land,  and  without  any  representations  by  the  plaintiff  upon  this 
point.  It  was  its  own  carelessness,  and  it  cannot  avoid  the  policy 
without  proving  intentional  misrepresentation  or  concealment  on 
the  part  of  the  plaintiff.  An  innocent  failure  to  communicate  facts 
about  which  the  plaintiff  was  not  asked  will  not  have  this  effect. 
Commonwealth  v.  Hide  &  Leather  Ins.  Co.,  112  Mass.  136,  17  Am. 
Dec.  72\  Fowle  v.  Springfield  Ins.  Co.,  122  Mass.  191,  23  Am.  Rep. 
308;  Walsh  v.  Philadelphia  Fire  Association,  127  Mass.  383. 

3.  The  defendant  asked  the  court  to  rule  that,  on  the  facts  found, 
no  contract  ever  existed  between  the  plaintiff  and  the  defendant,  or, 
if  it  existed,  was  avoided  because  the  minds  of  the  parties  never 
met,  and  the  risk  undertaken  was  unknown  to,  or  misunderstood 
by,  the  defendant.  The  court  could  not  properly  give  this  ruling. 
The  parties  entered  into  a  written  contract  clear  and  unambiguous 
in  its  terms.  The  minds  of  the  parties  did  meet  upon  these  terms. 
The  fact  that  the  defendant  neglected  to  obtain  full  information  as 
to  the  situation  of  the  subject  matter  of  the  contract,  or  of  the  ex- 
tent and  character  of  the  risk,  cannot,  in  the  absence  of  fraud  or 
imposition,  avoid  the  contract. f     *     *     * 

Judgment  on  the  verdict. 


CONNECTICUT  FIRE  INS.  CO.  v.   COLORADO   LEASING, 
MIN.  &  MILL.  CO. 

(Supreme  Court  of  Colorado,  1911.     50  Colo.  424,  116  Pac.  154,  Ann.  Cas. 

1912C,  597.)  19 

Action  by  the  Colorado  Leasing,  Mining  &  Milling  Company 
against  the  Connecticut  Fire  Insurance  Company.  From  a  judgment 
for  plaintiff,  defendant  appeals.     Affirmed. 

On  the  27th  day  of  May,  1904,  the  appellee  Milling  Company,  here- 
inafter called  the  plaintiff,  insured  its  reduction  mill  at  Florence 
against  loss  by  fire  for  a  sum  not  exceeding  $60,000,  represented  by 
policies  in  several  different  companies.  Sixteen  thousand  dollars  of 
this  was  on  the  mill  building,  $31,000  on  the  machinery,  tools,  and 
appliances  of  the  mill,  $8,000  on  ore  and  mineral  in  the  mill,  $2,000 
on  supplies  of  every  kind,  $2,000  on  the  office  and  laboratory  build- 
ing, and  $1,000  on  the  furniture  of  its  office  and  assay  department. 

The  milling  property  insured  had  for  some  years  been  the  subject 
of  litigation,  and  shortly  before  the  issue  of  the  policy  in  suit  had  been 

fThe  remainder  of  the  court's  opinion,  relating  to  the  measure  of  damages, 
will  be  found  at  p.  608,  infra. 

19  The  facts  are  restated  and  abbreviated,  and  the  latter  part  of  the  opin- 
ion, construing  specific  clauses  of  the  policy,  is  omitted. 


282  CONCEALMENT  (Ch.  4 

purchased  by  the  plaintiff  for  the  sum  of  $10,000,  only  part  of  which 
had  been  paid.  It  was  shown,  however,  that  before  the  issue  of  the 
insurance  the  plaintiff  had  expended  some  $3,500  in  improving  the 
mill. 

The  policies  provided  that  the  amount  of  loss,  in  case  of  fire,  should 
be  determined  by  the  insured  and  insurer,  and,  if  they  could  not  agree, 
then  by  appraisers.  On  April  6,  1905,  after  entering  into  a  nonwaiver 
agreement,  the  plaintiff  and  insurance  companies  compromised  and 
adjusted  the  total  loss  at  $38,809.15. 

The  policy  upon  which  this  action  was  brought  was  issued  by  the 
local  agent  of  the  defendant  insurance  company  at  Florence,  and  in- 
sured one  twenty-fourth  of  the  property  in  an  amount  not  exceeding 
$2,500.  On  the  4th  day  of  March,  1905,  the  property  insured  was 
totally  destroyed  by  lire.  Upon  a  refusal  of  the  defendant  to  pay  its 
proportion  of  the  insurance,  this  action  was  commenced,  and  a  trial 
by  a  jury  resulted  in  a  verdict  and  judgment  against  the  defendant 
in  the  sum  of  $1,837.28,  from  which  judgment  the  defendant  appealed. 

MussEr,  J.  (after  stating  the  facts).  The  defendant  set  up  eleven 
separate  defenses,  each  of  which  related  to  an  alleged  breach  of  some 
condition  of  the  policy,  which  it  is  argued  was  sufficient  to  defeat  the 
action.  Numerous  errors  are  assigned,  most  of  which  center  about 
and  are  related  to  the  first.  The  first  assignment  of  error  is  that  the 
court  erred  in  refusing  defendant's  request  to  instruct  the  jury  to  re- 
turn a  verdict  in  its  favor.  The  policy  provided  that  it  should  be 
void  if  the  insured  had  concealed  any  material  fact  or  circumstance 
concerning  the  insurance  or  the  subject  thereof,  or  in  case  of  any 
fraud  by  the  insured  touching  any  matter  relating  to  the  insurance 
or  subject  thereof,  whether  before  or  after  a  loss.  Aside  from  an  al- 
leged fraudulent  intent  which  the  defendant  says  was  concealed  from 
it,  and  which  will  be  noticed  later,  it  is  the  contention  of  the  defend- 
ant that  the  plaintiff  concealed  from  it  the  fact  that  the  plaintiff  had 
purchased  the  property  for  $10,000,  and  had  not  paid  the  entire  pur- 
chase price,  and  that  the  property  had  for  many  years,  been  the  sub- 
ject of  continuous  litigation  and  controversy,  and  had  been  idle  and 
thereby  impaired  in  value,  and  that  the  title  had  become  involved  in 
great  uncertainty  and  dispute. 

It  is  well  to  say  here  that  there  is  no  evidence  that  the  title  to  the 
property  had  ever  been  involved  in  any  litigation  or  uncertainty.  It 
is  true  that  attachment  issued  in  aid  of  actions  for  money  de- 
mands, and  that  executions  issued  upon  money  judgments  obtained 
against  the  owner  were  levied  upon  the  property,  and  that  it  had  been 
sold  under  these  executions,  and  that  sheriff's  deeds  had  issued  there- 
on ;  but  this  litigation  did  not  relate  to  the  title  to  the  property.  It 
was  not  litigation  between  rival  claimants  to  the  property,  nor  was 
the  title  uncertain.  The  attachments  and  executions  were  levied  by 
creditors  of  the  owner,  and  the  sheriff's  deeds  merely  transferred  the 


Sec.  3)  FIRE   INSURANCE  283 

undisputed  and  certain  title  of  the  owner  to  another,  who  o1)tained  a 
title  undisputed  and  involved  in  no  uncertainty.  It  is  true  that  the 
property  had  been  idle  and  may  have  been  impaired  in  value  thereby 
to  some  extent,  but  that  fact  was  as  well  known  to  the  agent  of  the 
defendant  as  it  was  to  the  plaintiff,  for  that  agent  lived  in  Florence, 
was  engaged  in  a  business  that  was  bound  to  call  his  attention  to  the 
activity  of  the  various  industrial  enterprises  of  the  town,  and  he  was 
acquainted  with  the  mill  from  the  time  that  it  was  built. 

The  defendant  claims  that  inasmuch  as  these  matters,  which  it  says 
were  concealed,  were  material,  the  court  should  have  instructed  for  it. 
The  defendant  loses  sight  of  a  very  important  fact  in  this  case,  and 
that  is  that  no  inquiry  was  made  of  the  plaintiff  about  the  matters 
alleged  to  have  been  concealed,  and  that  no  written  application  was 
made  for  this  insurance.  "Concealment  is  the  designed  and  inten- 
tional withholding  of  any  fact,  material  to  the  risk,  which  the  assured 
in  honesty  and  good  faith  ought  to  communicate."  Clark  v.  Ins.  Co., 
40  N.  H.  333,  77  Am.  Dec.  721.  So  that  a  concealment  involves,  not 
only  the  materiality  of  the  fact  withheld  and  which  ought  to  have 
been  communicated,  but  also  the  design  and  intention  of  the  insured 
in  withholding  it,  and,  of  course,  the  condition  in  the  policy  must  be 
construed  in  the  light  of  this  definition  of  a  concealment  with  which 
it  is  concerned.  If  an  inquiry  is  made  about  a  material  fact  and  that 
fact  is  not  disclosed  upon  such  inquiry,  it  is  very  likely  that  the  person 
questioned  intended  to  withhold  it;  but,  if  no  inquiry  is  made,  the  in- 
tention to  withhold  the  fact  is  not  so  plain. 

Hence  the  authorities  make  a  distinction  between  cases  where  in- 
quiry is  made  and  cases  in  which  no  inquiry  is  made.  The  rule  is  stat- 
ed in  Wood  on  Insurance,  388 :  "When  no  inquiries  are  made,  the 
intention  of  the  assured  becomes  material,  and,  to  avoid  the  policy, 
they  must  find,  not  only  that  the  matter  was  material,  but  also  that 
it  was  intentionally  fraudulently  concealed."  To  the  same  effect  are 
Alkan  V.  N.  H.  Ins.  Co.,  53  Wis.  136,  10  N.  W.  91 ;  Van  Kirk  v.  Cit- 
izens' Ins.  Co.,  79  Wis.  627,  48  N.  W.  798;  Johnson  v.  Scottish  Un- 
ion &  Nat.  Ins.  Co.,  93  Wis.  223,  67  N.  W.  416;  Sanford  v.  Royal 
Ins.  Co.,  11  Wash.  653,  40  Pac.  609;  Lancashire  Ins.  Co.  v.  Monroe, 
101  Ky.  12,  39  S.  W.  434,  19  Ky.  Law  Rep.  204;  Arthur  v.  Palatine 
Ins.  Co.,  35  Or.  27,  57  Pac.  62,  76  Am.  St.  Rep.  450;  2  Clement  on 
Ins.  3,  4. 

It  is  thus  seen  that  in  the  circumstances  of  this  case  it  is  not  alone 
the  materiality  of  the  facts  which  were  withheld  that  was  to  be  found, 
but  also  whether  or  not  the  plaintiff  intentionally  and  fraudulently 
withheld  them.  The  materiality  of  these  facts  was  not  fixed  by  any 
writing,  as  is  often  the  case  in  insurance,  but  it  must  be  drawn  from 
circumstances.  So  also  must  the  fraudulent  intent  of  the  insured  be 
drawn.  It  is  said  in  1  May  on  Insurance,  §  195,  that,  where  the  ma- 
teriality is  to  be  inferred  from  circumstances  and  not  upon  the  con- 


284  CONCEALMKNT  (Ch.  4 

struction  of  some  writing,  it  is  a  (juestion  for  the  jury.  How  much 
more  would  the  fraudulent  intent  of  the  insured  in  withholding^  these 
facts  be  for  the  jury?  It  was  not  for  the  court  to  say  as  a  matter  of 
law  that  the  facts  alleged  to  have  been  concealed  were  material,  and 
that  the  insured  had  intentionally  and  fraudulently  withheld  them,  and 
hence  no  error  was  committed  in  refusing  to  instruct  the  jury  to  re- 
turn a  verdict  for  the  defendant  so  far  as  such  concealments  were  con- 
cerned. The  defendant  itself  saw  the  propriety  of  such  a  ruling  when 
it  ^sked  the  court  in  a  number  of  instructions  to  submit  to  the  jury 
the  question  of  the  materiality  of  the  facts  alleged  to  have  been  con- 
cealed, and  that,  if  they  found  them  material,  to  return  a  verdict  for 
defendant. 

The  defendant  is  not  now  consistent  in  urging  this  court  to  say  that 
the  lower  court  ought  as  a  matter  of  law  to  have  said  that  material 
facts  were  concealed,  and  at  the  same  time  urge  this  court  to  say  that 
the  lower  court  erred  in  refusing  to  give  instructions  submitting  the 
question  to  the  jury.  The  mistake  which  the  defendant  made  in  its 
request  for  such  instructions  was  in  asking  the  court  to  tell  the  jury 
that  if  the  facts  alleged  to  be  concealed  were  material  they  should  find 
for  the  defendant,  omitting  in  each  of  the  requested  instructions  the 
necessary  element  under  the  facts  in  the  case,  the  jury  must  also  find 
that  the  facts  were  intentionally  and  fraudulently  concealed  before 
they  could  find  for  the  defendant. 

This  answers  a  number  of  the  assignments  of  error  in  this  case 
relative  to  the  refusal  to  give  requested  instructions.  The  jury  was 
not  wrongly  instructed  in  this  matter.  If  there  was  any  failure  to 
instruct  thereon,  though  we  do  not  say  that  there  was,  it  was  only 
nondirection.     *     *     *     Judgment  affirmed.^** 

2  0  "The  first  contention  of  the  defendant  company  is,  that  Claiborne,  who 
was  an  insurance  agent,  perpetrated  a  fraud  ujjon  the  insurance  company  iii 
his  application  for  the  policy  by  pretending  that  the  building  on  which  he^ 
applied  for  insurance  was  a  dwelling  house,  when,  in  fact,  it  was  a  hotel ; 
but  in  the  application  which  by  the  terms  of  the  policy  is  made  a  part  there- 
of Claiborne  described  the  property  as  a  combined  rooming  and  frame  dwell- 
ing house  having  two  stories  and  containing  24  rooms.  This  description 
shows  that  Claiborne  did  not  represent  the  building  to  be  an  ordinary 
dwelling,  and  the  testimony  shows  that  at  the  time  he  made  the  application 
the  house  was  not  used  as  a  hotel,  but  as  a  home  for  his  family  and  for 
persons  to  whom  he  rented  rooms,  some  of  wliom  boarded  with  his  family. 
Shortly  before  Claiborne's  death  the  house  had  been  changed  to  a  hotel. 
The  evidence  tends  to  show  that  so  far  as  insurance  rates  are  concerned 
there  is  no  material  difference  between  a  rooming  house  containing  as  many 
as  24  rooms  and  a  hotel,  and,  if  the  rates  on  which  this  policy  was  issued 
were  too  low,  the  company,  itself  was  to  blame,  as  the  application  gave  sub- 
stantially a  correct  description  of  the  house. 

"But  this  matter  is  immaterial  now  for  another  reason.  After  Claiborne 
died  one  of  his  sons,  W.  L.  Claiborne,  went  to  the  home  office  of  the  company, 
and  had  some  negotiations  with  the  company  in  reference  to  a  change  in 
the  policy,  affecting,  among  other  things,  the  description  of  the  building.  The 
company  made  an  amendment  to  the  policy  and  mailed  it,  along  witli  the 
policy,  to  W.  L.  Claiborne,  who  was  acting  for  his  mother,  who  was,  iu  fact,. 


Sec.  4)  LIFE    INSURANCE  285 


SECTION  4.— LIFE  INSURANCE 


LINDENAU  V.  DESBOROUGH. 

(Court  of  King's  Bench,  1S28.     8  Barn.  &  C.  586.  3  Man.  &  R.  45.) 

Assumpsit  against  the  secretary  of  the  Atlas  Insurance  Company 
on  a  policy  of  insurance  on  the  life  of  the  Duke  of  Saxe  Gotha. 
Plea,  the  general  issue.  At  the  trial,  before  Lord  Tenterden,  C.  J., 
it  appeared  that  in  1824,  an  insurance  was  efifected  on  the  life  of  the 
duke  with  the  Union  Assurance  Company.  That  company  had  an 
agent  in  Germany  who,  on  behalf  of  his  principals,  submitted  cer- 
tain questions  to  the  physicians  of  the  duke,  many  of  them  as  to 
specific  diseases,  and  his  habits  of  life;  and  the  last  was,  "Is  there 
any  other  circumstance  within  your  knowledge  which  the  directors 
ought  to  be  acquainted  with?"  and  this  was  answered  in  the  nega- 
tive. There  was  also  a  private  certificate  sent  by  the  agent  to  the 
directors  in  answer  to  their  inquiries  as  to  certain  points.  In  this 
also  there  was  a  general  question — "Do  you  know  any  other  cir- 
cumstance which  ought  to  be  communicated  to  the  directors?" 
which  was  answered  as  follows:  "Agreeably  to  our  informations, 
the  duke  has  led  a  dissolute  life  in  former  days,  by  which  he  has 
lost  the  use  of  his  speech,  and,  according  to  some  informations,  also 

the  owner  of  the  property.  This  amendment  contains  the  following  language: 
'It  is  understood  that  the  property  insured  hereunder  covers  the  three-story 
shingle  roofed  frame  building  and  its  contents  as  above  described.'  Now  the 
amendment  shows  that  the  company  had  been  informed  that  another  story 
had  been  added  to  the  building,  and  that  it  amended  the  policy  so  a.s  to  cover 
the  building  in  its  altered  shape.  The  application  for  insurance  made  before 
the  alteration  showed  that  the  building  had  24  rooms,  and  with  another  story 
added  the  company  must  have  known  that  it  then  probably  contained  several 
more  rooms.  It  did,  in  fact,  after  the  alteration  contain  40  rooms,  and  the 
company  either  knew  this  or  could  have  learned  it  by  making  inquiry.  Hav- 
ing been  put  on  inquiry  by  the  information  that  another  story  had  been 
added  to  the  building,  we  must  presume  that  the  company  knew  the  number 
of  rooms  it  contained.  Now,  the  application  of  Claiborne  for  insurance 
stated,  among  other  things,  that  his  total  wealth  was  less  than  $15,000.  It 
would  be  such  an  unusual  thing  for  a  man  owning  no  more  than  that  to 
build  a  house  of  40  rooms  exclusively  for  a  dwelling  house  that  we  cannot 
conclude  that  this  company  at  the  time  they  made  this  amendment  to  the 
policy  believed  that  it  was  insuring  a  building  used  for  a  dwelling  house 
only.  We  should  reach  this  conclusion  even  if  W.  L.  Claiborne  had  not  tes- 
tified that  at  the  time  he  asked  for  the  amendment  to  the  policy  he  informed 
the  officers  of  the  company  of  the  extensive  alterations  that  had  been  made 
on  the  building  and  told  them  that  it  had  been  changed  from  a  rooming 
house  to  a  hotel.  With  this  information  they  made  the  amendment  referred 
to,  and  thus  recognized  and  treated  the  policy  as  still  valid,  and  cannot 
now  claim  a  forfeiture  on  that  ground."  Arkansas  Mut.  Fire  Ins.  Co.  v. 
Claiborne,  82  Ark.  150,  100  S.  W.  751  (1907). 


286  CONCEALMENT  (Ch.  4 

that  of  his  mental  faculties,  which,  however,  is  contradicted  by  the 
medical  men ;  and  as  little  as  we  believe  that  this  has  any  influence 
on  his  natural  life,  we  find  it  our  duty  to  mention  it."  The  physi- 
cians in  one  of  their  answers  said  the  duke  was  hindered  in  his 
speech,  but  did  not  mention  the  state  of  his  mental  faculties. 

An  application  was  made  to  the  Union  to  insure  a  further  sum  on 
the  duke's  life;  but  that  being  contrary  to  their  general  rules,  their 
agent  handed  over  the  proposal  to  the  Atlas,  and  at  the  same  time 
gave  the  latter  company  the  private  answers  received  from  their 
agent  in  Germany.  The  plaintifl:  signed  the  usual  declaration,  and 
declarations  by  the  duke's  physicians  were  made  to  the  Atlas  sim- 
ilar to  those  made  to  the  Union.  Upon  receiving  these  documents 
the  Atlas  entered  into  the  policy.  In  1825  the  duke  died,  and  it  was 
then  discovered  that  there  had  existed  in  his  head  for  many  years 
a  large  tumor  pressing  on  the  brain,  to  which  the  loss  of  speech  and 
mental  faculties  might  be  attributed;  but  all  the  medical  testimony 
went  to  establish  that  the  symptoms  during  the  duke's  life  were  not 
such  as  were  likely  to  excite  suspicion  that  such  a  tumor  existed, 
or  that  he  was  afHicted  with  any  particular  disorder  tending  to 
shorten  life.  One  foreign  physician,  however,  said,  that  had  he 
been  consulted  he  should  have  thought  it  right  to  state  that  he  at- 
tributed the  loss  of  speech  to  a  paralysis  of  the  organs  of  speech. 
And  an  English  surgeon,  called  for  the  plaintiff,  on  cross-examina- 
tion, said  he  should,  in  answer  to  the  general  question,  "Whether 
he  knew  any  other  circumstances  that  ought  to  be  communicated 
to  the  directors,"  have  thought  it  right  to  mention  the  state  of  the 
duke's  mental  faculties.  Upon  hearing  this  evidence  Lord  Tenter- 
den  told  the  plaintiff's  counsel  he  thought  it  made  an  end  of  his 
case;  and  he  should  leave  it  to  the  jury  to  say  whether  there  were 
any  facts  material  to  be  known  which  were  not  mentioned  to  the 
assurers,  and  that  if  there  were,  the  policy  was  void.  The  plain- 
tiff's counsel  thereupon  elected  to  be  nonsuited,  leave  being  given 
to  him  to  move  for  a  new  trial,  on  the  ground  of  misdirection.^* 

Lord  Te;nTErden,  C.  J.  At  the  trial  before  me.  amongst  other 
depositions,  that  of  a  foreign  physician  named  Stark  was  read, 
wherein  he  stated  that  he  would  have  certified  that  the  duke  was 
in  bodily  health,  but  that  he  would  not  have  failed  to  observe  that 
he  labored  under  an  inability  to  speak,  which  he  attributed  to  a 
paralytic  state  of  the  nerves  of  the  organs  of  speech.  In  addition 
to  this,  Mr.  Green,  a  surgeon,  stated,  that  if  consulted  he  should 
have  thought  it  right  to  mention  the  state  of  the  duke's  mental 
faculties;  whereupon  I  expressed  an  opinion  that  the  cause  was 
at  an  end,  and  said  that  I  should  direct  the  jury  to  find  for  the  de- 
fendant if  they  thought  the  plaintiff  had  failed  to  communicate  to 

21  The  argument  of  Brougham,  counsel  for  plaintiff,  is  omitted. 


Sec.  4)  LIFE    INSURANCE  287 

the  insurers  any  material  circumstance  within  his  knowledge.  The 
only  question  now  is,  whether  that  direction  would  have  been  cor- 
rect or  not.  At  the  time  of  the  trial  I  had  in  my  recollection,  al- 
though not  very  accurately,  the  case  of  Morrison  v.  Muspratt,  4 
Bing.  60,  which  was  tried  before  me  at  Lincoln.  By  the  printed  re- 
port it  appears  that  in  April,  1823,  an  insurance  was  effected  upon 
the  life  of  a  lady,  who,  at  the  end  of  1822,  had  suffered  from  a  pul- 
monary attack,  and  was  attended  by  a  surgeon.  In  March,  1823, 
a  medical  practitioner  who  had  known  her  for  some  years,  but  did 
not  attend  her  during  that  illness,  was  sent  for  to  examine  her,  with 
a  view  to  effecting  the  insurance  in  question;  and  he  certified  that 
she  was  in  good  health.  In  1824,  she  died  of  a  pulmonary  disease. 
I  left  it  to  the  jury  generally  to  say  whether  any  misrepresentation 
had  been  made;  and  the  jury  having  found  a  verdict  for  the  plain- 
tiff, the  Court  of  Common  Pleas  granted  a  new  trial,  on  the  ground 
that  the  jury  ought  to  have  been  called  upon  to  say  whether  it  was 
material  for  the  defendants  to  have  been  made  acquainted  with  the 
illness  of  the  lady  in  1822. 

In  the  present  case,  the  insurance  was  upon  the  life  of  a  foreign- 
er. It  appeared  that  a  previous  insurance  had  been  effected  with  an 
office  that  had  an  agent  abroad.  That  office  was  requested  to  make 
a  further  insurance,  and  being  unwilling  to  do  so,  the  secretary 
handed  over  to  the  defendant  the  certificate  received  from  their 
foreign  agent.  If  that  had  distinctly  disclosed  the  fact  now  in 
question,  I  am  not  prepared  to  say  that  the  defendant  would  have 
had  any  ground  of  complaint;  but  the  state  of  the  duke's  faculties 
is  not  distinctly  stated  in  that  certificate.  Then  it  is  said  that  the 
party  is  not  bound  to  do  more  than  answer  the  questions  proposed, 
unless  he  can  be  charged  with  some  fraudulent  concealment.  Ad- 
mitting this  not  to  fall  within  any  of  the  specific  questions,  which 
is  not  by  any  means  clear,  still  the  general  question  put  by  the  of- 
fice requires  information  of  every  fact  which  any  reasonable  man 
would  think  material.  It  certainly  seems  to  me  that  the  circum- 
stances proved  as  to  the  state  of  the  Duke  of  Saxe  Gotha's  mental 
faculties  were  material ;  and,  upon  the  authority  of  the  cases  of 
Morrison  v.  Muspratt  and  Bufe  v.  Turner,  I  think  I  should  riot 
have  done  wrong  in  leaving  the  case  to  the  jury  in  the  manner  pro- 
posed at  the  trial. 

Bayley,  J.  I  think  that  in  all  cases  of  insurance,  whether  on 
ships,  houses,  or  lives,  the  underwriter  should  be  informed  of  every 
material  circumstance  within  the  knowledge  of  the  assured;  and 
that  the  proper  question  is,  whether  any  particular  circumstance 
was  in  fact  material ;  and  not  whether  the  party  believed  it  to  be 
so.  The  contrary  doctrine  would  lead  to  frequent  suppression  of 
information,  and  it  would  often  be  extremely  difficult  to  show  that 
the  party  neglecting  to  give  the  information  thought  it  material. 


L'S8  CONCEALMENT  (Ch.  4 

But  if  it  be  held  that  all  material  facts  must  be  disclosed,  it  will  be 
to  the  interest  of  the  assured  to  make  a  full  and  fair  disclosure  of  all 
the  information  within  their  reach.  Besides  the  cases  already  men- 
tioned, there  are  others  establishing  that  the  concealment  of  a  ma- 
terial fact,  although  not  fraudulent,  is  sufficient  to  vitiate  a  policy 
on  a  ship.  On  these  grounds  and  authorities,  I  am  of  opinion  that 
the  proper  question  for  the  jury  was  not  whether  the  party  believed 
the  information  withheld  to  be  material,  but  whether  it  was  in  fact 
material. -- 

[The  concurring  opinion  of  LittlEdalE,  J.,  is  omitted.  1 

Rule  refused.'^ 


LONDON  ASSURANCE  v.  MANSKU 

(Chancery  Division,  1879.     L.  R.  11  Ch.  Div.  363.) 

This  was  an  action  by  the  plaintiffs,  who  were  duly  incorporated 
by  the  name  of  "The  London  Assurance,"  and  were  empowered  to 
grant  assurances  on  lives,  to  set  aside  an  agreement  to  grant  a  pol- 
icy of  life  assurance  to  the  defendant. 

On  the  16th  of  August,  1878,  the  plaintiffs,  on  the  application  of 
the  defendant's  solicitor,  sent  him  forms  of  proposal  for  life  as- 
surance, and  on  the  20th  of  August,  1878,  the  defendant  left  with 
the  plaintiffs  at  their  office  a  proposal  for  assurance  on  his  life  for 
£10,000.  filled  up  on  one  of  the  plaintiffs'  forms  of  proposal,  and 

2  2  Lord  Blackburn,  in  Brownlie  v.  Campbell,  5  App.  Cas.  92.5,  9.14  (ISSO), 
states  the  rule  thus  strongly:  "In  policies  of  insurance,  whether  marine  in- 
surance or  life  insurance,  there  is  an  understanding  that  the  contract  is 
uberrima  fides,  that  if  you  know  any  circumstances  at  all  that  may  influence 
the  underwriter's  opinion  as  to  the  risk  he  is  incurring,  and  consequently  as 
to  whether  he  will  take  it,  or  what  premium  he  will  chai-ge  if  he  does  take 
it,  you  will  state  what  you  know.  There  is  an  obligation  there  to  disclose 
what  you  know ;  and  the  concealment  of  a  material  circumstance  known  to 
you,  whether  you  thought  It  material  or  not,  avoids  the  policy." 

In  Huguenin  v.  Rayley,  6  Taunt.  1S6  (1815),  it  was  held  that  the  as- 
sured's  failure  td  state  that  the  insured  was  in  jail  at  the  time  of  the  issue 
of  the  policy  was  a  matter  to  be  submitted  to  the  jury,  who  should  determine 
whether  sucli  omission  was  material  or  not.  The  good  faith  of  the  assured 
seems  to  have  been  regarded  as  immaterial. 

In  Wheelton  v.  Hardesty,  8  El.  &  Bl.  2.32  (1857),  where  the  court  'aeld 
that  Insurance  taken  out  in  good  faith  by  one  person  upon  the  life  of  an- 
other was  not  avoided  by  the  fraudulent  representations  and  concealments  of 
the  life  insured,  since  such  "life"  cannot  be  regarded  as  the  agent  of  the  as- 
sured in  making  such  statements  and  concealments,  the  court  showed  a 
disposition  to  modify  the  rule  laid  down  in  the  principal  case.  But  ^^  lieeltou 
V.  Hardesty  has  since  been  narrowly  restricted  to  the  peculiar  facts  of  that 
case.  See  Macdonald  v.  Law  Union  Ins.  Co.,  L.  R.  9,  Q.  B.  332  (1874).  See, 
also.  Pollock  on  Contracts,  *531. 

2  3  At  nisi  prius  the  cause  was  argued  by  Bougham,  F.  Pollock,  and  Brod- 
rick,  for  the  plaintiffs,  and  by  Sir  J.  Scarlett,  Campbell,  and  Coleridge,  for 
the  defendants.     See  the  report  in  3  Car.  &  P.  353. 

The  principal  case  was  expressly  followed  in  Joel  v.  Law  Union  Ins.  Co., 
[1908]  2  K.  B.  431,  439. 


Sec.  4)  LIFE    INSURANCE  289 

signed  by  the  defendant.     The  questions  and  answers  contained  in 
tliis  proposal,  so  far  as  material,  were  as  follows: 

Questions.  Answers. 

"Are  you  now  and  have  you 
always  been   of  temperate  hab-  Yes. 

its? 

"State   if  there  be   any   other 
material   circumstance   affecting 

your    past    or    present    state    of  Not  to  my  knowledge, 

health  or  habits  of  life  to  which 
the  foregoing  questions  do  not 
extend? 

"Had    a    proposal    ever    been  Insured  now  in  two  offices  for 

made  on  your  life  at  any  other      £16,000.  at  ordinary  rates, 
office  or  offices?     If  so,  Where? 

"Was  it  accepted  at  the  ordi- 
nary premium,  or  at  an  increas-  Policies  effected  last  year." 
ed  premium,  or  declined? 

At  the  foot  of  the  .proposal  the  defendant  signed  the  following 
declaration :  "I  declare  that  the  above  written  particulars  are  true, 
and  I  agree  that  this  proposal  and  declaration  shall  be  the  basis  of 
the  contract  between  me  and  the  London  Assurance." 

On  the  same  day  the  defendant  had  an  interview  with  the  medi- 
cal officer  of  the  plaintiffs,  and  in  reply  to  his  inquiries  gave  sub- 
stantially the  same  answers  as  those  in  the  proposal  before  stated. 

The  plaintiff's  being,  as  they  alleged,  satisfied  with  and  relying 
upon  the  said  proposal,  and  with  the  report  of  their  medical  officer, 
and  with  the  answers  they  had  received  from  two  friends  of  the  de- 
fendant to  whom  he  had  referred  them,  sent  to  the  defendant's 
solicitor  a  written  acceptance  of  the  proposal  for  an  assurance  of 
£10,000.  on  the  defendant's  life,  and,  on  the.  23d  of  August,  1878, 
received  from  him  a  cheque  for  the  first  year's  premium,  and  on  the 
24th  of  August,  1878,  the  plaintiffs  sent  him  the  usual  certificate 
as  to  the  assurance  being  eft'ected. 

The  plaintiffs  alleged  that,  shortly  after  the  last-mentioned  date, 
they  discovered  that,  though  the  defendant's  life  had  been  assur- 
ed for  £10,000.  in  the  Rock  Life  Assurance  Company,  and  also  for 
£6,000.  in  the  Equity  and  Law  Life  Assurance  Society,  the  last- 
named  assurance  society  had  in  November,  1877,  when  the  defend- 
ant applied  for  a  further  assurance  of  £3,000.,  decided  not  to  in- 
■-.rease  the  amount  at  risk  on  his  life ;  also  that  the  defendant  had 
shortly  afterwards  made  proposals  to  the  Scottish  Equitable  So- 
ciety and  to  the  Crown  Insurance  Society,  who  had  respectively 
declined  his  proposals,  to  the  North  British  and  Mercantile  Insur- 
ance Society,  which  proposal  was  withdrawn,  and  to  the  Liverpool, 
Vance  Ins. — 19 


290  CONCEALMENT  (Ch.  4 

London  and  Globe  Company,  by  whom  the  proposal  was  not  ac- 
cepted;  that  in  June,  1878,  the  English  and  Scottish  Law  Life  As- 
surance Association,  after  accepting  a  proposal  for  an  assurance  of 
i5,000.  on  the  life  of  the  defendant,  had  refused  to  proceed  with  it 
on  learning  that  the  Equity  and  Law  Life  Society  had  declined  the 
further  assurance  of  the  defendant's  life;  also,  that  in  August, 
1878,  the  defendant  had  applied  for  assurances  on  his  life  to  the 
Clerical,  Medical  and  General  Life  Assurance  Society,  to  the  Scot- 
tish Amicable  Assurance  Society,  and  the  Law  Life  Assurance  So- 
ciety, but  that  each  of  the  said  offices  had  declined  his  proposals. 

The  plaintififs  alleged  that  they  thereupon  determined  not  to 
proceed  with  the  assurance,  and  that  their  solicitors  wrote  to  the 
defendant's  solicitor  to  that  efifect,  and  sent  a  cheque  for  the  amount 
of  the  premium,  which  was  returned  by  the  defendant. 

The  plaintiffs  then  brought  their  action  setting  out  in  their  state- 
ment of  claim  the  facts  before  stated,  and  alleging  that  it  was  the 
duty  of  the  defendant  to  have  informed  them  that  his  life  had  been 
refused  by  the  said  several  offices,  that  such  fact  was  a  very  ma- 
terial fact  in  a  contract  of  life  assurance,  and  that  the  plaintiffs 
would  not  have  entertained  the  defendant's  proposal  for  assurance 
had  he  informed  them  that  his  life  had  been  refused  by  other  offic- 
es, which  the  defendant  had  concealed. 

The  plaintiffs  claimed  a  declaration  that  the  acceptance  by  the 
plaintiffs  of  the  defendant's  proposal  for  assurance  on  his  life  for 
£10,000.  and  the  contract  by  the  plaintiffs  for  the  assurance  on  the 
life  of  the  defendant,  were  void. 

The  defendant,  by  his  statement  of  defense,  admitted  the  plain- 
tiffs' allegations  as  to  the  proposal  and  as  to  the  two  policies  that 
had  been  effected,  also  that  the  Equity  and  Law  Life  Society  had 
decided  not  to  increase  their  risk,  the  reason  being  that  they  con- 
sidered their  risk  sufficiently  large.  With  regard  to  the  other  pro- 
posals, the  defendant  stated  as  follows: 

"The  defendant  admits  that  proposals  were  made  to  the  Clerical, 
Medical  and  General  Life  Assurance  Society,  the  Scottish  Amica- 
ble Life  Assurance  Society,  and  the  Law  Life  Assurance  Society, 
for  an  assurance  on  his  life,  and  such  proposals  were  declined 
without  any  medical  examination." 

In  paragraph  15  he  stated  as  follows:  "The  defendant  is  not  and 
never  has  been  of  intemperate  habits  of  life,  and  although  proposals 
for  assurances  on  the  defendant's  life  had  been  made  to  and  de- 
clined by  the  several  offices  in  the  statement  of  claim  mentioned,  the 
defendant's  life  was  never  rejected  by  an  office,  but  was  passed  as 
a  first-class  life  by  every  medical  officer  who  examined  him."  The 
defendant  also  stated  that  the  English  and  Scottish  Law  Life  As- 
surance Society  passed  his  life  as  a  first-class  life,  but  they  reserved 
the  right  of  declining  to  complete  the  transaction  at  any  time  be- 
fore the  receipt  of  the  premium ;   but  that,  having  learned  that  the 


Sec.  4)  LIFE    INSURANCE  291 

Equity  and  Law  Life  Assurance  Society  had  decided  not  to  in- 
crease their  risk  on  the  defeiuhmt's  life,  and  wouhl  not  take  any 
part  of  the  new  risk,  exercised  their  right  of  declining  to  complete 
the  transaction." 

The  defendant  submitted  that  there  had  been  no  concealment 
such  as  to  vitiate  the  contract. 

The  case  was  heard  on  motion  for  judgment  on  admissions  in  the 
pleading.-* 

JEsseIv,  M.  R.  The  action  in  this  case  is  to  set  aside  an  agree- 
ment for  assurance  for  life  on  the  ground  of  concealment  of  a  ma- 
terial fact  in  effecting  the  assurance. 

The  first  question  to  be  decided  is,  what  is  the  principle  on  which 
the  Court  acts  in  setting  aside  contracts  of  assurance?  As  re- 
gards the  general  principle  I  am  not  prepared  to  lay  down  the  law 
as  making  any  dift'erence  in  substance  between  one  contract  of 
assurance  and  another.  Whether  it  is  life,  or  fire,  or  marine  as- 
surance, I  take  it  good  faith  is  required  in  all  cases,  and.  though 
there  may  be  certain  circumstances  from  the  peculiar  nature  of 
marine  insurance  which  require  to  be  disclosed,  and  which  do  not 
apply  to  other  contracts  of  insurance,  that  is  rather,  in  my  opin- 
ion, an  illustration  of  the  application  of  the  principle  than  a  dis- 
tinction in  principle. 

But  I  think  the  law  has  been  laid  down  very  often,  and  I  am  go- 
ing to  refer  to  two  or  three  statements  of  it,  which  at  all  events 
are  binding  on  me. 

In  the  case  of  Dalglish  v.  Jarvie,  2  Mac.  &  G.  231,  243,  a  case 
which  had  nothing  to  do  with  insurance,  but  which  referred  to  the 
principles  on  which  a  special  injunction  ought  to  be  granted  ex 
parte,  Lord  Cranworth,  then  the  Lord  Commissioner  Rolfe,  says 
this:  "Upon  one  point  it  seems  to  me  proper  to  add  thus  much, 
namely,  that  the  application  for  a  special  injunction  is  very  much 
governed  by  the  same  principles  which  govern  insurances,  matters 
which  are  said  to  require  the  utmost  degree  of  good  faith,  'uber- 
rima fides.'  In  cases  of  insurance  a  party  is  required  not  only  to 
state  all  matters  within  his  knowledge,  which  he  believes  to  be  ma- 
terial to  the  question  of  the  insurance,  but  all  which  in  point  of 
fact  are  so.  If  he  conceals  anything  that  he  knows  to  be  material, 
it  is  a  fraud ;  but  besides  that,  if  he  conceals  anything  that  may  in- 
fluence the  rate  of  premium  which  the  underwriter  may  require, 
although  he  does  not  know  that  it  would  have  that  effect,  such 
concealment  entirely  vitiates  the  policy." 

Here  it  is  to  be  observed  that  he  says,  "In  cases  of  insurance ;" 
he  does  not  say  one  kind  of  insurance  or  another  kind  of  insurance, 
but  it  is  the  more  valuable  because  he  is  stating  the  law  as  settled 

24  Arguments  of  counsel  are  omitted,  as  are  certain  parts  of  the  opinion 
quoting  from  Lindenau  v.  Desborougli,  ante,  p.  285. 


292  CONCEALMENT  (Cll.  4 

as  a  mere  illustration  of  the  similar  law  which  he  considers  to  ap- 
ply to  applications  for  special  injunctions  when  a  man  comes  for 
one  ex  parte.  If  he  conceals  anything  he  knows  to  be  material, 
it  is  fraud,  and  if  he  conceals  anything  that  may  influence  the  rate 
of  premium,  although  he  does  not  know  it,  it  still  vitiates  the  pol- 
icy. 

In  another  case,  which  again  is  not  directly  in  point,  turning  on 
a  contract,  the  case  of  M^oens  v.  Heyworth,  10  M.  '&  W.  147,  157, 
we  have  a  dictum  of  Baron  Parke.  It  was  a  case  of  ordinary  mer- 
cantile contract,  not  of  an  insurance  contract.  Baron  Parke  says : 
"The  case  of  a  policy  of  insurance  does  not  appear  to  me  to  be 
analogous  to  the  present;  those  instruments  are  made  upon  an 
implied  contract  between  the  parties  that  everything  material 
known  to  the  assured  should  be  disclosed  by  them.  That  is  the 
basis  on  which  the  contract  proceeds,  and  it  is  material  to  see  that 
it  is  not  obtained  by  means  of  untrue  representation  or  concealment 
in  any  respect;"  that  means,  of  course,  concealment  in  any  mate- 
rial respect.     *     *     * 

Now  I  come  to  the  facts  of  the  case,  which  certainly  appear  to 
me  to  be  very  plain  and  clear  indeed.  The  office  of  the  London 
Assurance  asks  these  questions:  "Has  a  proposal  ever  been  made 
on  your  life  at  any  other  office  or  ofiices ;  if  so,  where?  Was  it 
accepted  at  the  ordinary  premium,  or  declined?"  and  there  is  an 
agreement  at  the  end,  "That  this  proposal  and  declaration  shall  be 
the  basis  of  the  contract  between  the  assured  and  the  company." 
Here  is  the  answer:  "Insured  now  in  two  offices  for  £16,000.  at 
ordinary  rates.  Policies  effected  last  year."  It  is  to  be  observed 
that  the  man  proposing  the  assurance,  who  knows  the  facts,  does 
not  answer  the  question.  The  question  was,  "Has  a  proposal  been 
made  at  any  office  or  offices;  if  so,  where?"  He  does  not  state,  "I 
proposed  to  half  a  dozen  offices,"  which  was  the  truth,  but  simply 
says,  "Insured  now  in  two  offices,"  which  of  course  must  have  been 
intended  to  represent  an  answer,  and  therefore  would  mislead  the 
persons  receiving  it,  who  did  not  look  at  it  with  the  greatest  at- 
tention, into  the  belief  that  he  was  insured  in  two  offices,  and  that 
they  were  the  only  proposals  that  he  had  made.  "Was  it  accepted 
at  the  ordinary  premiums  or  an  increased  premium?"  His  answer 
is,  "At  ordinary  rates."  That  is  the  answer  to  the  second  branch 
of  the  inquiry,  but  he  has  not  answered  the  question,  "or  declined?" 
The  inference,  therefore,  which  must  have  been  intended'  to  be  pro- 
duced on  the  mind  of  the  person  reading  the  answer  was  that  it 
had  not  been  declined.  And  in  my  opinion  that  is  the  fair  meaning 
of  the  answer,  and  the  assured  is  not  to  be  allowed  to  say,  "I  did 
not  answer  the  question."  But  if  it  were  so  it  would  make  no  dif- 
ference, because  if  a  man  purposely  avoids  answering  a  question, 
and  thereby  does  not  state  a  fact  which  it  is  his  duty  to  commu- 
nicate, that  is  concealment.     Concealment  properly  so  called  means 


Sec.  4)  LiFK  iNsruAXCB  293 

non-disclosure  of  a  fact  which  it  is  a  man's  duty  to  disclose,  and 
it  was  his  duty  to  disclose  the  fact  if  it  was  a  material  fact. 

The  question  is  whether  this  is  a  material  fact.  I  should  say, 
no  human  being  acquainted  with  the  practice  of  companies  or  of 
insurance  societies  or  underwriters  could  doubt  for  a  moment  that 
it  is  a  fact  of  great  materiality,  a  fact  upon  which  the  offices  place 
great  reliance.  They  always  want  to  know  what  other  offices  have 
done  with  respect  to  the  lives.  But  in  this  case  there  could  be  no 
question  as  to  its  materiality.  In  the  first  place  we  have  this  in 
the  answer:  "The  defendant  admits  that  proposals  were  made  to 
the  Clerical,  Medical  and  General  Life  Assurance  Society,  the  Scot- 
tish Amicable  Life  Assurance  Society,  and  the  Law  Life  Assur- 
ance Society  for  an  assurance  on  his  life,  and  such  proposals  were 
declined."  There  are  three  proposals  as  admitted  by  the  answer 
declined  in  the  very  words  of  the  question ;  and  then  he  goes  on  : 
[His  Lordship  then  stated  paragraph  15  of  the  answer,  and  added  :] 
We  have  an  admission  by  the  defendant  that  no  less  than  five  in- 
surance oftices  had  declined  to  accept  his  life. 

Now,  to  suppose  that  any  one  who  knows  anything  about  life 
insurance,  that  any  decent  special  juryman  could  for  a  moment 
hesitate  as  to  the  proper  answer  to  be  given  to  the  inquiry,  when 
you  go  to  the  insurance  office  and  ask  for  an  insurance  on  your 
life,  ought  you  to  tell  them  that  your  proposals  had  been  declined 
by  five  other  assurance  offices?  is,  I  say,  quite  out  of  the.  question. 
There  can  be  but  one  answer — that  a  man  is  bound  to  say,  "My 
proposals  have  been  declined  by  five  other  oftices.  I  will  give  you 
the  reasons,  and  shew  you  that  it  does  not  afifect  my  life,"  as  he 
admits  it  to  be  by  this  answer;  but  of  that  the  office  could  judge. 
There  can  be  no  doubt,  as  a  proposition  to  be  decided  by  a  jury, 
that  such  a  circumstance  is  material.  But  in  fact  I  have  elements 
here  admitted  on  the  pleadings  for  deciding  that  question  quite 
irrespective  of  the  ordinary  knowledge  of  the  practice  of  mankind 
in  respect  of  these  matters  which  is  to  be  imputed  to  a  good  special 
juryman,  because  I  have  here  two  things  admitted,  first  of  all  that 
the  proposal  which  forms  the  basis  of  the  contract  asks  a  question 
■ — Has  a  proposal  been  declined? 

Now  where  it  is  to  form  the  basis  of  the  contract  it  is  material, 
because,  as  was  held  in  a  case  in  the  House  of  Lords  of  Henderson 
V.  Fitzgerald,  4  H.  L.  C.  484,  where  it  is  part  of  the  contract,  the 
other  side  cannot  say  it  is  not  material.  So  here  we  have  the  pro- 
posal as  the  basis  of  the  contract.  It  is  impossible  for  the  assured 
to  say  that  the  question  asked  is  not  a  material  question  to  be  an- 
swered, and  that  the  fact  which  the  answer  would  bring  out  is  not 
a  material  fact. 

Further,  we  have  this,  that  within  the  defendant's  own  knowl- 
edge the  English  and  Scottish  Law  Life  Assurance  Society  having 
accepted  his  life,  which  had  been  duly  passed  by  their  medical  of- 


294  CONCEALMENT  (Ch,  4 

ficcr  as  a  first-class  life  after  examination,  and  merely  reserving  a 
right  to  decline,  when  they  found  that  one  other  office,  not  five, 
but  one,  had  declined  the  life,  or  rather  the  proposal,  at  once  with- 
drew from  their  acceptance  and  declined  his  proposal.  So  that  the 
defendant  had  the  strongest  reasons  for  believing  from  actual 
knowledge  that  the  fact  of  a  proposal  having  been  declined  was  a 
most  material  circumstance,  and  would  have  the  greatest  effect  on 
the  mind  of  the  proposed  assurers. 

It  seems  to  me  a  very  plain  and  clear  case,  and  that  the  plain- 
tiffs are  consequently  entitled  to  judgment. 

The  order  will  be — The  plaintiffs  being  willing  and  hereby  of- 
fering to  return  the  premium,  declare  that  the  acceptance  by  the 
plaintiffs  of  the  defendant's  life  was  void  and  of  no  effect,  that 
they  were  not  bound  to  deliver  the  policy,  and  that  the  contract  be 
delivered  up  to  be  cancelled.-^ 


PHCENIX  MUT.  LIFE  INS.  CO.  v.  RADDIN. 

(Supreme  Court  of  the  United  States,  1SS6.     120  U.  S.  183,  7  Sup.  Ct.  500, 

30  L.  Ed.  644.) 

In  Error  to  the  Circuit  Court  of  the  United  States  for  the  Dis- 
trict of  Massachusetts. 

Action  on  life  insurance  policy.     Plaintiff  had  judgment  below. 

Gray,  J.  This  was  an  action  brought  by  Sewell  Raddin,  and 
prosecuted  by  his  administrator,  upon  a  policy  of  life  insurance 
dated  April  25,  1872,  the  material  parts  of  which  were  as  follows: 
"This  policy  of  assurance  witnesseth  that  the  Phoenix  Mutual  Life 
Insurance  Company  of  Hartford,  Conn.,  in  consideration  of  the  rep- 
resentations made  to  them  in  the  application  for  this  policy,  and 
of  the  sum  of  one  hundred  and  fifty-two  dollars  and  ten  cents  to 
them  duly  paid  by  Sewell  Raddin,  father,  and  of  the  semi-annual 
payment  of  a  like  amount  on  or  before  the  twenty-fifth  day  of 
April  and  October  in  every  year  during  the  continuance  of  this 
policy,  do  assure  the  life  of  Charles  E.  Raddin,  of  Lynn,  in  the 
county  of  Essex,  state  of  Massachusetts,  in  the  amount  of  ten 
thousand  dollars,  for  the  term  of  his  natural  life.  This  policy  is 
issued  and  accepted  by  the  assured  upon  the  following  express 
■conditions  and  agreements,"  namely,  among  others,  that  "if  any 
of  the  declarations  or  statements  made  in  the  application  for  this 
policy,  upon  the  faith  of  which  this  policy  is  issued,  shall  be  found 
in  any  respect  untrue,  this  policy  shall  be  null  and  void."  The 
application  was  signed  by  Sewell  Raddin,  both  for  his  son  and  for 
himself,  and  contained  29  printed  "questions  to  be  answered  by  the 

2  5  See,  in  accord:  Talley  v.  Metropolitan  Life  Ins.  Co.,  Ill  Va.  778,  69 
S.  E.  936  (1911). 


Yes. 


Sec.  4)  LIFE   INSURANCE  295 

person  whose  life  is  proposed  to  be  insured,  and  which  form  the 
basis  of  the  contract,"  three  of  which,  with  the  written  answers  to 
them,  and  the  concluding  paragraph  of  the  opplication,  were  as 
follows : 

"(10)  Is  the  party  addicted  to 
the    habitual   use    of   spirituous  No. 

liquors  or  opium? 

"(28)  Has  any  application 
been  made  to  this  or  any  other 
company   for   assurance  on   the 

life  of  the  party?     If  so,  with  $10,000,  Equitable  Life  Assur- 

what    result?     What    amounts      ^nce  Society, 
are  now  assured  on  the  life  of 
the  party,  and  in  what  compa- 
nies?   If  already  assured  in  this 
company,  state  the  No.  of  policy. 

"(29)  Is  the  party  and  the  ap- 
plicant aware  that  any  untrue 
or  fraudulent  answers  to  the 
above  queries,  or  any  suppres- 
sion of  facts  in  regard  to  the 
health,  habits,  or  circumstances 
of  the  party  to  be  assured,  will 
vitiate  the  policy,  and  forfeit  all 
payments  thereon  ? 

"It  is  hereby  declared  that  the  above  are  fair  and  true  answers  to 
the  foregoing  questions,  and  it  is  acknowledged  and  agreed  by  the 
undersigned  that  this  application  shall  form  the  basis  of  the  contract 
for  insurance,  which  contract  shall  be  completed  only  by  delivery  of 
poHcy,  and  that  any  untrue,  or  fraudulent  answers,  any  suppression 
of  facts,  or  should  the  applicant  become  as  to  habits,  so  far  different 
from  condition  now  represented  to  be  in  as  to  make  the  risk  more 
than  ordinarily  hazardous,  or  neglect  to  pay  the  premium  on  or  be- 
fore the  day  it  becomes  due,  shall  and  will  render  the  policy  null  and 
void,  and  forfeit  all  payments  made  thereon." 

It  was  admitted  at  the  trial  that  all  premiums  were  paid  as  they  fell 
due;  that  Charles  E.  Raddin  died  July  18,  1881 ;  and  that  at  the  date 
of  this  policy  he  had  an  endowment  policy  in  the  Equitable  Life  In- 
surance Society  for  $10,000,  which  was  afterwards  paid  to  him. 

One  of  the  defenses  relied  on  at  the  trial  was  that  the  answer  to 
question  28  in  the  application  was  untrue,  and  that  there  was  a  fraud- 
ulent suppression  of  facts  material  to  the  insurance,  because  the  plain- 
tiff, by  his  answer  to  that  question,  "$10,000,  Equitable  Life  Assur- 
ance Society,"  intended  to  have  the  defendant  understand  that  the 
only  application  which  had  been  made  to  any  other  company  for  as- 
surance upon  the  life  of  his  son  was  one  made  to  the  Equitable  Life 


2\){]  CONCEALMENT  (Cll.  4 

Assurance  Society,  upon  which  that  society  had  issued  a  policy  of  $10,- 
000,  whereas  in  fact  the  plaintiff,  within  three  weeks  before  the  appli- 
cation for  the  policy  in  suit,  had  made  applications  to  that  society, 
and  to  the  New  York  Life  Insurance  Company,  for  additional  insur- 
ance upon  the  son's  life,  each  of  which  had  been  declined.  The  de- 
fendant offered  to  prove  that  the  two  other  applications  were  made 
and  declined  as  alleged,  and  that  the  facts  as  to  the  making  and  the 
rejection  of  both  those  applications  were  known  to  the  plaintiff,  and 
intentionally  concealed  by  him,  at  the  time  of  his  application  to  the 
defendant;  and  upon  these  offers  of  proof  asked  the  court  to  rule — 
First,  that  the  answer  to  question  28  was  untrue,  and  therefore  no 
recovery  could  be  had  on  this  policy;  second,  that  there  was  a  sup- 
pression of  facts  by  the  plaintiff,  and  therefore  he  could  not  recover : 
and,  third,  "that  the  answer  to  question  28  must  be  construed  to  be 
an  answer  to  all  the  clauses  of  that  question,  and  as  such  was  mis- 
leading, and  amounted  to  a  concealment  of  facts  which  the  defendant 
was  entitled  to  know,  and  the  plaintiff  was  bound  to  communicate." 
But  the  court  excluded  all  the  evidence  so  offered,  declined  to  give 
any  of  the  rulings  asked  for,  and  ruled  "that,  if  the  answer  to  one  of 
the  interrogatories  of  question  28  was  true,  there  would  be  no  breach 
of  the  warranty ;  that  the  failure  to  answer  the  other  interrogatories 
of  question  28  was  no  breach  of  the  contract ;  and  that,  if  the  com- 
pany took  the  defective  application,  it  would  be  a  waiver  on  their 
part  of  the  answers  to  the  other  interrogatories  of  that  question." 
The  jury  having  returned  a  verdict  for  the  plaintiff  in  the  full  amount 
of  the  policy,  the  defendant's  exceptions  to  the  refusal  to  rule  as  re- 
quested, and  to  the  rulings  aforesaid,  present  the  principal  question 
in  the  case. 

The  rules  of  law  which  govern  the  decision  of  this  question  are  well 
settled,  and  the  only  difficulty  is  in  applying  those  rules  to  the  facts 
before  us.  Answers  to  questions  propounded  by  the  insurers  in  an 
application  for  insurance,  unless  they  are  clearly  shown  by  the  form  of 
the  contract  to  have  been  intended  by  both  parties  to  be  warranties, 
to  be  strictly  and  literally  complied  with,  are  to  be  construed  as  repre- 
sentations, as  to  which  substantial  truth  in  everything  material  to  the 
risk  is  all  that  is  required  of  the  applicant.  Moulor  v.  American  Ins. 
Co.,  Ill  U.  S.  335,  4  Sup.  Ct.  466,  28  L.  Ed.  447;  Campbell  v.  New 
England  Ins.  Co.,  98  Mass.  381;  Thomson  v.  Weems,  9  App.  Cas. 
671. 

The  misrepresentation  or  concealment  by  the  assured  of  any  ma- 
terial fact  entitles  the  insurers  to  avoid  the  policy.  But  the  parties 
may  by  their  contract  make  material  a  fact  that  would  otherwise  be 
immaterial,  or  make  immaterial  a  fact  that  would  otherwise  be  ma- 
terial. Whether  there  is  other  insurance  on  the  same  subject,  and 
whether  such  insurance  has  been  applied  for  and  refused,  are  material 
facts,  at  least  when  statements  regarding  them  are  required  by  the 
insurers  as  part  of  the  basis  of  the  contract.    Carpenter  v.  Providence 


Sec.  4)  LIFE    INSURANCE  297 

Washington  Ins.  Co.,  16  Pet.  495,  10  L.  Ed.  1044;  Jeffries  v.  Life 
Ins.  Co.,  22  Wall.  47,  22  L.  Ed.  833 ;  Anderson  v.  Fitzgerald,  4  H.  L. 
Cas.  484;  Macdonald  v.  Law  Union  Ins.  Co.,  L.  R.  9  Q.  B.  328; 
Edington  V.  .^tna  Life  Ins.  Co.,  17  N.  Y.  564;  s.  c,  100  N.  Y.  536, 
3  N.  E.  315. 

Where  an  answer  of  the  applicant  to  a  direct  question  of  the  insur- 
ers purports  to  be  a  complete  answer  to  the  question,  any  substantial 
misstatement  or  omission  in  the  answer  avoids  a  policy  issued  on  the 
faith  of  the  application.  Cazenove  v.  British  Equitable  Assurance 
Co.,  29  Law  J.  C.  P.  (N.  S.)  160,  affirming  s.  c,  6  C.  B.  (N.  S.)  437. 
But  where  upon  the  face  of  the  application,  a  question  appears  to  be 
not  answered  at  all,  or  to  be  imperfectly  answered,  and  the  insurers 
issue  a  policy  without  further  inquiry,  they  waive  the  want  or  im- 
perfection in  the  answer,  and  render  the  omission  to  answer  more 
fullv  immaterial.  Connecticut  Ins.  Co;  v.  Luchs,  108  U.  S.  498,  2 
Sup.  Ct.  949,  27  L.  Ed.  800;  Hall  v.  People's  Ins.  Co.,  6  Gray  (Mass.) 
185;  Lorillard  Ins.  Co.  v.  McCulloch,  21  Ohio  St.  176,  8  Am.  Rep. 
52;  American  Ins.  Co.  v.  Mahone,  56  Miss.  180;  Carson  v.  Jersey 
City  Ins.  Co.,  43  N.  J.  Law,  300,  39  Am.  Rep.  584;  s.  c,  44  N.  J. 
Law,  210;   Lebanon  Ins.  Co.  v.  Kepler,  106  Pa.  28. 

The  distinction  between  an  answer  apparently  complete,  but  in  fact 
incomplete,  and  therefore  untrue,  and  an  answer  manifestly  incom- 
plete, and  as  such  accepted  by  the  insurers,  may  be  illustrated  by  two 
cases  of  fire  insurance,  which  are  governed  by  the  same  rules  in  this 
respect  as  cases  of  life  insurance.  If  one  applying  for  insurance  upon 
a  building  against  fire  is  asked  whether  the  property  is  incumbered, 
and  for  what  amount,  and  in  his  answer  discloses  one  mortgage,  when 
in  fact  there  are  two,  the  policy  issued  thereon  is  avoided.  Towne  v. 
Fitchburg  Ins.  Co.,  7  Allen  (Mass.)  51.  But  if  to  the  same  question 
he  merely  answers  that  the  property  is  incumbered  without  stating 
the  amount  of  incumbrances,  the  issue  of  the  policy  without  further 
inquiry  is  a  waiver  of  the  omission  to  state  the  amount.  Nichols  v. 
Fayette  Ins.  Co.,  1  Allen  (Mass.)  63. 

In  the  contract  before  us  the  answers  in  the  application  are  no- 
where called  warranties,  or  made  part  of  the  contract.  In  the  policy 
those  answers  and  the  concluding  paragraph  of  the  application  are 
referred  to  only  as  "the  declarations  or  statements  upon  the  faith  of 
which  this  policy  is  issued ;"  and  in  the  concluding  paragraph  of  the 
application  the  answers  are  declared  to  be  "fair  and  true  answers  to 
the  foregoing  questions,"  and  to  "form  the  basis  of  the  contract  for 
insurance."  They  must  therefore  be  considered,  not  as  warranties 
which  are  part  of  the  contract,  but  as  representations  collateral  to 
the  contract,  and  on  which  it  is  based. 

The  twenty-eighth  printed  question  in  the  application  consists  of 
four  successive  interrogatories,  as  follows :  "Has  any  application 
been  made  to  this  or  any  other  company  for  assurance  on  the  life  of 
the  party?    If  so,  with  what  result?    What  amounts  are  now  assured 


208  CONCEALMENT  (Ch.  4 

on  the  life  of  the  party,  and  in  what  companies?  If  already  assured 
in  this  company,  state  the  No.  of  policy."  The  only  answer  written 
opposite  this  question  is  "$10,000,  Equitable  Life  Assurance  Society." 
The  question  being  printed  in  very  small  type,  the  answer  is  written 
in  a  single  line  midway  of  the  opposite  space,  evidently  in  order  to 
prevent  the  ends  of  the  letters  from  extending  above  or  below  that 
space;  and  its  position  with  regard  to  that  space,  and  to  the  several 
interrogatories  combined  in  the  question,  does  not  appear  to  us  to 
have  any  bearing  upon  the  construction  and  effect  of  the  answer. 

But  the, four  interrogatories  grouped  together  in  one  question,  and 
all  relating  to  the  subject  of  other  insurance,  would  naturally  be  un- 
derstood as  all  tending  to  one  object, — the  ascertaining  of  the  amount 
of  such  insurance.  The  answer  in  its  form  is  responsive,  not  to  the 
first  and  second  interrogatories,  but  to  the  third  interrogatory  only, 
and  fully  and  truly  answers  that  interrogatory  by  stating  the  existing 
amount  of  prior  insurance,  and  in  what  company,  and  thus  renders 
the  fourth  interrogatory  irrelevant.  If  the  insurers,  after  being  thus 
truly  and  fully  informed  of  the  amount  and  the  place  of  prior  in- 
surance, considered  it  material  to  know  whether  any  unsuccessful  ap- 
plications had  been  made  for  additional  insurance,  they  should  either 
have  repeated  the  first  two  interrogatories,  or  have  put  further  ques- 
tions. The  legal  effect  of  issuing  a  policy  upon  the  answer  as  it 
stood  was  to  waive  their  right  of  requiring  further  answers  as  to  the 
particulars  mentioned  in  the  twenty-eigth  question,  to  determine  that 
it  was  immaterial,  for  the  purposes  of  their  contract,  whether  any 
unsuccessful  applications  had  been  made,  and  to  estop  them  to  set 
up  the  omission  to  disclose  such  applications  as  a  ground  for  avoid- 
ing the  policy.  The  insurers,  having  thus  conclusively  elected  to 
treat  that  omission  as  immaterial,  could  not  afterwards  make  it  ma- 
terial by  proving  that  it  was  intentional. 

The  case  of  London  Assur.  v.  Mansel,  11  Ch.  Div.  363,  on  which 
the  insurers  relied  at  the  argument,  did  not  arise  on  a  question  in- 
cluding several  interrogatories  as  to  whether  another  application  had 
been  made,  and  with  what  result,  and  the  amount  of  existing  insur- 
ance, and  in  what  company.  But  the  application  or  proposal  con- 
tained two  separate  questions, — the  first  whether  a  proposal  had  been 
made  at  any  other  office,  and,  if  so,  where ;  the  second  whether  it 
was  accepted  at  the  ordinary  premium,  or  at  an  increased  premium, 
or  declined;  and  contained  no  third  question  or  interrogatory  as  to 
the  amount  of  existing  insurance,  and  in  what  company.  The  single 
answer  to  both  questions  was,  "Insured  now  in  two  offices  for  £16,000, 
at  ordinary  rates.  Policies  effected  last  year."  There  being  no  spe- 
cific interrogatory  as  to  the  amount  of  existing  insurance,  that  an- 
swer could  apply  only  to  the  question  whether  a  proposal  had  been 
made,  or  to  the  question  whether  it  had  been  accepted,  and  at  what 
rates,  or  declined ;  and  as  applied  to  either  of  those  questions  it  was 
in  fact,  but  not  vipon  its  face,  incomplete,  and  therefore  untrue.    As 


Sec.  4)  LIFE    INSURANCE  299 

applied  to  the  first  question,  it  disclosed  only  some,  and  not  all,  of  the 
proposals  which  had  in  fact  been  made ;  and,  as  applied  to  the  second 
question,  it  disclosed  only  the  proposals  which  had  been  accepted, 
and  not  those  which  had  been  declined,  though  the  question  distinctly 
embraced  both. 

That  case  is  thus  clearly  distinguished  in  its  facts  from  the  case  at 
bar.  So  much  of  the  remarks  of  Sir  George  Jessel,  M.  R.,  in  de- 
livering judgment,  as  implies  that  an  insurance  company  is  not  bound 
to  look  with  the  greatest  attention  at  the  answers  of  an  applicant  to 
the  great  number  of  questions  framed  by  the  company  or  its  agents, 
and  that  the  intentional  omission  of  the  insured  to  answer  a  question 
put  to  him  is  a  concealment  which  will  avoid  a  policy  issued  without 
further  inquiry,  can  hardly  be  reconciled  with  the  uniform  current  of 
American  decisions.  For  these  reasons,  our  conclusion  upon  this 
branch  of  the  case  is  that  there  was  no  error  of  which  the  company 
had  a  right  to  complain,  either  in  the  refusals  to  rule,  or  in  the  rul- 
ings made.     *     *     * 

Judgment  affirmed.-'^ 

26  See,  in  accord :  O'Connor  v.  Modern  Woodmen  of  America,  110  Minn. 
18,  124  N.  W.  454,  25  L.  R.  A.  (N.  S.)  1244  (1911). 

"We  now  come  to  the  qiiestions  of  evidence  with  respect  to  the  $5,000 
policy  in  the  New  York  Life  Insurance  Company  which  Schardt  omitted 
in  his  answer  to  tlie  question  concerning  other  insurances.  It  is  first  insisted 
for  the  plaintiff  below  that  his  answer  was  not  untrue.  He  was  asked  if  he 
had  other  policies  in  other  companies,  and,  if  so,  to  state  the  companies  and 
amount.  It  is  urged  that  when  he  gave  three  such  policies  the  question  was 
answered  correctly,  and  that  his  failure  to  give  the  fourth  policy  did  not 
involve  a  false  statement,  but  only  left  the  answer  incomplete,  but  true  in 
everything  stated.  Several  cases  are  cited  to  the  point  that  such  an  answer 
is  not  a  misrepresentation.  In  Perrins  v.  Society,  2  El.  &  El.  317  (IS.j'.t),  the 
applicant  was  asked  what  was  his  profession,  and  he  answered  that  he  was 
an  "esquire."  In  fact,  he  was  an  ironmonger.  It  was  held  that  there  was  no 
misrepresentation  here,  but,  at  the  most,  only  a  concealment  or  falsehood 
by  implication;  that  the  answer  was  true,  as  far  as  it  went.  The  same  ruling 
was  made  by  the  court  of  appeals  of  New  York  in  Dilleber  v.  Home  Life  Ins. 
Co.,  69  N.  Y.  2.56,  25  Am.  liep.  1S2  (1877).  There  the  applicant  was  asked 
to  state  the  physicians  be  had  consulted  in  the  last  10  years.  He  answered 
that  be  had  consulted  Dr.  I'aine  9  years  before.  In  fact,  he  had  also  con- 
sulted another  physician.  It  was  held  that,  the  answer  being  true  as  far  as 
it  went,  there  was  no  breach  of  the  warranty ;  that  the  answer  was  full 
and  true.  We  do  not  think  that  these  cases  can  be  supported.  In  Pha?nix 
Mut.  Life  Ins.  Co.  v.  Raddin,  120  U.  S.  183,  7  Sup.  Ct.  .500,  30  L.  Ed.  644 
(1887),  the  supreme  court  held  that,  where  the  answers  to  questions  were 
obviously  incomplete,  the  insurance  company,  by  failing  to  inquire  further 
before  issuing  the  policy,  waived  any  right  to  complain  of  such  incomplete- 
ness; but  the  court  clearly  indicated  its  view  that  if  such  an  answer  was 
apparently  complete,  but  in  fact  was  otherwise,  it  was  a  false  answer,  and 
a  breach  of  the  warranty  of  its  full  truth.  Towne  v.  Fitchburg  Mut.  Fire 
Ins.  Co.,  7  Allen  (Mass.)  52,  53  (1863) ;  London  Assurance  v.  Mansel,  11  Ch. 
Div.  363  (1879);  Bliss,  Ins.  (2d  Ed.)  189,  190;  I'hil.  Ins.  §§  550,  565,  567.  The 
answer  to  such  a  question  contains  the  necessary  implication  that  there  is 
no  other  insurance  than  that  stated,  and,  if  there  is  other  insurance,  it  is 
as  fal.se  as  if  the  existence  of  other  insurance  were  expressly  denied." — 
Taft,  J.,  in  Penn  Mut.  Life  Ins.  Co.  v.  Mechanics'  Savings  Bank  &  Trust  Co., 
37  U.  S.  App.  692,  19  C.  C.  A.  286,  72  Fed.  413,  421,  38  L.  R.  A.  33  (1896).  See, 
also,  Talley  v.  Metropolitan  Life  Ins.  Co.,  Ill  Va.  778,  69  S.  E.  936  (1911). 


:iUO  COXCEALMIONT  (Cll.  4 


PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS'  SAVINGS 
BANK  &  TRUST  CO. 

(Circuit  Court  of  Appeals,  Sixth  Circuit,  189(!.     37  U.  S.  App.  092,  19  C.  C. 
A.  2SG,  72  Fed.  413,  38  L.  R.  A.  33.)  27 

111  Error  to  the  Circuit  Court  of  the  United  States  for  the  Mid- 
dle District  of  Tennessee. 

This  action  was  on  a  pohcy  of  insurance  for  $10,000  issued  De- 
cember 2,  1892,  by  the  Penn  Mutual  Life  Insurance  Company  to 
John  Schardt,  on  his  own  life.  Schardt  died  April  17,  1893,  dur- 
ing the  currency  of  the  policy.  Just  before  his  death  he  had 
assigned  the  policy  to  the  Mechanics'  Savings  Bank  of  Nashville, 
to  secure  a  large  debt  owed  by  him  to  the  bank.  The  trial  re- 
sulted in  a  judgment  for  the  full  amount  of  the  policy  and  inter- 
est, in  favor  of  the  plaintiff  below,  and  the  insurance  company 
brings  the  judgment  here  for  review  on  writ  of  error.  The  de- 
fendant filed  19  pleas  to  the  declaration,  averring  that  both  by 
misrepresentation  of  facts  warranted  to  be  true  in  the  application 
and  policy,  and  by  concealment  of  a  fact  material  to  the  risk, 
the  policy  was  avoided. 

Schardt's  salary  as  teller  was  $1,500,  and  he  had  but  a  small 
amount  of  property.  When  he  died  in  April,  1893,  he  had  $80,000 
of  insurance  on  his  life,  nearly  all  of  which  had  been  written 
within  six  months.  It  was  conceded  that,  for  more  than  a  year 
prior  to  his  death,  Schardt  had  been  constantly  embezzling  the 
funds  of  his  bank,  and  that  his  indebtedness  to  the  bank  thus 
criminally  incurred  amounted  at  the  time  of  the  application  for 
this  policy  to  little  less  than  $100,000,  and  "at  his  death  exceeded 
that  sum.  H  did  not  disclose  the  fact  of  his  crime  to  the  defend- 
ant at  the  time  of  his  application,  or  at  any  other  time.  His 
death  in  April,  1893,  was  caused  by  congestion  of  the  brain  and 
other  vital  organs,  caused  by  the  mental  strain  which  a  disclo- 
sure of  his  crime  brought  on. 

To  the  charge  of  the  court  that  Schardt's  failure  to  disclose 
to  the  insurer  the  fact  of  his  defalcation  would  not  avoid  the 
policy  unless  intentional  and  fraudulent,  the  defendant  took  the 
following  exception:  "(4)  Said  counsel  next  then  and  there  ex- 
cepted to  so  much  of  said  charge  as  instructs  the  jury  that 
before  the  failure  of  John  Schardt,  the  insured,  to  disclose  to 
the  defendant  company  the  fact  of  his  defalcation  to  the  plain- 
tiff bank,  at  the  time  of  the  application  and  policy  in  question, 
could  be  available  as  a  defense  to  his  action,  the  concealment 
must  have  been  intentional  on  the  part  of  the  said  insured,  and 
that,  if  his  failure  to  divulge  the  fact  arose  from  any  of  the  causes 

27  Only  such  parts  of  the  statement  of  facts  and  of  the  opinion  as  relate- 
to  the  issue  of  concealment  are  here  printed. 


Sec.  4.)  LIFE    INSURANCE  301 

Stated  in  said  charge,  that  such  defense  could  not  be  established  : 
and  said  counsel,  insisting'  that  the  purpose,  design,  or  intention 
of  the  insured  in  withholding  the  fact  from  the  knowledge  of  the 
company  is  not  material  in  making  out  said  defense,  except  to 
the  opinion  of  the  court  in  its  decision  to  the  contrary." 

Before  Taft  and  Lurton,  Circuit  Judges,  and  Hammond,  Dis- 
trict Judge. 

Taft,  Circuit  Judge.  *  *  *  For  the  error  in  excluding  evi- 
dence of  false  statements  concerning  other  insurance  in  the  sub- 
sequent policies,  the  judgment  herein  must  be  reversed.  The  case 
will  doubtless  be  tried  again,  however;  and  it  becomes  our  duty, 
therefore,  to  examine  and  decide  other  questions  made  upon  this 
record  by  the  defendant  which  must,  of  necessity,  arise  again  on 
the  second  trial.     *     *     * 

The  trial  court  held,  against  the  objection  of  defendant,  that, 
when  Schardt  was  asked  what  his  occupation  was,  he  answered 
truly  that  he  was  a  bank  teller,  and  that  the  scope  of  the  ques- 
tion was  not  such  as  to  require  him  to  add  that  he  was  an  habitual 
embezzler.  We  concur  in  this  view.  Neither  the  company  nor 
Schardt  could  have  thus  understood  the  question.  The  embez- 
zling was  merely  misfeasance  in  his  position  as  teller.  He  was  an 
unfaithful  bank  teller.  But  nothing  in  the  question  called  upon 
him  to  say  whether  he  was  a  good  or  bad  bank  teller. 

In  New  York  Bowery  Fire  Ins.  Co.  v.  New  York  Fire  Ins.  Co., 
17  Wend.  359,  the  issue  was  whether  a  contract  of  reinsurance 
was  avoided  by  the  failure  of  the  company  seeking  reinsurance 
to  communicate  to  the  reinsurer  facts  known  to  it  reflecting  on 
the  character  of  the  original  insured.  The  supreme  court  of  New 
York  held  that  it  was,  but  in  doing  so  expressed,  through  Justice 
Bronson,  its  opinion  of  what  the  duty  of  the  original  insured  was 
in  this  regard:  "The  general  doctrine  [i.  e.  of  concealment]  on 
this  subject  is  not  denied,  but  it  is  said  that  the  character  of 
Mortimer  [i.  e.  the  original  insured]  was  not  a  fact  material  to 
the  risk ;  that  the  person  applying  for  insurance  is  not  bound  to 
say  anything  about  his  own  character.  The  last  branch  of  the 
remark  is  undoubtedly  true.  Had  Mortimer  applied  to  defend- 
ants for  insurance,  he  was  not  bound,  nor  could  it  be  expected, 
that  he  should  speak  evil  of  himself.  Good  manners  on  the  part 
of  the  underwriter,  and  self-respect  on  the  part  of  the  applicant, 
would  forbid  a  conversation  on  the  subject  of  character.  If  the 
underwriter  wished  information  on  that  point,  he  would  naturally 
seek  it  from  some  other  source."  17  Wend.  366,  367.  This  pas- 
sage is  referred  to  with  approval  by  the  supreme  court  of  the 
United  States  in  the  case  of  Sun  Alut.  Ins.  Co.  v.  Ocean  Ins.  Co., 
107  U.  S.  485,  510,  1  Sup.  Ct.  582,  27  L.  Ed.  ZZ7. 

Justice  Bronson's  discussion  related  to  the  disclosure  of  a  fact 
not  inquired  about,  and  the  rule  there  laid  down  was,  of  course. 


302  CONCEALMENT  (Cll,  4 

not  intended  to  relieve  an  applicant  from  answering  questions 
put  to  him,  which,  in  their  necessary  scope,  require  statements 
from  him  which  relate  to  his  moral  character.  Nevertheless  the 
reasoning-  of  the  court  justifies  the  conclusion  that  the  insured 
is  not  called  upon  to  construe  a  simple  question  concerning  his 
ordinary  vocation  into  one  calling  for  a  statement  of  crimes  or 
misfeasances  of  which  he  may  have  been  guilty  in  pursuing  such 
vocation.  Then  it  is  said  that  he  had  expressly  warranted  that, 
in  his  statements  and  answers  in  this  application,  no  circumstances 
or  information  had  been  withheld  touching  his  past  and  present 
state  of  health  and  habits  of  life,  with  which  the  Penn  Mutual 
Life  Insurance  Company  ought  to  be  made  acquainted,  and  that 
his  habit  of  embezzling  should  have  been  communicated,  to  com- 
ply with  that  warranty.  We  are  of  opinion  that  these  words 
refer  to  questions  and  answers  in  the  application,  and  are  equiva- 
lent to  a  warranty  that  the  answers  to  the  questions  are  full  and 
complete.  The  habits  of  life  referred  to  are  those  inquired  about 
in  the  medical  examination,  and  are  those  which  have  a  direct 
relation  to  physical  health,  and  could  not  be  construed  to  refer 
to  thefts  or  embezzlements  of  which  the  applicant  may  have  been 
guilty,  and  concerning  which  no  inquiry  was  made. 

But,  even  if  Schardt  was  not  required  by  any  specific  question 
to  disclose  the  fact  of  his  embezzlements,  the  policy  would  still 
be  avoided,  if  it  were  material  to  the  risk,  and  he  intentionally 
concealed  it  from  the  company.  This  is  not  controverted.  The 
issue  of  law  between  the  parties  is  whether  the  policy  would  not 
be  avoided,  even  if  his  failure  to  disclose  it  were  due,  not  to  fraud- 
ulent intent,  but  to  mere  inadvertence,  or  a  belief  that  it  was  not 
material.  It  is  insisted  for  the  plaintiff  in  error  that  the  motive 
or  cause  of  the  nondisclosure  is  unimportant,  if  the  fact  be  found 
material  to  the  risk,  and  was  known  to  the  insured  when  he 
obtained  the  insurance.  The  trial  court  took  the  other  view,  and 
instructed  the  jury  accordingly.  If  this  were  a  case  of  marine 
insurance,  the  contention  for  the  plaintiff  in  error  must  certainly 
be  sustained. 

The  great  and  leading  case  on  the  subject  is  that  of  Carter  v. 
Boehm,  3  Burrows,  1905.'"  *  *  *  That  it  states  the  rule  en- 
forced by  the  courts  of  this  country  in  cases  of  marine  insurance 
is  established  by  many  decisions.  Perhaps  the  one  most  recently 
considered  by  the  supreme  court  of  the  United  States  was  a  case 
of  reinsurance  of  a  marine  risk.  Sun  Mut.  Ins.  Co.  v.  Ocean  Ins. 
Co.,  107  U.  S.  485,  1  Sup.  Ct.  582,  27  L.  Ed.  Z?>7. 

The  very  marked  difference  between  the  situation  of  the  parties 
in  marine  insurance  and  that  of  parties  to  a  fire  or  life  policy 
has  led  many  courts  of  this  country  to  modify  the  rigor  of  the 

2  8  Ante,  p.  234.    A  quotation  from  and  discussion  of  this  case  are  omitted. 


Sec.  4)  LIFE    INSURANCE  303 

doctrine  in  its  application  to  fire  and  life  insurance,  and  to  lean 
towards  the  view  that  no  failure  to  disclose  a  fact  material  to 
the  risk,  not  inquired  about,  will  avoid  the  policy,  unless  such 
nondisclosure  was  with  intent  to  conceal  from  the  insurer  a  fact 
believed  to  be  material;  that  is,  unless  the  nondisclosure  was 
fraudulent.  In  marine  insurance  the  risk  was  usually  tendered 
and  accepted  when  the  vessel  was  on  the  high  seas,  where  the 
insurer  had  no  opportunity  to  examine  her,  or  to  know  the  par- 
ticular circumstances  of  danger  to  which  she  might  be  exposed. 
The  risk  in  such  a  case  is  highly  speculative,  and  it  is  manifestly 
the  duty  of  the  insured  to  advise  the  insurer  of  every  circum- 
stance within  his  knowledge  from  which  the  probability  of  a  loss 
can  be  inferred,  and  he  cannot  be  permitted  to  escape  the  obliga- 
tion by  a  plea  of  inadvertence  or  negligence. 

In  cases  of  fire  and  life  insurance,  however,  the  parties  stand 
much  more  nearly  on  an  equality.  The  subject  of  the  fire  insur- 
ance is  usually  where  the  insurer  can  send  its  agents  to  give  it 
a  thorough  examination,  and  determine  the  extent  to  which  it  is 
exposed  to  danger  of  fire  from  surrounding  buildings,  or  because 
of  the  plan  or  material  of  its  own  structure.  The  subject  of  life 
insurance  is  always  present  for  physical  examination  by  medical 
experts  of  the  insurer,  who  often  acquire,  by  lung  and  heart  tests, 
and  by  chemical  analysis  of  bodily  excretions,  a  more  intimate 
knowledge  of  the  bodily  condition  of  the  applicant  than  he  has 
himself.  Then,  too,  the  practice  has  grown  of  requiring  the  appli- 
cant for  both  fire  and  life  insurance  to  answer  a  great  many 
questions  carefully  adapted  to  elicit  facts  which  the  insurer  deems 
of  importance  in  estimating  the  risk.  In  life  insurance,  not  only 
is  the  applicant  required  to  answer  many  general  questions  con- 
cerning himself  and  his  ancesters,  but  he  is  also  subjected  to  an 
extended  examination  concerning  his  bodily  history. 

This  was  true  in  the  case  at  bar.  When  the  applicant  has  fully 
and  truthfully  answered  all  these  questions,  he  may  rightfully 
assume  that  the  range  of  the  examination  has  covered  all  matters 
within  ordinary  human  experience  deemed  material  by  the  insurer, 
and  that  he  is  not  required  to  rack  his  memory  for  circumstances 
of  possible  materiality,  not  inquired  about,  and  to  volunteer  them. 
He  can  only  be  said  to  fail  in  his  duty  to  the  insurer  when  he 
withholds  from  him  some  fact  which,  though  not  made  the  sub- 
ject of  inquiry,  he  nevertheless  believes  to  be  material  to  the  risk, 
and  actually  is  so,  for  fear  it  would  induce  a  rejection  of  the  risk, 
or,  what  is  the  same  thing,  with  fraudulent  intent.  A  strong 
reason  why  the  rule  as  to  concealment  should  not  be  so  stringent 
in  cases  of  life  insurance  as  in  marine  insurance  is  that  the  ques- 
tion of  concealment  rarely,  if  ever,  arises  until  after  the  death 
of  the  applicant,  and  then  the  mouth  of  him  whose  silence  and 
whose  knowledge   it  is  claimed  avoid   the  policy  is  closed.     The 


304  CONCEALMENT  (Ch.  4 

application  is  generally  prepared,  and  the  questions  are  generally 
answered,  under  the  supervision  of  an  eager  life  insurance  solici- 
tor. Only  the  barest  outlines  of  the  conversations  between  the 
applicant  and  the  solicitor  are  reduced  to  writing.  The  applicant 
is  likely  to  trust  the  judgment  of  the  solicitor  as  to  the  materiality 
of  everything  not  made  the  subject  of  express  inquiry,  and.  with 
the  solicitor's  strong  motive  for  securing  the  business,  there  is 
danger  that  facts  communicated  to  him  may  not  find  their  way 
into  the  application. 

With  respect  to  a  contract  thus  made,  it  is  clearly  just  to  require 
that  nothing  but  a  fraudulent  nondisclosure  shall  avoid  the  policy. 
Nor  does  this  rule  result  in  practical  hardship  to  the  insurer,  for 
in  every  case  where  the  undisclosed  fact  is  palpably  material  to 
the  risk  the  mere  nondisclosure  is  itself  strong  evidence  of  a 
fraudulent  intent.  Thus,  if  a  man,  about  to  fight  a  duel,  should 
obtain  life  insurance  without  disclosing  his  intention,  it  would 
seem  that  no  argument  or  additional  evidence  would  be  needed 
to  show  the  fraudulent  character  of  the  nondisclosure.  On  the 
other  hand,  wdiere  men  may  reasonably  differ  as  to  the  material- 
ity of  a  fact  concerning  which  the  insurer  might  have  elicited  full 
information,  and  did  not  do  so,  the  insurer  occupies  no  such  posi- 
tion of  disadvantage  in  judging  of  the  risk  as  to  make  it  unjust 
to  require  that  before  the  policy  is  avoided  it  shall  appear,  not 
only  that  the  undisclosed  fact  was  material,  but  also  that  it  was 
withheld  in  bad  faith.  To  hold  that  good  faith  is  immaterial  in 
such  a  case  is  to  apply  the  harsh  and  rigorous  rule  of  marine 
insurance  to  a  class  of  insurance  contracts  dift'ering  so  materially 
from  marine  policies  in  the  circumstances  under  which  the  con- 
tracting parties  agree  that  the  reason  for  the  rule  ceases.  The 
authorities  are  not  uniform,  and  we  are  able  to  take  that  view 
which  is  more  clearly  founded  in  reason  and  justice.  In  England, 
the  tendency  of  the  courts  has  been  to  hold  that  the  same  rules 
apply  to  fire  and  life  insurance  as  to  marine  insurance,  in  refer- 
ence to  the  effect  of  the  concealment  of  material  facts.-''     *     *     * 

In  the  course  of  the  argument  in  Lloyd's  Case,  Baron  Parke 
approves  the  statement  of  some  able  American  law  writer  on 
insurance, — presumably  Mr.  Duer, — that  the  rule  for  the  necessity 
of  the  disclosure  of  all  material  circumstances  in  cases  of  insur- 
ance is  founded  on  mercantile  usage,  and  not  upon  fraud.  10 
Exch.  531.  This  only  confirms  our  view  that  the  rule  had  its 
origin   in   the  peculiar  exigencies  of  a  very  speculative  business, 

2  9  Here  the  court,  with  occasional  quotations,  commented  briefly  upon 
Bufe  V.  Turner,  6  Taunt.  338  (1815);  Huguenin  v.  Rayley,  6  Taunt.  186 
(1815) ;  Morrison  v.  Muspratt,  4  Bing.  60  (1827) ;  Lindenau  v.  Desborough, 
8  Barn.  &  C.  586  (1828) ;  London  Assurance  v.  Mansel.  L.  R.  11  Ch.  Div. 
363  (1879) ;  Abbott  v.  Howard.  Hayes,  381  (18.32) ;  North  British  Ins.  Co.  v. 
Lloyd,  10  Exch.  523  (1854) ;  Magee  v.  Manhattan  Life  Ins.  Co.,  92  U.  S.  93, 
23  L.  Ed.  699  (1875). 


Sec.  4)  LIFE    INSURANCE  305 

to  wit,  marine  insurance.  To  enforce  it  in  respect  to  life  insurance 
is  to  transfer  the  result  of  a  usage  prevailing  in  one  branch  of 
business  to  another,  where  the  conditions  are  very  different,  and 
are  of  a  character  that  prevents  the  possibility  of  the  existence  of 
a  definite  usage,  well  known  to  both  parties,  in  respect  to  the  con- 
tracts made.  It  is  the  business  of  shipowners  and  their  brokers 
frequently  to  deal  in  insurance,  and  they  may  be  presumed  to 
know  the  usages  prevailing  with  respect  to  contracts  that  they  are 
constantly  making.  In  life  itisurance  the  insured  never  makes 
a  business  of  taking  such  insurances,  and  in  most  cases  he  takes 
but  one  policy. ^°     *     *     * 

Coming  now  to  the  American  authorities,  we  find  very  early  in 
reported  cases  a  disposition  to  depart  from  the  strict  rules  of 
marine  insurance  law  in  the  consideration  of  fire  and  life  policies. 
In  Loan  Co.  v.  Snyder,  16  Wend.  481,  30  Am.  Dec.  118,  Chancellor 
Walworth,  delivering  the  opinion  of  the  supreme  court  of  errors 
of  New  York,  refers  to  the  peculiar  rule  of  construction  applied 
to  that  "anomalous  and  informal  instrument  called  a  'marine  poli- 
cy,' "  and  expresses  the  opinion  that  it  is  not  to  be  applied  in 
its  strictness  to  fire  policies.  The  same  view  is  expressed  in 
Jolly's  Adm'rs  v.  Baltimore  Equitable  Soc,  1  Har.  &  G.  295, 
18  Am.  Dec.  288,  by  the  court  of  appeals  of  Maryland. ^^     *     *     * 

There  are  many  other  cases  of  fire  insurance  in  which  it  is 
held  that  a  nondisclosure  of  a  material  fact  not  inquired  about 
does  not  avoid  the  policy  unless  it  appears  to  have  been  with- 
held with  fraudulent  intent.  Alkan  v.  Insurance  Co.,  53  Wis.  136, 
10  N.  W.  91 ;  Van  Kirk  v.  Insurance  Co.,  79  Wis.  627,  48  N.  W. 
798;  Insurance  Co.  v.  Stultz,  87  Va.  629,  636,  13  S.  E.  77;  San- 
ford  V.  Insurance  Co.,  11  Wash.  653,  40  Pac.  609;  Pelzer  Mfg.  Co. 
v.  St.  Paul  F.  &  M.  Ins.  Co.,  41  Fed.  271. 

The  number  of  life  insurance  cases  in  which  the  question  has 
arisen  is  small.  In  Rawls  v.  Insurance  Co.,  27  N.  Y.  287,  84  Am. 
Dec.  280,  the  court  of  appeals  held  that,  where  an  applicant  for 

3  0  Here,  mth  brief  comment  or  quotation,  the  court  referred  to  Pollock 
on  Contracts,  400.  note  i ;  Whoelton  v.  Hardesty,  S  El.  &  Bl.  232,  2S.3  (1857) : 
Phoenix  Mut.  Life  Ins.  Co.  v.  Raddin,  120  U.  S.  183,  7  Sup.  Ct.  500,  30  L.  Ed. 
644  (1887) ;  Thomson  v.  Weems,  9  App.  Cas.  671  (1884). 

31  The  court  here  cited,  usually  with  comment,  the  following  cases:  Bur- 
ritt  V.  Saratoga  County  Mut.  Fire  Ins.  Co.,  5  Hill  (N.  Y.)  188,  40  Am.  Dec. 
345  (1843)  ;  Clark  v.  Manufacturers'  Ins.  Co.,  8  How.  235,  249,  12  L.  Ed. 
1061  (1850);  Gates  v.  Madison  County  Mut.  Ins.  Co.,  5  N.  Y.  469,  55  Am. 
Dec.  360  (1851) ;  Browning  v.  Home  Ins.  Co.,  71  N.  Y.  .508,  27  Am.  Rep.  86 
(1877);  WoodrufC  v.  Imperial  Fire  Ins.  Co.,  83  N.  Y.  133  (1880);  Short  v. 
Home  Ins.  Co.,  90  N.  Y.  16,  43  Am.  Rep.  138  (1882);  Haight  v.  Continental 
Ins.  Co.,  92  N.  Y.  55  (1883) ;  Hartford  Protection  Ins.  Co.  v.  Harmer,  2  Ohio 
St.  452,  59  Am.  Dec.  684  (1853) ;  Curry  v.  Commonwealth  Ins.  Co.,  10  Pick. 
(Mass.)  535,  20  Am.  Dec.  547  (1830);  Washington  Mills  Emery  Mfg.  Co.  v. 
Weymouth  &  B.  Mut.  Fire  Ins.  Co.,  135  Mass.  503  (1S83) ;  Daniels  v.  Hudson 
River  Fire  Ins.  Co.,  12  Cush.  416,  59  Am.  Dec.  192  (1853). 

Vance  Ins. — 20 


306  CONCEALMENT  (Ch.  4 

life  insurance  fully  and  truly  answered  all  questions  put  to  him 
by  the  company,  the  mere  omission  to  state  matter,  though  mate- 
rial to  the  risk,  would  not  be  a  concealment,  and  would  not  affect 
the  validity  of  the  policy,  because  the  applicant  might  presume 
that  the  insurer  had  questioned  him  on  all  subjects  which  he 
deemed  material.  In  Mallory  v.  Insurance  Co.,  47  N.  Y.  52,  57, 
7  Am.  Dec.  410.  the  same  court  sustained  a  charge  to  the  jury, 
that,  if  the  applicant  did  not  conceal  any  fact  which,  in  his  own 
mind,  was  material  in  making  the  application,  the  policy  was  not 
void.     See,  also,  Cheever  v.  Insurance  Co.,  4  Am.  Law  Rec.  155. 

In  Vose  V.  Insurance  Co.,  6  Cush.  42,  the  supreme  judicial 
court  of  Massachusetts  announced  the  principle,  as  applicable  to 
life  policies,  that  the  concealment  of  a  material  fact  will  avoid 
the  policy,  though  it  is  the  result  of  accident  or  negligence,  and 
not  of  design.  The  case  did  not  call  for  the  application  of  such 
a  principle.  The  applicant  was  asked  if  he  was  afflicted  with  any 
disease.  He  answered  that  he  was  not.  At  the  time  he  had  con- 
sumption, and  had  experienced  several  of  the  premonitory  symp- 
toms. His  answers  were  made  the  basis  of  the  policy.  It  is 
probable  that  the  term  "concealment,"  as  used  in  this  case,  refers 
to  an  incomplete  answer  to  a  general  question,  rather  than  a  fail- 
ure to  volunteer  a  fact  not  asked  for,  because  the  court  uses  in 
the  opinion  language  which  is  incorporated  in  the  headnote  as 
follows :  "It  is  the  duty  of  the  insured  to  disclose  all  material 
facts  within  his  knowledge.  Although  specific  questions,  applica- 
ble to  all  men,  are  proposed  by  the  insurers,  yet  there  may  be  par- 
ticular circumstances  afifecting  the  individual  to  be  insured,  which 
are  not  likely  to  be  known  to  the  insurers ;  and  the  concealment 
of  a  material  fact,  when  a  general  question  is  put  by  the  insurers, 
at  the  time  of  efifecting  the  policy,  which  would  elicit  that  fact, 
will  vitiate  the  policy." 

But,  whatever  the  efifect  of  this  case,  we  think  the  modern  tend- 
ency, even  of  Massachusetts  decisions,  is  to  require  that  a  non- 
disclosure of  a  fact  not  inquired  about  shall  be  fraudulent,  before 
vitiating  the  policy;  and,  as  already  stated,  this  view  is  founded 
on  the  better  reason.  The  subject  is  by  no  means  as  clear,  upon 
the  authorities,  as  could  be  wished,  and  the  text  writers  find  much 
difficulty  in  reconciling  the  cases.  May,  Ins.  (3d  Ed.)  §§  202, 
203,  207.  We  hold  that  the  charge  of  the  circuit  court  upon  this 
question  was  correct.^^     *     *     * 

3  2  In  Northwestern  Life  Ins.  Co.  v.  Montgomery,  116  Ga.  799,  42  S.  E. 
79  (1902),  the  court  instructed  the  jury  to  find  for  the  phaintiffs  if  they  be- 
lieved that  the  insured  made  certain  statements  witliout  intending  to  de- 
ceive the  company  and  without  intent  to  procure  it  to  issue  on  such  false 
statements  the  policy  of  insurance.  In  holding  these  instructions  erroneous, 
the  court  said:  "Of  course,  intention  is  generally  a  question  for  the  deter- 
mination of  the  jury ;  and  the  conduct  of  the  parties,  as  showing  a  fraudu- 
lent intent,   is  generally  for   their  consideration.     But   in   the  present  case 


Sec.  5)  GUARANTY  INSURANCE  307 

For  the  error  already  referred  to  in  the  exclusion  of  evidence, 
the  judgment  of  the  circuit  court  is  reversed,  with  instructions  to« 
order  a  new  trial. 


SECTION  5.— GUARANTY  INSURANCE 


SEATON  V.  BURNAND. 
(House  of  Lords.     [1900]  App.  Cas.  135.) 

An  action  was  brought  by  the  appellant  against  the  respondent  on 
a  policy  which  was  dated  Lloyd's,  E.  C,  December  2,  1897,  and  ran 
as  follows : 

"Whereas,  Mrs.  Louisa  Christian  Seaton  has  advanced  to  Major- 
General  Barwell  the  sum  of  fifteen  thousand  pounds  on  his  promis- 
sory note  for  £15,000.,  dated  3d  December,  1897,  and  due  on  the  3d 
June,  1898;  and  whereas  Sir  Frederick  Seager  Hunt,  Bart.,  has  guar- 
anteed to  the  said  Mrs.  Louisa  Christian  Seaton  the  due  payment  of 
the  said  bill  for  £15,000.:  We,  the  undersigned  underwriters,  in  con- 
sideration of  a  premium  of  fifty  shillings  per  cent.,  which  we  hereby 
acknowledge  to  have  received,  each  for  himself  and  not  one  for  an- 
other, hereby  guarantee  the  solvency  of  the  said  Sir  Frederick  Seager 
Hunt,  Bart.,  in  respect  of  and  to  the  extent  of  the  said  bill  for  £15,000. 
No  claim  to  attach  to  this  policy  until  the  said  Sir  Frederick  Seager 
Hunt,  Bart.,  shall  have  a  receiving  order  in  bankruptcy  made  against 
him,  or  shall  call  a  meeting  of  his  creditors  or,  in  the  event  of  the 
decease  of  the  said  Sir  Frederick  Seager  Hunt,  Bart.,  before  pay- 
ment of  the  said  promissory  note,  his  estate  be  insolvent." 

The  respondent  defended  the  action  on  the  ground  of  misrepresen- 
tation and  concealment  of  material  facts. 

the  facts  were  such  that  they  could  properly  have  but  one  finding.  The  ap- 
plicant for  insurance  made  in  his  application  a  false  statement  with  ref- 
erence to  a  material  matter  of  fact.  This  statement  was  false,  within  his 
knowledge.  It  was  made  with  a  view  to  procuring  the  insurance;  was  made 
deliberately,  and  with  an  agreement  that  it  should  be  regarded  as  a  war- 
ranty, and  as  a  part  of  the  consideration  of  the  contract  of  insurance.  The 
company  had  no  notice  of  its  falsity,  and  acted  upon  it  to  its  injury.  Pur- 
posely misstating  this  material  fact,  in  order  to  induce  the  company,  relying 
upon*  it.  to  enter  into  a  contract  which  might  prejudice  its  rights,  would  be 
consistent  with  no  other  intention  than  one  to  deceive  the  company.  The  in- 
tention to  deceive,  coupled  with  the  other  facts  in  the  case,  conclusively 
showed  fraud,  in  the  legal  acceptation  of  the  term.  What  the  applicant 
thought  or  intended  with  reference  to  the  consequences  of  his  falsehood  can- 
not be  material.  He  is  presumed  to  have  intended  the  natural  consequence 
of  what  he  purposely  and  knowingly  did.  We  are  therefore  of  opinion  that 
the  company  completely  made  out  its  defense,  and  that  the  evidence  of  the 
plaintiffs  was  insutiicient  to  overcome  it.  We  are  also  of  opinion  that  the 
court  erred,  under  the  evidence  adduced,  in  leaving  the  jury  free  to  find 
that  there  was  no  bad  faith  or  intent  to  deceive  on  the  part  of  the  insured, 
and  that  a  verdict  for  the  plaintiffs  would  be  authorized." 


308  CONCEALMENT  (Cll.  4 

At  the  trial  before  Bigham,  J.,  and  a  special  jury  it  appeared  (omit- 
ting conflicting  evidence)  that  the  £15,000.  was  made  up  of  the  amount 
of  a  former  promissory  note,  unpaid,  a  present  advance  to  General  Bar- 
well  of  over  i8,000.,  and  interest  at  the  rate  of  over  30  per  cent.  Gen- 
eral Barwell  also  agreed  to  pay  interest  at  the  rate  of  30  per  cent. 
on  the  sum  of  £15,000.  if  the  promissory  note  was  not  paid  at  ma- 
turity. The  appellant  being  desirous  of  insuring  Sir  F.  S.  Hunt's 
guarantee  sent  her  agent,  Mr.  John  Lion,  to  the  respondent  to  ar- 
range it,  but  did  not  tell  Mr.  Lion  the  rate  of  interest  or  the  cir- 
cumstances of  the  loan,  and  these  were  not  disclosed  to  the  respond- 
ent. Mr.  Lion  told  the  respondent  that  Sir  F.  S.  Hunt  was  a  very 
wealthy  man :  the  respondent  said  that  he  must  make  inquiries  of  Sir 
F.  S.  Hunt's  banker,  and  went  with  Mr.  Lion  to  the  banker,  who  was 
also  the  respondent's  banker.  The  banker  told  the  respondent  that 
there  was  a  certain  amount  of  Sir  F.  S.  Hunt's  paper  about,  but  he 
believed  he  was  good  for  £15,000.  The  respondent  underwrote  the 
policy  for  £240.,  and  others  underwrote  it  for  various  amounts.  In 
1898  Sir  F.  S.  Hunt  called  a  meeting  of  his  creditors,  and  the  note 
was  never  paid.  In  answer  to  questions  put  by  Bigham,  J.,  the  jury 
found  that  the  transaction  was  not  one  of  exceptional  risk,  and  that 
the  respondent  acted  both  upon  the  information  he  got  from  Mr. 
Lion  and  from  that  which  he  got  from  the  banker.  Both  parties 
agreed  that  no  other  questions  need  be  left  to  the  jury,  and  Bigham, 
].,  entered  judgment  for  the  appellant  for  £240.  Upon  a  motion  to 
enter  judgment  for  the  respondent  or  for  a  new  trial  on  the  grounds 
that  the  verdict  was  against  the  w^eight  of  the  evidence  and  for  mis- 
direction, the  Court  of  Appeal  (A.  L.  Smith,  Collins  and  Romer,  L.  JJ.) 
ordered  a  new  trial  upon  the  ground  that  this  question  (inter  alia) 
should  have  been  left  to  the  jury:  Whether  taking  into  account  the 
statement  made  to  the  underwriters  it  was  a  concealment  of  a  ma- 
terial fact  not  to  disclose  to  them  the  circumstances  under  which  the 
loan  to  General  Barwell  had  been  made  and  the  rate  of  interest  de- 
manded and  obtained.  [1899]  1  O.  B.  782.  Against  that  decision  the 
appellant  brought  this  appeal,  and  the  respondent  brought  a  cross- 
appeal  asking  for  judgment. ^^ 

Eari,  of  HaIvSbury,  L.  C.  My  Lords,  in  my  view  of  this  case 
it  might  be  very  simply  dealt  with  indeed,  but  out  of  respect  to  the 
learned  judges  who  have  taken  a  different  view  of  it  I  will  just  say 
a  word  or  two  upon  the  grounds  upon  which  it  is  to  my  mind  ex- 
ceedingly clear  that  this  judgment  of  the  Court  of  Appeal  must  be 
reversed. 

My  Lords,  we  have  had  a  great  many  topics  urged  upon  us  which 
seem  to  me  very  irrelevant  to  the  real  question  which  is  here  being 
determined.  This  was  a  transaction  in  which  a  person  borrowing 
money,  it  is  said,  at  a  very  high  rate  of  interest — 30  per  cent. — was 

3  3  Arguments  of  counsel  are  omitted. 


Sec.  5)  GUARANTY   INSURANCE  309 

guaranteed  by  a  gentleman  at  that  time  of  very  high  commercial 
credit,  and  the  person  lending  the  money  insisted  upon  the  additional 
circumstance  that  there  should  be  the  guarantee  of  a  policy  at  Lloyd's 
for  the  purpose,  not  of  establishing  a  right  to  have  the  money  paid, 
but  to  guarantee  the  solvency  of  the  gentleman,  as  to  whom  I  do 
not  now  know  that  there  was  the  smallest  reason  to  doubt  that  he  was 
a  perfectly  solvent  person  at  that  time — and  I  do  not  know  that  there 
was  any  one  who  could,  or  did — certainly  nobody  did  at  the  trial — 
suggest  any  circumstance  known  to  the  lender  which  would  to  any 
degree  diminish  by  a  feather's  weight  the  solvency  of  Sir  Frederick 
Seager  Hunt.  Under  these  circumstances  underwriters  at  Lloyd's 
underwrite  what  I  will  call  this  policy  for  the  guarantee  of  the  sol- 
vency of  Sir  Frederick  Seager  Hunt.  That  was  the  contract  upon 
which  they  entered  and  upon  which  they  are  now  being  sued. 

My  Lords,  what  is  the  case  set  up  now?  Except  for  a  suggestion 
made  by  the  learned  counsel,  for  which  there  is  not  the  faintest  scrap 
of  evidence,  that  there  may  have  been  something  affecting  the  sol- 
vency of  Sir  Frederick  Seager  Hunt,  the  case  set  up  now  is :  "We 
wanted  what  is  compendiously  called  now  the  whole  transaction  ex- 
plained to  those  who  were  going  to  enter  into  this  policy."  My 
Lords,  I  entirely  differ  from  the  view  that  any  such  thing  as  the  cir- 
cumstances of  the  original  loan  could  or  ought  to  have  affected  the 
minds  of  those  who  were  entering  into  this  contract.  I  do  not  be- 
lieve that  any  one  of  them  would  have  thought  any  such  thing.  I  will 
come  in  a  moment  to  what  it  is  suggested  would  have  occurred  to 
them  as  material,  but  I  do  not  believe  that  any  one  would  have  thought 
that  material,  and  the  reason  I  say  that  is  not  that  I  rely  upon  my 
own  judgment  alone,  but  I  look  at  what  as  a  fact  those  business  men 
did  in  reference  to  it.  Did  they  inquire  by  a  single  question  what 
were  the  circumstances  of  the  original  loan?  Did  they  ask  anything 
about  the  original  loan,  or  how  it  came  to  be  made?  Not  a  word. 
What  they  did  was  what  as  business  men  and  as  sensible  men  would 
be  the  natural  thing  for  them  to  do — they  went  and  inquired  at  the 
bank  and  found  out  what  the  commercial  reputation  of  Sir  Frederick 
Seager  Hunt  was ;  they  were  satisfied  with  the  result  of  their  in- 
quiries and  they  entered  into  this  contract. 

My  Lords,  it  appears  to  me  that  there  is  the  beginning  and  the 
ending  of  this  case.  There  is  no  pretence  for  saying  that  the  parties 
who  obtained  this  contract  with  the  underwriters  knew  and  kept  back 
anything  which  could  have  affected  Sir  Frederick  Seager  Hunt's  cred- 
it, subject  of  course  to  what  may  be  said  afterwards  about  the  nature 
of  the  loan  itself,  with  which  I  will  deal  in  a  moment.  To  my  mind 
that  was  the  whole  question,  and  on  that  point  it  appears  to  me  to  be 
absolutely  out  of  the  question  that  you  can  go  back  any  further  than 
that.  It  is  very  easy  to  use  the  phrase  that  they  wanted  "the  whole 
transaction  explained  to  them" ;  you  must  explain  what  you  mean 
by  "the  transaction."    If  you  mean  the  transaction  of  the  policy,  then, 


310  CONCEALMENT  (Ch,  4 

as  to  the  only  thing  that  was  guaranteed  by  the  policy,  namely,  the 
solvency  of  Sir  Frederick  Seager  Hunt,  they  did  know  all  that  the 
persons  obtaining  the  contract  themselves  knew,  at  least  so  far  as  the 
evidence  went,  and  I  am  not  going  to  speculate  whether  if  some  other 
witness  had  been  called  and  something  or  other  had  been  elicited 
from  him  which  we  do  not  even  now  know,  a  different  state  of  things 
might  have  arisen.  Of  things  that  do  not  appear  and  things  that  do 
not  exist  the  reckoning  in  a  court  of  law  is  the  same,  and  it  is  enough 
for  me  to  say  that  there  is  not  a  fragment  of  evidence  which  can 
even  be  pointed  to  here  which  could  have  affected  the  question  of  the 
solvency  of  Sir  Frederick  Seager  Hunt. 

But,  my  Lords,  it  is  said  that  this  is  not  an  ordinary  business  trans- 
action. Those  words,  of  course,  themselves  require  exposition — I  do 
not  know  what  an  ordinary  business  transaction  means.  Of  course  the 
transaction  itself  of  guaranteeing  the  solvency  of  somebody  who  is 
to  be  a  security  for  somebody  else's  debt  is,  I  admit,  a  somewhat 
extraordinary  transaction.  But  that  upon  the  surface  was  known  to 
these  people  who  entered  into  this  bargain  themselves.  It  is  the  very 
nature  of  the  transaction,  and  that  indeed  might  have  raised  suspicion 
in  some  people's  minds.  To  my  mind  it  would  have  been  a  somewhat 
odd  transaction,  I  admit.  I  was  not  aware,  until  this  case,  that  such 
a  transaction  as  this,  any  more  than  the  determinations  of  judiciai 
tribunals,  is  now  made  the  subject  of  policies  at  Lloyd's — I  was  not 
aware  of  that,  but  certainly  it  would  have  struck  my  mind  as  an  odd 
transaction  if  it  had  come  before  me  previously. 

But  then  it  is  said  now,  after  the  Hability  has  arisen,  for  which  as 
a  matter  of  fact  the  underwriters  received  payment  (because  it  was 
a  matter  of  payment),  when  they  are  called  upon  to  pay,  it  is  said : 
"We  ought  to  have  known  the  circumstances  of  the  original  loan, 
and  if  those  were  special  circumstances  applicable  to  the  original 
loan,  we  ought  to  have  had  our  minds  directed  to  them,  and  then  we 
would  not  have  accepted  such  a  transaction."  Of  course,  what  peo- 
ple persuade  themselves  they  would  or  would  not  have  done  when  a 
liability  has  arisen,  is  a  thing  with  which  one  is  sufficiently  familiar 
in  courts  of  law.  If  goods  which  have  been  contracted  for  go  up  or 
down  in  the  market,  one  has  heard  very  strange  evidence  about  what 
induced  people  not  to  take  the  goods ;  and  in  the  same  way,  when  it 
has  turned  out  that  this  guarantee  is  to  be  sued  upon,  people  con- 
vince themselves  in  a  very  odd  way  as  to  what  would  have  affected 
their  minds  if  they  had  known  it  at  the  time. 

But,  my  Lords,  let  us  look  a  little  more  closely  at  what  the  under- 
writers themselves  say.  Let  us  take  the  evidence  of  the  gentleman 
who  is  relied  upon  to  establish  the  proposition  that  they  would  not 
have  taken  this  guarantee  if  they  had  known  that  a  rate  of  interest 
of  30  per  cent,  was  charged.  My  Lords,  I  interrupt  myself  for  a 
moment  to  say  that  I  decline  to  deal  with  the  question  whether  or 
not  the  loan  was  actually  made  at  the  time.    It  appears  to  me  that  that 


Sec.  5)  GUARANTY    INSURANCE  311 

question  was  never  substantially  raised  at  the  trial :  it  is  now  put  up 
as  a  misrepresentation.  I  suppose  if  it  had  been  alleged  that  the 
money  was  not  actually  paid  and  the  loan  not  made,  but  that  the 
whole  thing  was  agreed  and  arranged  for,  nobody  could  have  said 
that  there  was  any  difference  between  a  loan  having  been  actually 
made  and  a  loan  having  been  agreed  to  be  made,  but  it  is  enough  to 
my  mind  to  say  that  the  question  was  never  raised  at  all. 

What  was  contended  and  what  was  put  before  the  learned  judge, 
who  treated  it  much  more  favourably  than  I  should  have  been  dis- 
posed to  do  if  I  had  presided  at  the  trial,  was  that  this  rate  of  interest 
would  have  suggested  that  the  transaction  was  so  risky  that  they 
would  not  have  entered  into  it.  Now,  obviously  it  is  important  to 
inquire,  not  what  you  say  now,  but  what  you  said  at  the  time.  This 
is  a  question  of  this  loan  of  £15,000.  ilS.OOO.  was  a  gross  sum  to  be 
paid,  but  it  was  not  to  be  paid  in  the  shape  of  so  much  principal 
and  so  much  interest,  for  that  time,  but  it  was  a  gross  sum,  and  there- 
fore business  men  would  know  that  if  it  was  a  loan  at  interest  that 
gross  sum  included  the  interest,  and  if  they  had  thought  it  material 
they  would  have  inquired  how  much  was  interest  and  how  much  was 
principal  to  be  repaid.  But  did  they  ever  think  of  any  such  thing? 
Let  me  take  their  own  evidence.  At  page  76  this  question  is  asked 
of  Mr.  Burnand :  "You  say  you  naturally  assumed  it  was  at  interest, 
but  you  did  not  ask  what  the  interest  was?  A.  No,  I  did  not.  Q. 
Did  not  one  of  the  persons  to  whom  you  took  the  slip  ask  what  the 
interest  was?  A.  Not  a  single  one."  Out  of  something  like  fifty 
persons  engaged  in  the  business  and  familiar  with  business  not  one 
of  them  asked  this  question,  which  is  now  regarded  as  all-important, 
what  the  interest  was ;  and  in  the  face  of  that  your  Lordships  are 
now  asked  to  say  that  this  was  such  an  important  circumstance  that 
they  would  have  taken  a  different  view  if  they  had  only  known  that 
the  interest  was  30  per  cent. 

Mr.  Burnand  was  further  asked :  "Do  you  think  it  was  material  to 
know  what  the  interest  was?  A.  It  was  material  to  know  if  it  was 
30  per  cent.  Q.  Was  it  material  to  know  what  the  rate  of  interest 
was?  A.  No,  because  I  understood  from  Mr.  Lion  that  it  was  a 
friendly  thing,  and  I  presumed  they  paid  about  8  or  9  per  cent."  I 
will  not  comment  again  upon  the  friendliness  of  taking  8  or  9  per 
cent.,  but  it  seems  to  me  that  the  whole  tone  of  the  witness  shews, 
perhaps  unintentionally,  how  perfectly  idle  and  beside  the  real  point 
was  any  notion  as  to  the  original  loan  and  the  terms  upon  which  it 
was  made.  Then  he  is  asked  again:  "If  it  was  material,  can  you 
explain  how  it  was  that  not  one  of  the  persons  to  whom  that  slip  was 
taken  asked  the  question?  A.  No;  well,  I  suppose  they  believed  the 
same  as  I  did :  it  was  a  bona  fide  honest  transaction,  and,  at  whatever 
the  ordinary  rate  is,  friendly.  Q.  Do  you  mean  to  suggest  that  this 
is  not  a  bona  fide  honest  transaction?  A.  Well" — the  witness  evi- 
dently hesitated. 


.'^12  CONCKALMI'NT  (Cll.  4 

My  Lords,  once  that  admission  was  made,  if  this  question  could 
ever  have  been  raised,  which  I  doubt,  as  to  the  materiality  of  what 
took  place  at  the  original  granting  of  the  loan,  it  seems  to  me  that 
is  decisive  of  the  whole  question.  Then,  what  is  there  left?  It  is 
suggested  now,  indeed,  that  the  verdict  is  against  the  evidence.  I 
think  Mr.  Lawson  Walton  went  so  far  as  to  say  that  no  reasonable 
jury  could  have  found  the  verdict  they  did.  I  was  sorry  to  hear  him 
say  so,  because  I  should  certainly  have  found  the  same  verdict,  and 
I  am  afraid  the  inference  is  unfavourable  to  me  when  I  say  that.  I 
quite  think  that  it  was  a  reasonable  verdict,  and  I  am  very  much  dis- 
posed to  think  that  it  is  the  only  verdict  that  could  have  been  found. 
I  doubt  whether,  if  the  jury  had  found  the  other  verdict,  it  would  have 
been  possible  to  sustain  that  verdict.  What  is  put  here  is  something 
that  does  such  violence  to  one's  common  sense  that  if  the  verdict  had 
been  found  the  other  way  I  doubt  whether  it  could  have  been  sus- 
tained. 

My  Lords,  even  the  judgment  of  the  Court  of  Appeal  which  is  re- 
lied upon  really  does  not  enter  into  the  question  which  has  been  so 
strongly  argued  before  your  Lordships,  because  what  the  Court  of 
Appeal  say  is  that  other  questions  ought  to  have  been  asked,  and 
they  formulate  two  questions  which  they  say  ought  to  have  been  asked. 
That  is  disposed  of  by  the  course  which  was  taken  at  nisi  prius. 
The  learned  judge  with  great  care  and  deliberation  formulated  ques- 
tions and  submitted  them  to  counsel,  and  gave  counsel  time  and  op- 
portunity of  considering  whether  any  other  questions  ought  to  be 
asked ;  and,  after  taking  time  for  consideration,  the  learned  counsel 
for  the  defendant  stated  that  there  was  no  other  question  which  they 
wished  the  jury  to  be  asked,  nor  did  they  wish  to  vary  the  form  of 
the  questions  that  were  proposed  to  be  asked.  Under  such  circum- 
stances it  would  really  be  putting  a  premium  upon  the  loosest  pos- 
sible mode  of  conducting  business  to  suggest  that  questions  could  be 
again  formulated  by  counsel  and  then  submitted  to  another  jury. 
Under  these  circumstances  it  appears  to  me  that  it  is  impossible  to 
sustain  the  judgment  of  the  Court  of  Appeal,  and  I  move  your  Lord- 
ships that  that  judgment  be  reversed.* 

[Concurring  opinions  of  Lords  Morris,  Shand,  Brampton,  and 
Robertson  are  omitted.  Lords  Macnaghtkn  and  Dave;y  also 
concurred.] 

Order  of  the  Court  of  Appeal  reversed;  cross-appeal  dismissed; 
judgment  of  Bigham,  J.,  restored,  with  costs  here  and  below. 

*In  the  Court  of  Appeal  ([1899],  1  Q.  B.  782)  it  was  argued  that  this  was  a 
contract  of  guaranty  merely,  but  the  court  held  it  to  be  a  contract  of  insur- 
ance. An  ordinary  contract  of  guaranty  is  not  avoided  by  the  innocent  con- 
cealment of  a  material  fact.  See  North  British  Ins.  Co.  v.  Lloyd,  10  Exch. 
523  (1854).  As  to  concealment  in  title  guaranty  contracts,  see  Vaughan  v. 
U.  S.  Title  Guaranty  Co.,  137  App.  Div.  623,  122  N.  X.  Supp.  393  (1910). 


Sec.  G)  WHEN    DUTY   TO    DISCLOSE   TERMINATES  313 

SECTION  6.— WHEN  DUTY  TO  DISCLOSE  TERMINATES 


MERCHANTS'  MUT.  INS.  CO.  v.  LYMAN. 

(Supreme  Court  of  the  United  States,  1872.    15  Wall.  GG4,  21  L.  Ed.  24G.) 

Lyman  &  Co.  brought  their  action  in  the  court  below  against  the 
Merchants'  Mutual  Insurance  Company  of  New  Orleans,  for  the 
sum  of  $12,000,  the  value  of  the  brig  Sailor  Boy,  lost  at  sea  on  the 
8th  of  January,  1870,  and  which  was  insured,  as  they  allege,  by  the 
said  company.  Their  petition  set  forth:  That  on  the  30th  of  Oc- 
tober, 1869,  the  company  had  issued  a  policy  to  them  on  the  brig  for 
the  sum  named,  which  insured  her  until  January  1,  1870.  That 
on  the  15th  December,  1869,  they  applied  to  the  company  to  insure 
them  in  the  same  sum,  upon  the  same  vessel,  for  three  months  from 
the  said  1st  January,  1870.  That,  after  taking  time  to  consider,  the 
company,  on  December  24,  1869,  proposed  to  renew  the  insurance 
for  the  premium  of  $600  and  that  on  December  31,  the  plaintiffs  ac- 
cepted this  proposition  for  renewal,  and  that  the  company  on  that 
day  agreed  with  them  that  it  would  issue  the  policy,  and  make  it 
out  and  send  it  to  them,  and  receive  the  premium.  That  on  the 
15th  January,  1870,  the  plaintiffs  sent  for  the  policy  and  paid  the 
premium,  and  the  company  issued  to  plaintiffs  the  policy  annexed 
to  the  petition ;  that  the  said  policy  was  but  a  compliance  with  and 
a  formal  statement  of  the  agreement  to  renew  the  insurance,  made 
December  31,  1869.  That  on  the  8th  of  January,  1870,  the  brig  was 
lost,  etc. 

Along  with  their  petition,  the  plaintiffs  filed  two  policies  of  in- 
surance, on  their  face  such  as  above  stated ;  that  is  to  say,  one  dat- 
ed October  30,  1869,  for  two  months,  expiring  January  1,  1870,  and 
one  dated  January  15,  1870,  and  which,  by  its  terms,  purported  to 
make  an  insurance  "from  the  1st  of  January,  1870,  to  the  1st  of 
April,  1870." 

On  the  trial  it  appeared  that  the  plaintiffs,  when  they  renewed 
the  policy  of  the  15th  January,  and  paid  the  premium  for  insurance, 
knew  that  the  vessel  was  lost,  and  that  the  defendants  had  no  such 
knowledge  or  information. 

.  As  on  this  state  of  facts  it  would  be  obvious  that  no  action  could 
be  sustained  on  the  policy — and  indeed  that,  in  point  of  fact,  the 
taking  of  such  a  policy,  and  causing  the  defendant  to  sign  it,  would 
have  been  a  fraud — the  plaintiffs  framed  their  petition  on  the  as- 
sumption, and  directed  their  evidence  to  the  showing  that  the  ex- 
ecution of  the  policy  was  but  carrying  into  effect  an  agreement 
made  before  the  loss  of  the  vessel. 


314  CONCEALMENT  (Ch.  4 

In  order  to  sustain  this  their  case  they  offered  in  evidence  the 
deposition  of  their  agent,  which  gave  an  account  of  conversations 
had  by  him  in  reference  to  a  renewal  of  the  insurance  with  some 
one  in  the  defendants'  office.  The  defendants  objected  to  this  tes- 
timony, on  the  ground  that  there  was  a  written  apphcation  for  and 
contract  of  insurance  between  the  parties  for  the  same  amount  of 
insurance  and  same  amount  of  premium,  on  the  same  object  in- 
sured, the  vessel  called  Sailor  Boy,  by  the  same  plaintiffs  as  insured, 
and  same  defendants  as  insurers,  for  the  same  space  of  time,  to  wit, 
from  the  1st  day  of  January,  1870,  to  the  31st  March,  1870;  that 
the  plaintiffs  had  no  right  to  contradict  the  written  application 
aforesaid  by  proof  of  a  previous  verbal  contract;  that  the  plaintiffs' 
right  of  action,  if  any,  was  on  the  written  application  and  contract 
aforesaid,  and  that  they  could  not  ignore  the  said  written  contract 
to  fall  back  on  an  alleged  previous  verbal  contract  of  the  same  tenor 
and  purport;  that  the  evidence  showing  that  when  the  said  written 
contract  was  executed,  the  plaintiffs  and  their  agents  were  aware 
of  the  fact  of  the  previous  loss  and  abandonment  of  the  Sailor  Boy, 
the  said  written  application  and  policy  were  not  binding  in  law,  but 
were  nevertheless  the  contract  of  the  parties  subject  to  be  gainsaid 
by  proper  allegations  and  proof  of  fraud;  that  the  plaintiffs  could 
not  ignore  the  written  contract. 

But  the  court  ruled  as  follows:  "The  plaintiffs  put  their  entire 
case  upon  a  verbal  contract  to  renew  the  insurance  made,  as  they 
allege,  on  the  31st  day  of  December,  eight  days  before  the  loss. 
They  admit  that  when  they  sent  for  the  written  policy,  on  the  15th 
of  January,  they  knew  of  the  loss,  and  that  they  could  not  recover 
on  the  written  policy  standing  by  itself,  but  they  say  that  the  real 
contract  was  made  on  the  31st  of  December,  and  that  they  had  a 
right  to  go  to  the  jury  on  that  issue." 

The  court  accordingly  overruled  the  objection  and  admitted  the 
testimony,^*     A  verdict  was  given  for  the  plaintiffs. 

Mr.  Justice  Miller  delivered  the  opinion  of  the  court. 

Undoubtedly  a  valid  verbal  contract  for  insurance  may  be  made, 
and  when  it  is  relied  on,  and  is  unembarrassed  by  any  written  con- 
tract for  the  same  insurance,  it  can  be  proved  and  become  the  foun- 
dation of  a  recovery  as  in  all  other  cases  where  contracts  may  be 
made  either  by  parol  or  in  writing.  But  it  is  also  true  that  when 
there  is  a  written  contract  of  insurance  it  must  have  the  same  effect 
as  the  adopted  mode  of  expressing  what  the  contract  is,  that  it  ha* 
in  other  classes  of  contract,  and  must  have  the  same  effect  in  ex- 
cluding parol  testimony  in  its  application  to  it,  that  other  written 
instruments  have. 

34  This  testimony,  set  out  in  the  original  report,  is  omitted.  It  does  not 
clearly  show  a  completed  contract. 


Sec.  6)  WHEN   DUTY   TO    DISCLOSE   TERMINATES  315 

Counsel  for  the  defendants  in  error  here,  relies  on  two  proposi- 
tions, namely,  that  the  policy,  though  executed  January  ISth,  is 
really  but  the  expression  of  a  verbal  contract,  made  the  31st  day 
of  December  previous,  and  that  the  loss  of  the  vessel  between  those 
two  dates  does  not  invalidate  the  contract,  though  known  to  the 
insured  and  kept  secret  from  the  insurers ;  and  secondly,  that  they 
can  abandon  the  written  contract  altogether  and  recover  on  the 
parol  contract. 

We  do  not  think  that  either  of  these  propositions  is  sound. 
Whatever  may  have  been  the  precise  facts  concerning  the  negotia- 
tions for  a  renewal  of  the  insurance  previous  to  the  execution  of 
the  policy,  they  evidently  had  reference  to  a  written  contract,  to  be 
made  by  the  company. 

When  the  company  came  to  make  this  instrument,  they  were  en- 
titled to  the  information  which  the  plaintiffs  had  of  the  loss  of  the 
vessel.  If  then  they  had  made  the  policy,  it  would  have  bound 
them,  and  no  question  would  have  been  raised  of  the  validity  of  the 
instrument  or  of  fraud  practised  by  the  insured. 

On  the  other  hand,  if  they  had  refused  to  make  a  policy,  no  injury 
would  have  been  done  to  the  plaintiffs,  and  they  would  then  have 
stood  on  their  parol  contract  if  they  had  one,  and  did  not  need  a 
policy  procured  by  fraudulent  concealment  of  a  material  fact  at  the 
time  it  was  executed  and  the  premium  paid. 

To  permit  the  plaintiffs,  therefore,  to  prove  by  parol  that  the 
contract  of  insurance  was  actually  made  before  the  loss  occurred, 
though  executed  and  delivered  and  paid  for  afterward,  is  to  con- 
tradict and  vary  the  terms  of  the  policy  in  a  matter  material  to  the 
contract,  which  we  understand  to  be  opposed  to  the  rule  on  that 
subject  in  the  law  of  Louisiana  as  well  as  at  the  common  law. 

We  think  it  equally  clear,  that  the  terms  of  the  contract  having 
been  reduced  to  writing,  signed  by  one  party  and  accepted  by  the 
other  at  the  time  the  premium  of  insurance  was  paid,  neither  party 
can  abandon  that  instrument,  as  of  no  value  in  ascertaining  what 
the  contract  was,  and  resort  to  the  verbal  negotiations  which  were 
preliminary  to  its  execution,  for  that  purpose.  The  doctrine  is  too 
well  settled  that  all  previous  negotiations  and  verbal  statements  are 
merged  and  excluded  when  the  parties  assent  to  a  written  instru- 
ment as  expressing  the  agreement.  And  it  is  hardly  necessary  to 
say,  that  the  party  who  has  destroyed  the  validity  of  that  contract 
by  his  own  fraud,  cannot  for  that  reason  treat  it  as  if  it  had  never 
been  made,  and  recover  on  the  verbal  statements  made  before  its 
execution. 

We  may  add  that,  as  the  only  testimony  offered  to  prove  this 
parol  contract  was  the  deposition  of  a  single  witness,  made  part 
of  the  bill  of  exceptions,  we  do  not  see  in  that  deposition  sufficient 
evidence  of  a  completed  contract,  of  an  agreement  assented  to  by 


316  CONCEALMENT  (Ch.  4 

both  parties  at  any  one  time,  to  be  submitted  to  a  jury,  even  if  the 
written  contract  had  never  been  executed. 

Judgment  reversed,  with  directions  to  grant  a  new  trial. ^"^ 

3  5  For  the  general  proposition  tliat  tlie  duty  on  tlie  part  of  the  insured 
to  disclose  terminates  as  soon  as  the  insurer  becomes  equitably  bound  to 
issue  a  policy,  see  the  following  cases:  Michigan  Pipe  Co.  v.  Michigan  Fire 
&  Marine  Ins.  Co.,  92  Mich.  4S2,  52  N.  W.  1070,  20  L.  R.  A.  277  (1892); 
Mutual  Life  Ins.  Co.  of  New  York  v.  Thomson,  94  Ky.  253,  22  S.  W.  87 
(1893) ;  Commercial  Ins.  Co.  v.  Hallock,  27  N.  J.  Law,  645,  72  Am.  Dec.  379 
(1858);  Keim  v.  Home  Mut.  Fire  &  Marine  Ins.  Co.,  42  Mo.  38,  97  Am.  Dee. 
291  (1SG7) ;  Baldwin  v.  Chouteau  Ins.  Co.,  56  Mo.  151,  17  Am.  Rep.  671  (1874). 
In  Cory  v.  Patton,  L.  R.  7  Q.  B.  304  (1872),  s.  c.  on  appeal  L.  R.  9  Q.  B.  577 
(1874),  the  court  went  so  far  as  to  hold  that  the  duty  of  the  insured  to 
communicate  material  facts  in  his  knowledge  terminates  with  a  preliminary 
contract  that  is  binding  only  as  a  moral  obligation,  by  reason  of  a  custom 
among  underwriters.  Accordingly,  when  the  insured  failed  to  disclose  to  the 
insurer  a  loss  that  had  occurred  after  making  such  an  imperfect  preliminary 
contract,  but  before  the  execution  of  the  policy,  it  was  held  that  the  con- 
cealment was  not  ground  for  avoiding  the  policy  when  issued. 


Sec.  1)  EEPRESENTATIONS  317 

CHAPTER  V 
REPRESENTATIONS 


SECTION  1.— MARINE  INSURANCE 


OF  REPRESENTATIONS. 

(Marshall  on  Insurance  [1802]  p.  334.) 

Good  faith  should  preside  in  all  the  transactions  of  commerce, 
and  in  none  more  than  in  those  of  insurance,  of  which  it  is  the 
vital  principle.  In  this  contract,  each  party  is  bound  to  conduct 
himself  towards  the  other,  not  only  with  integrity,  but  with  the 
most  unreserved  openness  and  candor;  and  they  ought  mutually  to 
disclose  to  each  other  every  circumstance  which  can  in  any  degree 
affect  the  risk.  It  seldom  happens  that  any  such  circumstance  lies 
within  the  knowledge  of  the  underwriter;  fraud  is  therefore  seldom 
imputable  to  him,  and  he  is  much  oftener  the  victim  of  his  own 
credulity.  But  the  law  watches,  with  a  jealous  eye,  the  conduct  of 
the  insured,  from  whom  the  underwriter  must,  in  most  cases,  learn 
all  the  facts  and  circumstances  from  which  he  makes  his  calcula- 
tions, and  appreciates  the  risk.  Every  material  representation  is 
considered  as  forming  an  ingredient  in  the  contract,  and  every  ma- 
terial misrepresentation  or  concealment  is  therefore  deemed  a  fraud, 
and  will  avoid  it. 


ANONYMOUS. 
(Court  of  King's  Bench,  1692.     Skinner,  327.) 

Upon  evidence  in  an  action  upon  a  charter  party,  the  case  was, 
that  J.  S.  insured  for  him,  and  such  who  should  have  goods  upon 
such  ship ;  and  A.  B.  brought  an  action  upon  this  charter-party,  and 
made  averment  he  had  goods  upon  the  ship,  and  held  good ;  but  per 
Holt,  Chief  Justice,  if  the  goods  were  assured  as  the  goods  of  an 
Hamburgher  who  was  an  ally,  and  the  goods  were  the  goods  of  a 
Frenchman  who  was  an  enemy;  this  is  a  fraud,  and  the  assurance  is 
not  good. 


318  REPRESENTATIONS  (Ch.  5 

PAWSON  V.  WATSON. 

(Court  of  King's  Bench,  177S.     2  Cowp.  785.)  i 

Upon  a  rule  to  shew  cause  why  a  new  trial  should  not  be  grant- 
ed in  this  case,  Lord  Mansfield  reported  as  follows:  This  was  an 
action  upon  a  policy  of  insurance.  At  the  trial  it  appeared  in  evi- 
dence, that  the  first  underwriter  had  the  following-  instructions 
shewn  him :  "Three  thousand  five  hundred  pounds  upon  the  ship 
Julius  Caesar,  for  Halifax,  to  touch  at  Plymouth,  and  any  port  in 
America:  She  mounts  12  guns  and  20  men."  These  instructions 
were  not  asked  for  or  communicated  to  the  defendant;  but  the 
ship  was  only  represented  generally  to  him,  as  a  ship  of  force :  And 
a  thousand  pounds  had  been  done,  before  the  defendant  did  any 
thing  upon  her.  The  instructions  were  dated  the  28th  June,  1776, 
and  the  ship  sailed  on  the  23d  July,  1776;  and  was  taken  by  an 
American  privateer.  That  at  the  time  of  her  being  taken,  she  had 
on  board  6  four  pounders,  4  three  pounders,  3  one  pounders,  6  half 
pounders,  which  are  called  swivels,  and  27  men  and  boys  in  all,  for 
her  crew;  but  of  them,  16  only  were  men,  (not  20,  as  the  instruc- 
tions mentioned),  and  the  rest,  boys.  But  the  witness  said,  he  con- 
sidered her  as  being  stronger  with  this  force,  than  if  she  had  12  car- 
riage guns  and  20  men:  He  also  said,  (which  is  a  material  circum- 
stance), that  there  were  neither  men  nor  guns  on  board,  at  the  time 
of  insurance.  That  he  himself  insured  at  the  same  premium,  with- 
out regard  or  enquiry  into  the  force  of  the  ship.  Other  underwrit- 
ers also  insured  at  the  same  premium,  without  any  other  represen- 
tation than  that  she  was  a  ship  of  force.  That  to  every  four  pound- 
er there  should  be  five  men  and  a  boy.  That  in  merchant  ships, 
boys  always  go  under  the  denomination  of  men. 

This  was  met  by  evidence  on  the  part  of  the  defendant,  saying, 
that  guns  mean  carriage  guns,  not  swivels,  and  men  mean  able  men 
exclusive  of  boys.  There  were  three  causes  of  the  same  nature, 
depending  upon  the  same  evidence:  The  defence  in  each  was,  that 
these  instructions  were  to  be  considered  as  a  warranty,  the  same  as 
if  they  had  been  inserted  in  the  policy ;  though  they  were  not  prov- 
ed to  have  been  shewn  to  any  but  the  first  underwriter.  In  all  the 
three  cases,  the  question  reserved  for  the  opinion  of  the  court  is, 
"Whether  the  written  instructions  which  were  shewn  to  the  first 
underwriter,  are  to  be  considered  as  a  warranty  inserted  in  the  pol- 
icy, or  as  a  representation,  which  would  only  avoid  the  policy,  if 
fraudulent?"  If  the  court  should  be  of  opinion,  that  the  instruc- 
tions amounted  to  a  warranty,  then  a  new  trial  is  to  be  granted  in 
each,  without  costs  ;  otherwise,  the  verdicts  are  to  stand. 

At  the  trial  I  was  of  opinion,  that  it  would  be  of  very  dangerous 

1  S.  c,  1  Doug.  11,  note  3. 


Sec.  1)  MARINE   INSURANCH  319 

consequence  to  add  a  conversation  that  passed  at  the  time,  as  part 
of  the  written  agreement.  It  is  a  collateral  representation :  And  if 
the  parties  had  considered  it  as  a  warranty,  they  would  have  had  it 
inserted  in  the  policy.  But  secondly,  if  these  instructions  were  to 
be  considered  in  the  light  of  a  fraudulent  misrepresentation,  they 
must  be  both  material  and  fraudulent:  And  in  that  light,  I  held, 
that  a  misrepresentation  made  to  the  first  underwriter,  ought  to  be 
considered  as  a  misrepresentation  made  to  every  one  of  them,  and 
so  would  infect  the  whole  policy.  Otherwise,  it  would  be  a  contri- 
vance to  deceive  many:  For  where  a  good  man  stands  first,  the 
rest  underwrite  without  asking  a  question;  and  if  he  is  imposed 
upon,  the  rest  of  the  underwriters  are  taken  in  by  the  same  fraud. 
The  case  was  left  to  the  jury  under  that  direction. 

Mr.  Wallace,  who  shewed  cause,  insisted  that  the  instructions  in 
question  were  no  warranty,  but  a  representation.  That  the  policy 
is  the  formal  instrument  containing  the  final  agreement  of  the  par- 
ties; and  therefore  no  instructions,  parol  or  written,  can  be  admit- 
ted to  contradict  it.  2.  With  respect  to  its  being  a  fraudulent  mis- 
representation, the  evidence  proved,  and  the  jury  by  their  verdict 
found  there  was  no  fraud.  On  the  contrary,  the  terms  of  the  repre- 
sentation were  more  than  complied  with:  For  by  the  evidence  it 
clearly  appears,  that  the  force  actually  on  board,  exceeded  the  force 
specified  in  the  instructions.  Therefore,  he  prayed  the  rule  might 
be  discharged. 

Mr.  Mansfield,  Mr.  Macdonald,  and  Mr.  Davenport,  contra,  in 
support  of  the  rule,  contended,  that  the  instruction  in  question,  be- 
ing contained  in  the  same  paper  as  that  which  named  the  ship  and 
captain,  were  the  basis  of  the  agreement  between  the  parties ;  there- 
fore, most  clearly  to  be  considered  as  a  warranty :  Without  it, 
there  was  no  agreement  at  all.  There  was  no  ship,  no  subject  upon 
which  the  policy  could  attach.  If  not  intended  as  the  foundation 
and  ground  of  the  insurance,  why  write  down  a  specific  force? 
Why  not  state  only,  that  she  was  a  ship  of  force  generally,  unless 
that  the  real  force  she  was  to  carry  might  be  correctly  understood  ? 
If  there  is  a  writing,  whether  inserted  in  the  instrument  or  in  any 
collateral  paper,  or  whether  a  warranty  technically  so  called  or  not, 
makes  no  difference.  It  is  equally  the  basis  of  agreement  between 
the  parties ;  therefore  in  strictness,  it  ought  to  be  complied  with. 
Suppose  there  had  been  no  guns  at  all,  could  the  plaintiff  have  re- 
covered in  that  case?  Yet  evidence  of  that,  would  have  been  as 
much  a  contradiction  to  the  policy,  as  this,  for  no  mention  is  made 
of  guns  in  the  policy.  Or,  suppose  it  had  been  written  in  the  margin 
of  the  policy,  could  the  policy  have  stood?    Clearly  it  could  not. 

With  respect  to  the  necessity  of  the  representation  being  material, 
as  well  as  fraudulent,  whether  material  or  not  does  not  depend  upon 
the  opinions  of  particular  persons  upon  the  particular  case  in  ques- 
tion;   but  whether  the  subject  itself  is,  in  its  nature  material.     If 


320  REPRESENTATIONS  (Ch.  5 

the  ship  had  been  described  to  be  of  a  particular  colour,  clearly  that 
would  have  been  no  engagement,  because  in  its  nature  immaterial. 
But  guns  in  time  of  war  are  in  their  own  nature  material ;  and  in- 
deed of  the  very  essence  of  a  policy :  For  the  premium  is  regulated 
accordingly.  It  is  not  enough  to  say,  that  in  the  opinion  of  two  or 
three  persons,  the  force  actually  on  board  was  equal.  The  insurer 
alone  is  to  be  the  judge  of  that.  But  that  is  not  the  point.  Whether 
she  was  in  a  better  or  worse  state,  the  underwriter  has  a  right  to 
say,  the  truth  of  the  case  is  not  according  to  what  I  bargained  for, 
and  therefore  there  is  no  contract  between  us.  Upon  these  grounds 
they  prayed  the  rule  might  be  made  absolute. 

Lord  Mansfie;ld  asked.  Whether  there  was  any  case  that  made 
a  difference  between  a  written  and  a  parol  representation?  Upon 
receiving  no  answer,  his  Lordship  proceeded  to  give  his  opinion  as 
follows : 

There  is  no  distinction  better  known  to  those  who  are  at  all  con- 
versant in  the  law  of  insurance,  than  that  which  exists,  between  a 
warranty  or  condition  which  makes  part  of  a  written  policy,  and 
a  representation  of  the  state  of  the  case.  Where  it  is  a  part  of  the 
written  policy,  it  must  be  performed:  As  If  there  be  a  warranty  of 
convoy,  there  it  must  be  a  convoy :  Nothing  tantamount  will  do,  or 
answer  the  purpose  :  It  must  be  strictly  performed,  as  being  part  of 
the  agreement;  for  there  it  might  be  said,  the  party  would  not  have 
insured  without  convoy.  But  as,  by  the  law  of  merchants,  all  deal- 
ings must  be  fair  and  honest,  fraud  infects  and  vitiates  every  mer- 
cantile contract.  Therefore  if  there  is  fraud  in  a  representation,  it 
will  avoid  the  policy,  as  a  fraud,  but  not  as  a  part  of  the  agreement. 
If,  in  a  life  policy,  a  man  warrants  another  to  be  in  good  health, 
when  he  knows  at  the  same  time  he  is  ill  of  a  fever,  that  will  not 
avoid  the  policy ;  because  by  the  warranty  he  takes  the  risk  upon 
himself.  But  if  there  is  no  warranty,  and  he  says,  "The  man  is  in 
good  health,"  when  in  fact  he  know  him  to  be  ill,  it  is  false.  So  it 
is,  if  he  does  not  know  whether  he  is  well  or  ill ;  for  it  is  equally 
false  to  undertake  to  say  that  which  he  knows  nothing  at  all  of; 
as  to  say  that  is  true,  which  he  knows  is  not  true.  But  if  he  only 
says,  "He  believes  the  man  to  be  in  good  health,"  knowing  nothing 
about  it,  nor  having  any  reason  to  believe  the  contrary;  there, 
though  the  person  is  not  in  good  health,  it  will  not  avoid  the  policy, 
because  the  underwriter  then  takes  the  risk  upon  himself.  So  that 
there  cannot  be  a  clearer  distinction,  than  that  which  exists  between 
a  warranty  which  makes  part  of  the  written  policy,  and  a  collateral 
representation,  which,  if  false  in  a  point  of  materiality,  makes  the 
policy  void  :  but  if  not  material,  it  can  hardly  ever  be  fraudulent.  So 
far  from  the  usage  being  to  consider  instructions  as  a  part  of  the 
policy,  parol  instructions  were  never  entered  in  a  book,  nor  written 
instructions  kept,  till  many  years  ago,  upon  the  occasion  of  several 
actions  brought  by  the  insured  upon  policies,  where  the  brokers  had 


Sec.  1)  MAUINE   INSURANCE  321 

represented  many  thino^s  they  ouj^ht  not  to  have  represented,  in 
consequence  of  which  the  plaintiffs  were  cast;  I  advised  the  insured 
to  bring  an  action  against  the  brokers,  which  they  did,  and  recover- 
ed in  several  instances:  and  I  have  repeatedly,  at  Guild-hall,  cau- 
tioned and  recommended  it  to  the  brokers,  to  enter  all  representa- 
tions made  by  them  in  a  book.  That  advice  has  been  followed  in 
London :  But  it  appeared  lately,  at  the  trial  of  a  cause,  that,  at 
Bristol,  to  this  hour,  they  make  no  entry  in  their  books,  nor  keej) 
any  instructions. 

The  question  then  is,  "Whether  in  this  policy,  the  party  insuring 
has  warranted  that  the  ship  should  positively  and  literally  have 
twelve  carriage  guns  and  twenty  men?"  That  is,  "Whether  the 
instructions  given  in  evidence  are  a  part  of  the  policy?"  Now,  I 
will  take  it  by  degrees.  The  two  first  underwriters  before  the  court, 
are  Watson  and  Snell.  Says  Watson,  'Tt  is  part  of  my  agreement, 
that  the  ship  shall  sail  with  twelve  guns  and  twenty  men ;  and  it  is 
so  stipulated,  that  nothing  under  that  number  will  do.  Ten  guns 
with  swivels  will  not  do."  The  answer  to  this  is,  "Read  your  agree- 
ment ;  read  your  policy."  There  is  no  such  thing  to  be  found  there. 
It  is  replied,  Yes,  but  in  fact  there  is,  for  the  instructions  upon 
which  the  policy  was  made,  contain  that  express  stipulation.  The 
answer  to  that  is,  that  there  never  were  any  instructions  shewn  to 
W^atson,  nor  were  any  asked  for  by  him.  What  colour  then  has  he 
to  say,  that  those  instructions  are  any  part  of  his  agreement.  It  is 
said,  he  insured  upon  the  credit  of  the  first  underwriter.  A  repre- 
sentation to  the  first  underwriter,  has  nothing  to  do  with  that  which 
is  the  agreement,  or  the  terms  of  the  policy.  No  man  who  under- 
writes a  policy,  subscribes,  by  the  act  of  underwriting,  to  terms 
which  he  knows  nothing  of.  But  he  reads  the  agreement,  and  is 
governed  by  that.  Matters  of  intelligence,  such  as  that  a  ship  is  or 
is  not  missing,  are  things  in  which  a  man  is  guided  by  the  name  of 
a  first  underwriter,  who  is  a  good  man,  and  which  another  will 
therefore  give  faith  and  credit  to  ;  but  not  to  a  collateral  agreement, 
which  he  can  know  nothing  of.  The  absurdity  is  too  glaring,  it 
cannot  be.  By  extension  of  an  equitable  relief  in  cases  of  fraud,  if 
a  man  is  a  knave  with  respect  to  the  first  underwriter,  and  makes  a 
false  representation  to  him  in  a  point  that  is  material ;  as  where 
having  notice  of  a  ship  being  lost,  he  says  she  was  safe ;  that  shall 
affect  the  policy  with  regard  to  all  the  subsequent  underwriters, 
who  are  presumed  to  follow  the  first.  How  then  do  W^atson  and 
Snell  underwrite  the  ship  in  question?  \\'ithout  knowing  whether 
she  had  any  force  at  all.  That  proves  the  risk  was  equal  to  a  ship 
of  no  force  at  all ;   and  the  premium  was  a  vast  one — eight  guineas. 

So  much  therefore  for  those  two  cases.  The  third  case  is  that  of 
Ewer,  who  saw  the  instructions,  with  the  representation  which  they 
contained.  Did  the  number  of  guns  induce  him  to  underwrite  the 
Vance  Ins. — 21 


322  REPRESENTATIONS  (Ch.  5 

policy?  If  it  did,  he  would  have  said,  "Put  them  into  the  policy; 
warrant  that  the  ship  shall  depart  with  twelve  guns  and  twenty 
men."  Whereas,  he  does  no  such  thing,  but  takes  the  same  pre- 
mium which  Watson  and  Snell  did,  who  had  no  notice  of  her  hav- 
ing any  force.  What  does  that  prove?  That  he  is  paid  and  receives 
a  premium,  as  if  it  were  a  ship  of  no  force  at  all.  The  representation 
amounts  to  no  more  than  this,  "I  tell  you  what  the  force  will  be, 
because  it  is  so  much  the  better  for  you."  There  is  no  fraud  in  it, 
because  it  is  a  representation  only  of  what,  in  the  then  state  of  the 
ship,  they  thought  would  be  the  truth.  And  in  real  truth,  the  ship 
sailed  with  a  larger  force :  For  she  had  nine  carriage  guns,  besides 
six  swivels.  The  underwriters,  therefore,  had  the  advantage  by  the 
difference.  There  was  no  stipulation  about  what  the  weight  of 
metal  should  be.  All  the  witnesses  say,  "She  had  more  force  than  if 
she  had  had  twelve  carriage  guns,  both  in  point  of  strength,  of  con- 
venience, and  for  the  purpose  of  resistance."  The  supercargo  in  par- 
ticular says,  "He  insured  the  same  ship  and  the  same  voyage,  for 
the  same  premium,  without  saying  a  syllable  about  the  force." 
Why  then  it  was  a  matter  proper  for  the  jury  to  say.  Whether  the 
representation  was  false?  or  Whether  it  was  in  fact  an  insurance, 
as  of  a  ship  without  force?  They  have  determined,  and  I  think 
very  rightly,  that  it  was  an  insurance  without  force. 

Ewer  makes  an  objection  that  the  representation  ought  to  be  con- 
sidered as  inserted  in  the  policy;  but  the  answer  to  that  is,  he  has 
determined  whether  it  should  be  inserted  in  the  policy  or  not,  by  not 
inserting  it  himself.  There  is  a  great  difference,  whether  it  shall  be 
considered  as  a  fraud.  But  it  would  be  very  dangerous  to  permit 
all  collateral  representations  to  be  put  into  the  policy.  I  am  ex- 
tremely glad  to  hear  that  a  great  many  of  the  underwriters  have 
paid.  Mr.  Thornton  has  paid,  who  was  the  first  person  that  saw  the 
instructions.  Shall  the  rest  refuse  then?  As  to  Watson  and  Snell, 
they  have  no  pretence  to  refuse,  for  there  is  not  a  colour  for  the  ob- 
jection made  by  them.  As  to  Ewer,  we  are  all  satisfied  with  the 
determination  of  the  jury  against  him.  Therefore,  the  rule  for  a 
new  trial  must  be  discharged. 

N.  B.  On  the  Monday  following,  Mr.  Davenport  said,  he  was  de- 
sired by  the  underwriters  to  ask,  Whether  it  was  the  opinion  of  the 
court,  that  to  make  written  instructions  valid  and  binding  as  a  war- 
ranty, they  must  be  inserted  in  the  policy? 

Lord  MANSFIEI.D  answered,  that  most  undoubtedly  that  was 
the  opinion  of  the  court.  If  a  man  warrants  that  a  ship  shall  depart 
with  twelve  guns,  and  it  departs  with  ten  only,  it  is  contrary  to  the 
condition  of  the  policy. 


Sec.  1)  MARINE   INSURANCE  323 

BIZE  V.  FLETCHER. 

(Nisi  Prins,  1770.     Parle,  Ins.  [3d  Ed.]  202;  s.  c.  1  Doug.  284.) 

This  was  an  action  on  a  policy  of  insurance  on  the  ship  Carnatic, 
East  Indiaman,  "at  and  from  Port  L'Orient,  to  the  isles  of  France 
and  Bourbon,  and  to  all  or  any  ports  or  places,  where,  and  whatso- 
ever, in  the  East  Indies,  China,  Persia,  or  elsewhere,  beyond  the 
Cape  of  Good  Hope,  from  place  to  place ;  and  during-  the  ship's  stay 
and  trade,  backwards  and  forwards,  at  all  ports  and  places,  and  un- 
til her  safe  arrival  back  at  her  last  port  of  discharge  in  France." 
But  at  the  same  time  that  this  policy  was  subscribed,  there  was  a  slip 
of  paper  wafered  to  it,  and  shewn  to  the  underwriters,  on  which  was 
written  the  following  representation:  "The  ship  has  had  a  complete 
repair,  and  is  now  a  fine  and  good  vessel,  three  decks.  Intends  to 
sail  in  September  or  October  next  (1776.)  Is  to  go  to  Madeira,  the 
isles  of  France,  Pondicherry,  China,  the  isles  of  France,  and  L'Ori- 
ent." 

The  ship  did  not  sail  till  the  6th  of  December,  1776,  and  did  not 
reach  Pondicherry  till  the  23d  of  July,  1777.  She  continued  there 
till  the  23d  of  August  following,  when,  instead  of  proceeding  to 
China,  she  sailed  for  Bengal,  where  having  passed  the  winter  and 
undergone  considerable  repairs,  she  sailed  from  thence  early  in  the 
year  1778,  (being  the  second  ship  that  left  the  Ganges  ;)  returned  to 
Pondicherry,  and  after  taking  in  a  homeward-bound  cargo  at  that 
place,  proceeded  in  her  voyage  back  to  L'Orient,  but  was  taken  in 
October  of  that  year,  by  the  Mentor  privateer.  The  usual  time,  in 
which  the  direct  voyage  between  Pondicherry  and  Bengal  is  per- 
formed, is  six  or  seven  days;  but  the  Carnatic  was  about  six  weeks 
in  going  to  Bengal,  and  two  months  on  the  way  back  from  thence  to 
Pondicherry.  Both  going  and  returning,  she  either  touched  at,  or 
lay  ofif,  Madras,  Masulipatum,  Visigapatam,  and  Yanon,  and  took  in 
goods  at  all  those  places. 

It  was  contended  in  this  cause,  at  the  trial,  that  the  representation 
accompanying  the  policy  restrained  the  voyage  to  the  limits  therein 
specified.  They  produced  some  letters  from  the  owners  to  their  cor- 
respondents, one  of  which  was  to  the  following  efifect :  "We  doubt 
not,  but  on  account  of  the  storm,  the  ship  will  be  forced  to  go  to 
Bengal  to  be  laid  down,  which  cannot  be  done  at  Pondicherry ;  in 
which  case,  our  captain  will  have  entered  a  protest,  which  we  will 
forward  in  time  to  you."  In  a  subsequent  letter,  they  say  nothing 
of  the  storm  or  leak ;  but  mention  a  different  cause  for  the  ship's 
going  to  Bengal.  These  letters,  it  was  said,  raised  a  presumption, 
that  the  necessity  of  going  to  Bengal  was  merely  a  pretense  devised 
after  the  capture,  and  when  the  insured  began  to  apprehend  that 
the  words  of  the  policy  would  not  cover  a  voyage  to  that  place. 

Lord  Mansfield  told   the  jury:     "That  the  first  question  was. 


324  RKPRESENTATIONS  (Ch.  T) 

ulu'tlicr  the  policy  was  void,  on  account  of  misrepresentation.  Now 
there  is  an  essential  difference  between  a  warranty  and  a  represen- 
tation. The  warranty  is  a  part  of  the  contract ;  a  risk  described 
in  the  policy  is  part  of  the  contract.  There  can  be  no  warranty  by 
any  collateral  representation.  The  ground,  on  which  a  representa- 
tion alTects  a  policy,  is  fraud.  The  representation  must  be  fraudu- 
lent, that  is,  it  must  be  false  and  material  in  respect  to  the  risk  to 
be  run.  All  risks  are  governed  by  the  nature  of  them  ;  and  the 
premium  is  governed  by  the  risk.  Where  a  representation  accom- 
panied an  instrument,  it  says,  'I  will  have  this  understood  as  my 
present  intention :  but  I  will  have  it  in  my  power  to  vary  it.'  The 
great  question  in  this  cause  is,  whether  the  representation  was  false, 
and  that  in  a  material  instance.  Fraud  is  found  out  by  the  material- 
ity of  the  point  it  is  charged  in.  It  is  to  be  considered  then,  whether 
they  had  really  a  view  of  going  to  China.  A  witness  has  proved 
that  the  difference  of  insurance  is  one  per  cent,  on  going  to  Bengal, 
and  not  to  China.  If  you  think  that  this  was  a  misrepresentation 
to  avoid  paying  the  one  per  cent,  you  will  find  for  the  defendant. 
But  if  you  are  satisfied  that  the  real  intention,  at  the  time  of  the 
representation,  was  to  go  to  China,  the  plaintiff  will  be  entitled  to 
your  verdict:  for  the  insured  may  change  his  intention,  go  to  Ben- 
gal, and  yet  be  protected  by  the  policy,  which  clearly  admits  of 
that  voyage,  and  must  be  understood  by  both  parties  in  a  greater 
latitude  than  the  representation,  being  expressed  in  dift'erent  and 
much  more  comprehensive  terms.  If,  upon  the  whole  evidence,  you 
shall  be  of  opinion,  that  no  fraud  was  intended,  and  that  the  vari- 
ance between  the  intended  voyage,  as  described  in  the  slip  of  paper, 
and  the  actual  voyage  as  performed,  did  not  tend  to  increase  the  risk 
to  the  underwriters,  this  slip  of  paper  being  only  a  representation, 
you  must  find  for  the  plaintiff." 

The  jury  found  a  verdict  accordingly. 


McDowell  v.  fraser. 

(Court  of  King'.s  Bench,  1779.    1  Doug.  2G0.) 

This  was  an  action  upon  a  policy  of  insurance  on  the  ship  the 
"Mary  and  Hannah,  from  New  York  to  Philadelphia."  At  the  time 
when  the  insurance  was  made,  which  was  in  London,  on  the  30th  of 
January,  the  broker  represented  the  situation  of  the  ship  to  the  under- 
writer as  follows :  "The  Mary  and  Hannah,  a  tight  vessel,  sailed  with 
several  armed  ships,  and  was  seen  safe  in  the  Delaware  on  the  11th 
of  December,  by  a  ship  which  arrived  at  New  York."  In  fact,  the 
vessel  was  lost  on  the  9th  of  December,  by  running  against  a  chevaux 
de  frise,  placed  across  the  river.  The  cause  came  on  to  be  tried  be- 
fore Lord  Mansfield,  at  the  last  sittings  at  Guildhall.     The  defence 


Sec.  1)  MARINE    INSURANCE  325 

was  founded  on  the  misrepresentation  as  to  the  time  when  the  ship 
was  seen  ;  and  the  representation  and  the  day  of  the  loss  being  proved, 
the  jury  found  for  the  defendant.  On  Monday,  the  8th  of  Novem- 
ber, Dunning-  obtained  a  rule  to  shew  cause,  why  there  should  not 
be  a  new  trial,  which  came  on  to  be  argued  this  day. 

The  Solicitor  General  and  Dunning,  for  the  plaintiff.  Lee  and  Dav- 
enport, for  the  defendant. 

On  the  part  of  the  plaintiff,  the  difference  between  a  warranty  and 
a  representation  was  much  enlarged  upon.  It  was  admitted,  that  the 
representation  in  this  case  was  false  in  point  of  fact,  though  the  in- 
sured, at  the  time,  believed  it  to  be  true.  It  was  also  admitted,  that 
a  representation,  if  false,  in  a  material  point,  annuls  the  contract.  But 
it  was  contended,  that  the  particvdar  day  when  the  ship  had  been  seen 
in  the  Delaware  was  not  material.  That  the  meaning  of  the  repre- 
sentation was  to  inform  the  underwriter,  that  the  ship  had  got  safe 
through  two  thirds  of  her  voyage  from  New  York,  and  beyond  the 
reach  of  capture.  What  was  stated  as  to  that  material  part  was  per- 
fectly true,  and  that  was  all  that  was  necessary,  as  was  decided  in 
the  cases  on  the  insurance  of  the  Julius  Caesar."  If  the  representation 
had  been,  that  she  had  been  seen  on  the  8th  or  9th  in  the  Delaware,  it 
would  have  made  no  difference  in  the  premium.  There  might  have 
been  circumstances  which  w^ould  have  rendered  the  day  material,  as  a 
bad  storm  on  the  9th  or  10th ;  but  there  was  nothing  of  that  sort  in 
this  case.  An  intentional  misrepresentation  was  not  imputed  to  the 
insured.  The  manner  in  which  the  mistake  arose  was  this:  The 
captain  who  had  met  the  ship  said,  that  he  had  seen  her  on  the  fifth 
day  after  her  departure  from  New  York.  It  seems  a  ship  is  said  to 
sail  from  New  York  indift"erently,  either  when  she  sails  from  the 
quay  at  New  York,  or  from  Sandy  Hook.  When  the  captain  men- 
tioned her  departure  from  New  York,  he  was  understood  to  mean 
from  Sandy  Hook,  and  it  was  known  that  she  had  sailed  from 
thence  on  the  6th ;  but  it  turned  out  that  he  meant  to  speak  of  her 
departure  from  the  quay,  which  was  some  days  before. 

For  the  defendant,  it  was  urged,  that  the  materiality  of  the  fact 
misrepresented  was  before  the  jury,  and  that  they  had  exercised  their 
judgment  upon  it,  and  determined  by  their  verdict,  that  it  was  ma- 
terial. 

Lord  Maxsfie;ld.  The  distinction  betw^een  a  warranty  and  a 
representation  is  perfectly  well  settled.  A  representation  must  be 
fair  and  true.  It  should  be  true  as  to  all  that  the  insured  knows ;  and, 
if  he  represent  facts  to  the  under-writer,  without  knowing  the  truth, 
he  takes  the  risk  upon  himself.  But  the  difference  between  the  fact 
as  it  turns  out,  and  as  represented,  must  be  material.  The  case  of 
the  Julius  Caesar  was  very  different  from  this.  The  ship,  there,  was 
only  fitting  out  when  the  insurance  w^as  made.     No  guns  nor  men 

*  Pawson  V.  Watson,  2  Cowp.  785,  ante,  p.  318. 


.'?26  REPRESENTATIONS  (Ch.  5 

were  put  on  board.  It  was  only  said  wliat  was  meant  to  be  done,  and 
wliat  was  done,  though  different,  was  as  advantageous,  or  more  so, 
than  what  had  been  represented.  There  was  no  evidence  of  actual 
fraud  in  the  present  case,  and  no  question  of  that  sort  seemed  to  be 
made.  But  there  was  a  positive  averment,  that  the  ship  was  seen  in 
the  Delaware,  on  the  11th  of  December.  The  underwriter  was  de- 
ceived as  to  that  fact,  and  entered  into  the  contract  under  that  decep- 
tion. There  was  no  evidence  at  the  trial  when  she  was  seen  in  the 
Delaware,  or  in  what  condition ;  but,  suppose  the  fact  had  been  ex- 
plained in  the  manner  now  suggested,  why  did  the  insured  take  upon 
him  to  compute  the  day  of  the  month  on  which  she  had  been  seen? 
Why  did  he  not  mention  exactly  what  his  information  was,  and  leave 
the  underwriter  to  make  the  computation?  In  insurances  on  ships 
at  a  great  distance,  their  being  safe  up  to  a  certain  day,  is  always  con- 
sidered as  a  very  important  circumstance.  I  am  of  opinion,  that  the 
representation  concerning  the  day  was  material. 

Willies,  Justice.  This  is  certainly  only  a  representation ;  but, 
in  an  insurance  on  so  short  a  voyage,  it  might  have  made  a  material 
difference  whether  the  ship  was  known  to  be  safe  two  days  sooner  or 
later.  It  ought  to  have  been  shewn,  on  the  part  of  the  plaintiff,  that  it 
was  not  material,  but  there  was  no  evidence  that  the  ship  was  met  on 
the  9th,  or  any  other  day.  The  materiality  was  proper  for  the  con- 
sideration of  the  jury. 

AsHHURST,  Justice.  The  distinction  which  the  court  has  made 
in  the  cases  on  the  Julius  Csesar,  and  some  others,  between  a  repre- 
sentation and  a  warranty,  is  extremely  just.  There  is  no  imputation 
of  fraud  in  this  case ;  but  the  insured  should  have  been  more  cautious. 
In  the  former  cases  the  representation  was  of  what  was  intended ; 
here,  it  was  of  a  fact,  stated  as  having  happened  within  the  knowl- 
edge of  the  insured.  He  should  have  made  the  representation  in 
the  same  words  in  which  the  intelligence  is  said  to  have  been  com- 
municated to  him. 

BuLiv^R,  Justice.  We  cannot  say  the  difference  of  the  day  was 
not  material.  The  safety  of  the  ship  is  the  most  material  fact  of  any, 
in  cases  of  insurance.  The  plaintiff  admits,  that  the  place  where  she 
was  met  in  safety  was  material.  Why  was  not  the  time  equally  so? 
There  was  no  intentional  deceit,  and  it  is  perhaps  unfortunate  that 
the  insured  made  the  mistake;  but  I  think  the  verdict  right. 

The  rule  discharged. 


Sec.  1)  MARINE   INSURANCE  327 

BARBER  V.  FLETCHER. 
(Court  of  Kiug's  Bench,  1779.     1  Doug.  305.) 

This  was  an  action  on  the  same  policy  with  Barber  v.  French,^ 
tried  at  the  same  time,  the  same  rule  entered  into,  and  a,  similar 
verdict  found ;  but  here,  besides  the  ground  mentioned  in  that 
case,  there  was  another  stated,  viz.  that,  since  the  trial,  a  material 
representation  which  had  been  made  to  Shulbred  the  first  under- 
writer on  the  policy,  and  which  turned  out  to  be  false,  had  been 
discovered.  After  the  other  case  was  disposed  of,  this  stood 
over,  on  this  point,  till  an  affidavit  of  the  fact  should  be  procured 
from  Shulbred. 

Cause  was  this  day  shewn,  when  it  appeared,  from  Shulbred's 
affidavit,  that,  when  he  signed  the  policy,  in  March,  1778,  the  broker 
was  getting  several  others,  on  other  ships,  subscribed  at  the  same 
time,  all  belonging  to  the  same  owner,  and  said,  speaking  of  them 
all — "Which  vessels  are  expected  to  leave  the  coast  of  Africa  in 
November  or  December,  1777."  In  truth,  the  vessel  in  question 
had  sailed  in  May,  1777,  and  Shulbred  swore,  in  his  affidavit,  that, 
if  he  had  known  that  circumstance,  he  would  not  have  signed. 
There  had  been  actions  brought  against  all  the  underwriters  on 
the  policy,  except  Shulbred. 

Davenport,  for  the  defendant,  insisted,  that  a  representation  to 
the  first  underwriter  is  considered  as  made  to  all  who  sign  after 
him ;  and  that  the  representation  here  was  material,  or  at  least 
such  as  ought  to  be  submitted  to  a  jury,  for  them  to  judge  of  its 
materiality. 

Lord  Mansfie;ld.  It  has  certainly  been  determined,  in  a  variety 
of  cases,  that  a  representation  to  the  first  underwriter  extends 
to  the  others.  But  under  what  circumstances  has  the  defendant 
gone  to  trial  in  this  case?  He  certainly  knew  what  had  been 
represented  to  himself.  He  was  acquainted  with  Shulbred,  and 
had  an  opportunity  of  asking  before  the  trial  what  had  been  repre- 
sented to  him.  If  therefore  this  evidence  is  new,  it  is  owing  to 
his  own  negligence.  But  the  representation  is  not  material.  It 
was  only  an  expectation,  and  the  underwriters  did  not  inquire 
into  the  ground  of  the  expectation.  This  was  lying  by  till  after 
a  trial,  in  order  to  make  an  objection  if  the  verdict  should  be 
for  the  plaintifif. 

The  rule  discharged. 

3 1  Doug.  281. 


328  REPRESENTATIONS  (Ch.  5 

FILLIS  V.  BRUTTON. 

(Nisi  Prius,  1782.     Park,  Ins.  [3(1  Ed.]  182.) 

The  policy  was  on  the  brig  Richard  at  and  from  Plymonth  to 
Bristol.  Several  letters  passed  between  the  plaintiff  and  the  broker, 
who  effected  the  policy,  as  to  the  premium  at  which  the  insurance 
could  be  made  ;  at  last,  it  was  underwritten  at  four  guineas  per  cent. 
The  broker's  instructions  stated  the  ship  ready  to  sail  on  the  24th 
of  December.  The  broker  represented  to  the  underwriter,  that  the 
ship  was  in  port,  when  in  fact  she  had  sailed  the  23rd  of  December. 

Lord  Mansfield  said  "that  this  was  a  material  concealment  and 
misrepresentation."  The  jury,  however,  hesitated;  his  Lordship 
then  laid  down  the  following  as  general  principles:  "In  all  insur- 
ances, it  is  essential  to  the  contract,  that  the  assured  should  repre- 
sent the  true  state  of  the  ship  to  the  best  of  his  knowledge.  On  that 
information  the  underwriters  engage.  If  he  state  that  as  a  fact, 
which  he  does  not  know  to  be  true,  but  only  believes  it,  it  is  the 
same  as  a  warranty.  He  is  bound  to  tell  the  underwriters  truth.  In 
the  present  insurance,  the  only  material  point  is  this:  Had  the 
ship  sailed,  or  was  she  in  port?" 

Upon  this,  the  jury  found  for  the  defendant. 


EDWARDS  V.  FOOTNER. 

(Nisi  Prius,   1808.     1  Camp.  530.) 

This  was  an  action  on  a  policy  of  insurance  on  goods  in  the  Fan- 
ny, from  London  to  Hayti. 

The  ship  was  captured,  by  a  French  privateer,  with  the  goods 
on  board ;  and  the  question  was,  whether  the  underwriters  were 
discharged  by  a  representation  concerning  her  equipment. 

It  appeared,  that  about  a  week  before  the  policy  was  signed, 
the  names  of  the  underwriters  were  put  down  upon  a  slip,  when 
the  broker  stated  to  the  defendant,  "that  the  Fanny  was  to  sail 
with  the  Hopewell  and  Young  Roscius,  both  armed  ships,  and 
that  she  was  herself  to  carry  ten  guns  and  twenty-five  men." 
There  was  no  evidence  of  any  conversation  upon  the  subject  hav- 
ing passed  between  the  parties  either  when  tHe  policy  was  signed, 
or  in  the  intervening  period.  In  fact,  the  Fanny  sailed  by  herself, 
and  carried  only  eight  guns  and  seventeen  men. 

Topping,  for  the  plaintiff,  contended,  that  the  ship  was  suffi- 
ciently equipt  to  be  seaworthy,  and  that  wdiat  was  said  when  the 
defendant's  name  was  put  upon  the  slip,  could  not  be  considered, 
as  a  representation  which  the  assured  were  bound  to  comply  with, 
as  the  slip  was  no  evidence  of  the  contract,  and  the  court  could 


Sec.  I)  MARINE    INSURANCE  329 

only  look  to  what  took  place  when  the  policy  was  subscribed. 
This  very  point  had  been  lately  decided  in  Dawson  v.  Atty,  7 
East,  367,  where  it  was  held,  that  although  the  broker,  when  the 
slip  was  subscribed,  had  said  that  the  ship  was  an  American, 
yet,  as  he  had  not  represented  her  to  be  of  any  particular  country 
at  the  time  when  the  policy  was  subscribed,  she  did  not  require 
to  be  documented  as  an  American,  and,  although  she  was  captured 
for  want  of  a  certificate  required  by  a  treaty  between  the  govern- 
ment of  the  captors  and  the  United  States  of  America,  the  owner 
of  the  goods  recovered  against  the  underwriters. 

Lord  EivLENBOROUGH.  If  a  representation  is  once  made,  it  is  to 
be  considered  as  binding,  unless  there  is  evidence  of  its  being 
afterwards  altered  or  withdrawn.  In  the  case  cited,  the  vessel 
was  stated  to  be  an  American  when  the  slip  was  made  out;  but 
when  the  policy  came  to  be  signed,  the  broker  said  generally, 
"that  it  was  an  insurance  on  goods  in  the  Hermon,"  without 
describing  her  as  of  any  particular  country.  There,  the  first  con- 
versation was  qualified  and  controlled  by  what  followed.  But 
here  there  is  no  evidence  of  any  conversation  upon  this  subject 
between  the  parties  subsequently  to  the  statement  that  the  ship 
was  to  carry  10  guns  and  25  men;  and  this  having  taken  place 
when  the  insurance  was  talked  of,  and  the  terms  of  it  were  agreed 
upon,  it  must  be  referred  to  the  policy,  and  treated  as  a  represen- 
tation which  required  to  be  substantially  complied  with  on  the 
part  of  the  assured. 

Verdict  for  the  defendant. 


DENNISTOUN,  BUCHANAN  &  CO.  v.  LILLIE. 

(House  of  Lords,  1S21.     3  Bligh.  202.) 

Upon  the  17th  of  June,  1814,  the  appellants,  Messrs.  Dennis- 
toun,  Buchanan  and  Company,  merchants  in  Glasgow,  received 
a  letter  of  advice  from  Messrs.  William  Dufif  and  Company,  their 
correspondents  at  New  Providence,  dated  2d  April,  1814,  contain- 
ing copies  of  their  letters  to  "the  appellants  of  the  19th  and  24th 
of  March  preceding. 

The  following  are  extracts  of  such  parts  of  the  letters  as  relate 
to  the  subject  of  insurance:  By  the  letter  of  the  19th  March 
the  appellants  are  informed  thus :  "At  a  prize  sale  of  a  South 
Sea  whaler  and  her  cargo  of  oil,  that  took  place  here  yesterday, 
we  purchased  on  your  account  about  40,000  gallons  of  spermaceti 
oil,  at  3s.  9y2d.  sterling  per  gallon;  14,000  gallons  of  which  we 
intend  to  ship  upon  that  remarkable  fast-sailing  schooner  Bril- 
liant, of  157  tons  burthen,  mounting  six  nine-pounders,  to  sail, 
with  or  without  convoy,  about  the  first  of  May;  and  on  the  value 
of  which  shipment  you  will  please  to  make  insurance.     Messrs. 


330  REPRESENTATIONS  (Ch.  5 

Seton  and  Elliot  will  ship  on  board  the  Jessie  60,000  lbs.  St. 
Domingo  coffee,  which  they  wish  you  to  have  insurance  done 
for  at  50s.  per  100  lbs.,  and  17,000  lbs.  Cuba  coffee,  at  60s.  per 
100  lbs.  They  also  wish  you  to  have  insurance  effected  on  the 
Brilliant  from  hence  to  Greenock,  valuing  her  at  £1,400.  sterling; 
to  all  of  which  we  beg  your  attention."  The  letter  of  the  24th 
says  that  the  Brilliant  would  be  cleared  out  as  bound  to  Green- 
ock and  a  port  on  the  Continent.  And  in  the  letter  of  2d  April 
Messrs.  Duff  and  Company  state,  towards  the  conclusion  of  the 
letter,  which  relates  to  a  variety  of  other  matters:  "The  Bril- 
liant will  sail  on  the  1st  of  May,  a  running  vessel,  in  which  the 
writer  of  this  will  take  his  passage." 

Upon  these  advices  an  insurance  was  effected,  on  ship  and 
goods,  on  the  18th  of  June,  being  the  day  after  receiving  the  let- 
ters above  quoted,  although  the  contract  or  policy  bears  date  on 
the  21st  of  June,  three  days  later.  At  the  time  of  entering  into 
the  contract  the  letters  of  advice  were  shown  to  the  respondents, 
who  were  some  of  the  underwriters  at  Glasgow,  with  whom  the 
insurance  was  effected. 

The  terms  of  the  policy  were:  "From  Nassau  to  Clyde,  with 
leave  to  call  at  all  ports  and  places  whatsoever,  for  convoy,  or 
for  any  other  purpose  whatever,  without  being  deemed  a  devia- 
tion ;  and  with  or  without  letters  of  marque,  leave  to  chase, 
capture,  man  and  convoy,  or  send  into  port  or  ports,  any  vessel 
or  vessels." 

The  insurance  was  done  at  the  rate  of  six  guineas  per  cent., 
to  return  three  pounds  per  cent,  "for  convoy  for  the  voyage,  or 
two  pounds  per  cent,  for  partial  convoy  and  arrival." 

About  the  20th  of  April  His  Majesty's  ship  Martin  came  into 
the  harbour  of  Nassau,  and  being  bound  for  Halifax,  the  com- 
mander offered  to  take  the  Brilliant  under  his  protection.  This 
being  considered  a  great  advantage,  as  the  risk  of  capture  between 
Nassau  and  Halifax  was  imminent,  extraordinary  exertions  were 
used  to  complete  the  loading  of  the  Brilliant,  and  she  sailed  under 
convoy  of  the  Martin  on  the  23d  of  April,  being  about  eight  days 
earlier  than  the  date  of  sailing  propt)sed  in  the  foregoing  letters. 

Upon  the  11th  of  May  the  Brilliant  was  captured  by  an  Ameri- 
can privateer,  and  carried  into  Boston. 

When  the  intelligence  of  the  capture  arrived,  the  appellants 
applied  to  the  underwriters,  and  many  of  them  settled  the  loss. 
But  the  respondents  resisted  payment;  whereupon  the  appellants 
brought  an  action  before  the  Court  of  Admiralty,  concluding 
for  payment  of  the  sums  respectively  underwritten  for  them ; 
and,  after  the  usual  pleading,  the  Judge  Admiral  pronounced  the 
following  interlocutor: 

"The  Judge  Admiral,  having  advised  the  libel,  defences,  answers, 
replies,  and  writings  produced,  finds,  that  by  a  letter,  dated  the 


Sec.  1)  MARINE  INSURANCHB  331 

19th  of  March,  1814,  from  William  Duff  and  Company,  the  cor- 
respondents of  the  pursuers,  of  New  Providence,  to  them,  they 
mentioned  the  ship  Brilliant,  a  remarkable  fast-sailing  schooner, 
was  to  sail,  with  or  without  convoy,  about  the  1st  of  May;  and 
that  by  an  after  letter  dated  the  2d  of  April  last,  1814,  the  incor- 
rectness of  the  word  'about,'  as  applicable  to  the  1st  of  May, 
was  explained  by  the  same  correspondents  informing  the  pursuers 
that  the  Brilliant  was  to  sail  for  New  Providence  on  the  1st  of 
IVIay,  a  running  vessel,  'and  in  which  the  writer  of  this  (William 
Duff)  will  take  his  passage:'  Finds  it  admitted,  that  these  let- 
ters were  communicated  to  the  defenders,  whereby  they  saw 
that  the  vessel  was  positively  intended  to  remain  in  New  Provi- 
dence, and  not  to  sail  therefrom  till  the  1st  of  May  last,  and  under 
this  impression  subscribed  the  policy  in  question :  Finds,  that 
the  Brilliant  sailed  on  the  23d  of  April  from  New  Providence, 
and,  for  any  thing  known,  may  have  been  captured  before  the 
first  day  of  May,  when  she  was  held  forth  to  the  defenders  as 
remaining  in  the  harbour:  Finds,  therefore,  that  although  the 
representation  made  by  the  pursuers  was  absolutely  innocent  on 
their  part,  the  fact  stated  by  them  to  the  defenders  was  not  veri- 
fied, and  a  material  change  was  thereby  made  in  the  risk  under- 
taken by  the  latter;  and  therefore  assoilzies  the  defenders,  and 
finds  them  entitled  to  expenses." 

The  appellants  brought  the  foregoing  interlocutor  under  re- 
view of  the  Judge  Admiral,  by  petition,  and  the  interlocutor  there- 
on was : 

"The  Judge  Admiral  having  advised  this  petition,  and  another 
dated  23d  February  last,  with  the  writings  produced,  remains  of 
the  same  opinion,  that  the  risk  which  the  underwriters  under- 
took, being  confessedly  that  on  a  vessel  to  sail  on  the  1st  of  May, 
was  perfectly  different  from  one  on  a  vessel  which  sailed  on  the 
23d  April,  inasmuch  as  the  defenders  undertook  a  risk  on  a  ves- 
sel understood  to  be  in  the  harbour,  and  safe  on  the  1st  of  May, 
when  in  fact  she  had  been  eight  days  at  sea.  Refuses  this  peti- 
tion, and  adheres  to  the  interlocutor  complained  of." 

"Note. — The  petitioners  do  not  seem  to  dispute,  that  if  the  ves- 
sel had  been  taken  before  the  1st  of  May  they  would  have  had  no 
argument.  They  however  state  that  the  vessel  was  not  captured 
till  11th  May.  This,  in  real  reasoning,  makes  no  difference,  since 
it  is  a  thousand  chances  to  one  that  if  she  had  not  sailed  till  1st 
May  she  would  not  have  fallen  in  with  the  vessel  which  took  her. 
The  case  of  a  vessel  sailing  the  day  before  she  is  represented  to 
sail  is  quite  dift'erent  from  that  of  a  ship  being  detained  by  un- 
avoidable accidents  beyond  that  day.  In  fact,  it  is  an  insurance 
on  a  vessel  in  jeopardy,  when  she  is  represented  to  be  compara- 
tively safe."     And  on  the  19th  of  April,  1815,  the  Judge  Admiral 


332  REPRESENTATIONS  (Ch.  5 

modified  the  defenders  account  of  expenses  to  £10.  Is.  4"'/iid.,  and 
decerned  against  the  appellants  for  payment  of  the  same,  and 
for  the  fees  of  extracting  the  decree. 

The  appellants  pursued  an  action  of  reduction  l^efore  the  Lords 
of  Council  and  Session  of  the  foregoing  interlocutors  pronounced 
by  the  Judge  Admiral.  This  action  was  discussed  before  Lord 
Pitmilly,  Ordinary,  who  pronounced  an  interlocutor,  repelling  the 
reasons  of  reduction,  etc. 

The  appellants  submitted  the  question  to  review  in  a  repre- 
sentation, to  which  answers  were  given  in ;  but  the  Lord  Ordi- 
nary adhered  to  the  interlocutor. 

The  appellants  then  brought  these  interlocutors  under  review 
of  the  Second  Division  of  the  Court  of  Session  by  a  petition. 
The  Lords  adhered  to  the  interlocutors  complained  of,  etc. 

The  appeal  was  against  the  foregoing  interlocutors. 

On  the  part  of  the  appellants  distinctions  were  taken  between 
a  warranty  and  a  representation,*  and  it  was  contended  that  the 
letters  exhibited  did  not  amount  to  a  warranty,  or  anything  more 
than  a  representation,  which  was  not  material;  and  that  the  state- 
ment of  a  future  event,  as  an  intended  day  of  sailing,  can  be  no 
more  than  an  expectation.  Bowden  v.  Vaughan,  10  East,  415; 
Hubbard  v.  Glover,  3  Camp.  N.  P.  C.  313;  Barber  v.  Fletcher, 
Doug.  305  (in  this  case  the  word  "expected"  was  used)  ;  Bize  v. 
Fletcher,  Doug.  271.  See  also  Park,  p.  [313].  It  was  further  argu- 
ed, that  the  representation  not  being  made  mala  fide,  the  policy  was 
not  vitiated  by  such  a  misrepresentation. 

For  the  respondents  it  was  contended,  1.  That  the  day  of  sail- 
ing was  a  fact  material  to  the  risk,  and  being  within  the  con- 
trol of  the  appellants,  a  statement  of  intention  was  equivalent 
to  a  statement  of  fact.  2.  That  the  vessel  having  sailed  on  the 
23d  of  April,  was,  at  the  time  when  the  insurance  was  efifected, 
what  is  termed  "a.  missing  ship."  Ratcliffe  v.  Shoolbred,  Park, 
180;    Marshall  1,  468;    Fillis  v.  Brutton,  Park,  182;    Marshall,  467. 

[In  the  course,  and  at  the  conclusion  of  the  argument,  the 
Lord  Ciianceixor  ^  made  the  following  observations:] 

The  second  letter,  in  which  it  is  expressed  that  the  vessel  will 
sail  on  the  1st  of  May,  was  shown  to  the  underwriters,  and  is  it 
not  the  same  thing  whether  the  party  means  to  misrepresent,  or 
whether  the  thing  actually  communicated  is  a  misrepresentation? 
The  authorities  turn  upon  the  difiference  between  expectation  and 
representation.  In  the  case  of  Barber  v.  Fletcher  the  represen- 
tation is,  that  the  ship  is  expected  to  sail.     If  the  accuracy  of  a 

4  Pawson  V.  Watson,  Cowper,  790 ;  Park  on  Ins.  c.  10,  pp.  203,  205 ;  Id. 
c.  18,  pp.  321,  322 ;  Marsh,  on  Ins.  c.  9,  §  2,  p.  242,— Rep, 

5  Lord  Eldon. 


Sec.  1)  MARINE    INSURANCE  333 

representation  as  to  time  is  to  be  given  up,  that  doctrine  must 
apply  equally  to  the  question  of  place.  The  letter  of  the  2d  of 
April  speaks  in  terms  of  uncertainty  as  to  the  sailing  of  the  Dart 
and  the  Jessie,  but  as  to  the  Brilliant  the  statement  is  positive. 
Do  the  appellants  carry  their  arguments  so  far  as  to  assert,  that 
in  cases  which  go  beyond  expectation,  where  there  is  a  misrepre- 
sentation of  a  material  fact,  without  a  warranty  or  mala  fides,  the 
policy,  according  to  the  authorities,  is  not  vacated?  In  the  case 
of  such  a  misrepresentation,  mala  fides  is  not  necessary  to  render 
the  contract  inoperative.  The  principle  of  the  judgment  is  the 
same  in  all  the  cases,  although  we  cannot  agree  in  all  the  decisions. 
The  principle,  and  the  application  of  the  principle,  are  different 
things.  To  maintain  the  argument  for  the  appellant  it  is  neces- 
sary to  contend,  that  if  the  vessel  had  been  captured  on  the  24th 
of  April  the  underwriters  would  have  been  liable. 

The  Lord  Chancellor.  This  case  resolves  itself  into  two 
questions:  First,  whether  the  representation  was  made,  of  which 
there  is  no  doubt ;  and  secondly,  whether  it  is  a  representation 
of  an  expectation,  or  a  statement  as  of  a  past  fact,  which  is  material 
to  the  risk. 

I  have  formed  an  opinion  upon  the  subject,  but  wish  to  give 
it  further  consideration;  and  this  is  the  more  necessary,  as  this 
branch  of  law  is  not  well  understood  in  Scotland.  The  case  is 
to  be  determined  upon  a  consideration  of  the  facts,  as  a  jury 
would  decide  under  the  direction  of  a  judge  as  to  the  law  applic- 
able to  those  facts.  The  question  for  a  jury  would  be.  Was 
there  in  this  case  a  misrepresentation  of  a  material  fact  aft"ecting 
the  risk  covered  by  the  policy.*^ 

The  Lord  Chancellor.  In  the  absence  of  the  noble  Lord," 
who  was  present  at  the  hearing  of  this  appeal,  and  by  his  desire, 
I  suggest,  that  upon  inspection  of  the  policy  of  insurance  (which 
is  not  sufficiently  stated  in  the  printed  cases),  it  appears  to  be  a 
policy  upon  the  ship  as  well  as  goods.  It  is  not  therefore  like 
the  case  of  Bowden  v.  Vaughan,  which  was  cited  on  the  argument. 
In  that  case  the  policy  was  effected  by  the  owner  of  goods,  and 
on  goods  only.  If  there  should  be  any  desire  to  make  further 
observations  on  the  matter  of  the  policy,  they  may  be  suggested 
at  the    meeting  of  the  House  on  Wednesday. 

5th  April,  1821. — The  Lord  Chancellor  [after  stating  the 
question  on  the  appeal].  There  is  a  difference  between  the  rep- 
resentation of  an  expectation  and  the  representation  of  a  fact. 
The  former  is  immaterial ;    but  the  latter  avoids  the  policy  if  the 

6  Before  the  motion  for  judgment  was  finally  made,  the  Lord  Chancellor 
intimated  that  the  House  would  (if  desired)  hear  a  further  argument  on  the 
terms  of  the  policy ;  but  the  proposal  was  declined  by  the  agents. 

7  Redesdale. 


334  REPRESENTATIONS  (Ch.  5 

fact  misrepresented  be  material  to  the  risk.     After  the  most  at- 
tentive consideration  of  the  case  it  appears  to  me  that  the  judg- 
ment of  the  court  below  is  right. 
Judgment  aflirnied.* 


FLINN    V.    TOBIN. 

(Nisi  Prius,  1829.     Moody  &  M.  367.) 

Assumpsit  on  a  policy  of  insurance  on  the  ship  Andromache. 

The  defence  arose  on  an  alleged  misrepresentation.  It  was 
stated  on  the  part  of  the  defendant,  that  the  first  underwriter  on 
the  policy,  on  being  asked  to  effect  an  insurance  on  the  ship,  had 
inquired  what  cargo  she  was  to  take,  and  on  being  told  that  she 
was  to  have  a  cargo  of  rock  salt,  had  refused  to  insure  her,  con- 
sidering that  a  very  dangerous  and  laborious  cargo  for  a  vessel 
of  her  quality :  that  the  broker  had  then  gone  away  to  make  fur- 
ther inquiries,  and  returned,  stating  that  she  would  only  take  fifty 
or  sixty  tons  of  rock  salt,  which  would  put  her  in  light  ballast 
trim :  and  that  the  underwriter  had  then  consented  to  insure 
her.  The  precise  date  of  this  representation  was  not  fixed,  though 
some  evidence  was  given  with  a  view  to  show  that  it  was  made  on 
the  day  on  which  the  policy  was  signed.  The  ship  sailed  the  day 
after  the  policy  was  signed,  with  a  cargo  of  160  tons  of  rock  salt, 
being  a  full  and  very  heavy  cargo ;  and  was  lost.  It  appeared 
in  evidence  on  the  part  of  the  plaintiff,  that  the  freighters  of  the 
ship  had  required  a  certificate  from  a  ship-builder  that  she  was  fit 
to  carry  such  a  cargo  as  that  shipped  on  board  her,  and  had  re- 
ceived a  certificate  that  she  was  "fit  to  carry  a  cargo  of  rock  salt ;" 
and  that  this  certificate  was  given  several  days  before  she  sailed : 
and  some  evidence  was  given,  tending  to  show  that  it  was  com- 
municated to  the  first  underwriter  before  he  signed  the  policy, 
and  that  no  other  representation  was  made  as  to  the  cargo. 

Lord  Te;nte;rde;n,  C.  J.,  in  summing  up,  said :  I  think  the  de- 
fendant in  this  case  will  not  be  entitled  to  a  verdict,  unless  he 
satisfy  the  jury  that  there  was  a  fraudulent  misrepresentation  of 
the  cargo  which  the  Andromache  was  to  carry.  If  he  does  so, 
the  plaintiff  cannot  recover :    but  the  mere  fact  of  a  misrepresen- 

8  The  principal  case  is  explained  and  defended  by  Gray,  J.,  in  Kimball  v. 
^tna  lus.  Co.,  9  Allen  (Mass.)  540,  85  Am.  Dec.  786  (1865),  and  also  in  Rice 
V.  New  England  Marine  Ins.  Co.,  4  Pick.  (Mass.)  439,  442  (1827).  It  is  dis- 
approved in  Alston  v.  JNleclianics'  Mut.  Ins.  Co.  of  City  of  Troy,  4  Hill  (N.  Y.) 
329,  338  (1842).     Post,  p.  338. 

Further  comment  on  the  principal  case  may  be  found  in  Phillips  on  In- 
surance, 292,  and  in  Arnold  on  Marine  Insurance  (Sth  Ed.)  679. 

The  English  Marine  Insurance  Act,  1906,  §  20  (5)  provides  as  follows : 
"A  representation  as  to  a  matter  of  expectation  or  belief  is  true  if  it  be  made 
in  good  faith."  This  would  seem  to  be  a  statutory  repudiation  of  the  doctrine 
of  Dennistoun  v.  Lillie.     See  17  Halsbury's  Laws  of  England,  §  808. 


Sec.  1)  MARINE   INSURANCE  335 

tation,  withont  fraud,  will  not  be  enough  to  prevent  the  plaintiff's 
recovering;  for  the  contract  between  the  parties  is  the  policy, 
which  is  in  writing,  and  cannot  be  varied  by  parol.  No  defence 
therefore  which  turns  on  showing  that  the  contract  was  different 
from  that  contained  in  the  policy,  can  be  admitted  :  and  this  is  the 
effect  of  any  defence  turning  on  the  mere  fact  of  misrepresentation, 
without  fraud.  If  however  fraud  was  practised  to  induce  the  de- 
fendant, or  the  first  underwriter,  to  sign  the  policy,  no  signatures 
so  obtained  can  be  binding.  The  question  therefore  is,  whether 
you  think  there  was  any  wilful  and  fraudulent  misrepresentation 
made,  for  the  purpose  of  getting  the  policy  signed :  if  you  are  of 
that  opinion,  you  will  find  for  the  defendant;  if  not,  for  the  plain- 
tiff. 

Verdict  for  the  plaintiff. 


BRYANT  V.  OCEAN  INS.  CO. 
(Supreme  Judicial  Court  of  Massachusetts,  1839.     22  Pick.  200.) 

This  was  an  action  on  a  policy  of  insurance  dated  on  the  10th 
of  January,  1837,  whereby  the  defendants  caused  the  plaintiffs 
to  be  insured  in  the  sum  of  $9,000  on  the  brig  Hope,  for  one 
year,  to  all  ports  and  places. 

The  trial  was  before  Shaw,  C.  J. 

It  appeared  that  the  brig,  which  was  a  new  vessel,  sailed,  after 
the  policy  attached,  from  Damariscotta  for  New  Orleans,  and  was 
totally  lost  and  abandoned  at  sea  in  March,  1837. 

The  defence  relied  on  was,  that  prior  to  and  at  the  time  of  effect- 
ing the  insurance,  Cushing  Bryant,  who  acted  as  agent  of  the 
plaintiffs  for  this  purpose,  made  a  representation,  in  a  letter  to 
the  defendants,  that  he  was  taking  in  paving  stones  for  ballast 
and  should  fill  up  with  hay,  and  send  the  vessel  to  New  Orleans 
from  which  place  she  would  go  into  the  usual  freighting  business ; 
but  that  instead  of  ballasting  the  vessel  with  paving  stones  and 
filling  her  up  with  a  cargo  of  hay,  the  owners  had  put  in  a  cargo 
of  paving  stones  without  hay,  which  was  a  much  heavier  and 
more  perilous  cargo,  especially  for  a  new  vessel,  and  increased  the 
risk. 

The  plaintiffs  objected  to  the  admission  of  the  evidence  of  these 
facts,  on  the  following  grounds : 

1.  That  it  was  an  attempt  to  control  and  alter  the  terms  of  the 
policy,  by  evidence  of  proposals  and  negotiations  which  preceded 
it,  and  which  were  all  embraced  in  the  terms  of  the  contract  itself; 
and  that  there  being  a  stipulation  in  the  policy  to  cover  the  vessel 
to  all  ports  and  places  with  any  lawful  cargo,  it  could  not  be 
restrained  by  a  previous  proposal,  to  a  particular  employment. 
2.  That  as  a  representation,  it  did  not  relate  to  any  existing  fact 


336  REPRESENTATIONS  (Ch.  5 

but  as  to  what  was  intended  to  be  done,  and  could  not  be  deemed 
false  and  fraudulent,  unless  made  with  a  fraudulent  intent  to 
mislead  the  defendants. 

It  was  admitted  by  the  defendants,  that  they  did  not  expect  to 
prove,  that  at  the  time  when  the  representation  was  made,  the 
plaintiffs  had  actually  laden  a  cargo  of  paving  stones  on  board  the 
brig,  or  that  there  was  a  fraudulent  intent  on  the  part  of  the 
plaintiffs  to  deceive  them  ;  but  they  insisted,  that  they  relied  upon 
the  representation,  and  had  a  right  so  to  do,  so  that  without  it 
they  would  not  have  taken  the  risk,  or  not  at  the  same  premium, 
and  that  they  were  not  bound  by  their  contract  unless  the  plain- 
tiffs made  such  representation  good. 

Whereupon  it  was  ruled,  that  the  evidence  offered  was  not 
admissible  for  any  other  purpose  than  to  prove  a  fraudulent  intent 
on  the  part  of  the  insured  to  mislead  the  defendants  and  to  in- 
duce them  to  take  the  risk,  or  to  take  it  at  a  lower  premium  than 
they  otherwise  would  have  done ;  that  as  a  representation,  not 
of  a  fact,  but  of  an  intention,  it  did  not  avoid  the  policy,  unless 
made  with  a  fraudulent  intent;  that  as  it  related  solely  to  the 
employment  of  the  vessel  within  the  time  for  which  she  was  insur- 
ed, it  was  not  of  an  independent  or  collateral  fact  affecting  the 
risk,  but  was  embraced  in  the  terms  of  the  contract,  and  must 
be  considered  as  absorbed  in  the  contract  afterwards  formally 
executed,  or  as  by  mutual  consent  withdrawn  and  waived  by  the 
execution  of  the  policy. 

Whereupon  the  defendants  consented  to  be  defaulted,  the  de- 
fault to  be  subject  to  the  opinion  of  the  whole  Court. 

If  the  Court  should  be  of  opinion,  that  the  evidence  ought  to 
have  been  admitted  for  the  purpose  for  which  it  was  offered,  the 
default  was  to  be  taken  off  and  a  new  trial  granted ;  otherwise  the 
default  was  to  stand. 

Wilde,  J.,  delivered  the  opinion  of  the  Court.  The  sole  ques- 
tion in  this  case  is,  whether  there  was  any  such  misrepresenta- 
tion made  to  the  defendants  by  one  of  the  plaintiffs,  in  his  appli- 
cation for  insurance,  as  will  by  law  avoid  the  policy."     *     *     * 

It  has  been  argued  that  a  misrepresentation  will  avoid  a  policy, 
whether  made  with  a  fraudulent  design,  or  by  mistake  or  negli- 
gence, as  the  insurer  is  thereby  led  into  an  error,  and  computes 
the  risk  upon  false  grounds.  This  is  undoubtedly  true  as  to  all 
facts  represented;  and  so  if  facts  material  to  the  risk,  and  which 
the  assured  were  bound  to  disclose,  are,  by  mistake  or  negligence, 
not  disclosed,  the  omission  though  not  fraudulent  would  avoid 
the  policy.  And  on  this  ground  there  is  no  doubt,  that  if  the 
defendants  could  have  proved  that,  at  the  time  the  representation 
was   made,  the  plaintiffs  had  no  intention  to  take  in  a  cargo  of 

9  Here  a  summary  statement  of  the  case  is  omitted. 


Sec.  1)  MARINE   INSURANCE  337 

hay,  such  a  false  representation  would  avoid  the  policy.  Indeed 
if  they  had  no  such  intention  it  would  have  been  a  fraudulent  mis- 
representation. That  was  a  question  of  fact  for  the  jury  to  de- 
cide, if  tile  defendants  had  inclined  to  submit  it  to  their  decision. 
But  no  representation  of  a  party's  expectation  or  belief,  unless 
fraudulently  made,  will  avoid  a  policy.  Nor  is  there  any  distinc- 
tion between  a  party's  expectation,  and  intention,  as  to  any  mat- 
ter relating  to  the  voyage.^"     *     *     * 

The  defendants'  counsel  have  endeavoured  to  distinguish  the 
case  under  consideration  from  that  of  Bize  v.  Fletcher  and  some 
of  the  other  cases  cited.  In  those  cases,  it  is  said,  the  events  ex- 
pected were  pre\ented  by  necessity,  or  were  not  within  the  con- 
trol of  the  assured ;  whereas,  in  the  present  case,  the  plaintiffs 
might  have  well  carried  their  declared  intention  into  effect,  for 
aught  that  appears  to  the  contrary,  if  they  had  seen  fit  so  to  do. 
But  we  do  not  consider  this  as  a  sound  distinction.  No  doubt 
circumstances  may  be  supposed  that  might  justify  a  jury  in 
finding  that  the  plaintiffs'  declared  intention  was  a  mere  pretence,, 
and  that  they  in  fact  had  no  such  intention.  But  if  the  intention 
was  real,  and  they  had  a  right  to  change  their  intention,  there  is 
no  evidence  to  prove  that  they  did  not  act  with  good  faith. 

If  the  evidence  offered  was  intended  to  prove  an  agreement  or 
promise  not  embraced  in  the  policy,  it  was  clearly  inadmissible. 

It  is  a  familiar  principle  of  the  law  of  insurance,  that  a  repre- 
sentation is  no  part  of  the  policy.  It  is  a  collateral  statement  of 
facts  or  circumstances  relative  to  the  proposed  adventure,  which 
may  be  an  inducement  to  the  contract,  but  is  not  inserted  in  the 
policy.  It  is  said  truly,  that  if  information  be  stated  as  mere  opin- 
ion, expectation  or  intention,  it  does  not  amount  to  a  represen- 
tation. The  information  of  the  plaintiffs'  intention  as  to  the  nature 
of  the  cargo,  was  contained  in  a  letter  to  the  defendants,  in  which 
other  facts  were  stated  amounting  strictly  to  a  representation. 
The  whole  was  intended  as  such,  and  must  have  been  so  under- 
stood by  the  defendants.  But  this  is  not  material ;  for  if  the 
information  of  the  plaintiffs'  expectation  and  intention  is  strictly 
no  part  of  the  representation,  it  is  clearly  no  part  of  the  policy, 
and  cannot  avail  the  defendants  in  any  manner. 

It  is  admitted,  that  by  the  principles  of  the  common  law  this 
evidence  could  not  be  admitted,  but  in  respect  to  contracts  of 
insurance  it  is  contended,  that  a  more  liberal  rule  of  evidence 
should  be  applied.  We  think  there  is  no  ground  for  this  distinc- 
tion. The  reason  of  the  rule  applies  to  contracts  of  insurance, 
as  well  as  to  other  contracts.     The  written  contract  is  the  best 


10  A  brief  statement  of  Bize  v.  Fletclier,  1  Doug.  2S7  (1779),  s.  c.  ante,  p. 
323,  is  here  omitted. 
Vance  Ins. — 22 


338  REPRESENTATIONS  (Ch.  5 

evidence  of  the  understanding  and  intention  of  the  parties.  A 
representation  or  other  parol  evidence  is  admissible  to  explain  a 
latent  ambiguity,  or  to  prove  a  usage  which  may  affect  the  policy ; 
but  the  like  evidence  is  admissible  in  exijlanation  of  other  written 
contracts.  A  case  is  cited  1  Marshall  (3d  Ed.)  352,  where  on  in- 
surance from  Archangel  to  the  Downs,  and  thence  to  Leghorn, 
with  a  parol  agreement  that  the  policy  should  not  attach  till  a 
certain  period,  it  was  held,  that  the  plaintiff  could  not  recover 
in  contravention  of  the  parol  agreement.  In  Weston  v.  Emes,  1 
Taunt.  115,  the  court  held  that  this  case  could  not  be  law,  and 
expressed  their  opinion  that  it  could  not  have  been  so  decided. 

But  if  the  parol  evidence  were  admissible,  it  could  not  sustain 
the  defence.  It  would  only  prove  the  declaration  of  an  intention 
of  the  plaintiffs  previous  to  the  policy,  and  as  it  was  not  after- 
wards inserted  in  the  policy  the  defendants  must  be  presumed  to 
have  taken  upon  themselves  the  risk  of  any  change  of  intention ; 
otherwise  they  would  have  required  a  warranty. 

In  Whitney  v.  Haven,  13  Mass.  \72,  it  was  proved  by  the  bro- 
ker, that  the  plaintiff  declared,  at  the  time  of  effecting  the  policy, 
that  the  vessel  was  to  sail  within  five  days,  and  that  the  defendant 
said  that  his  name  should  be  taken  off  the  policy,  or  that  he  would 
not  be  bound,  if  she  did  not  then  sail.  She  did  not  sail  within  the 
five  days ;  and  the  delay  was  relied  upon  as  a  sufficient  defence. 
But  the  Court  decided,  that  the  defendant  could  not  avail  him- 
self of  it,  not  because  the  delay  was  justified  by  the  apprehended 
danger  of  capture,  but  because  the  stipulation  was  no  part  of  the 
written  contract;  and  that  parol  evidence  was  not  sufficient  to 
give  it  effect.  This  was  evidently  considered  by  the  Court  as 
quite  clear,  and  we  are  all  of  the  same  opinion. 

We  are  therefore  of  opinion,  that  the  evidence  offered  in  de- 
fence was  not  admissible,  and  that  the  ruling  of  the  court  at 
the  trial  was,  in  all  respects,  correct. 

Motion  for  a  new  trial  overruled. 


SECTION  2.— FIRE  INSURANCE 


ALSTON  V.  MECHANICS'  MUT.  INS.  CO.  OF  CITY 

OF  TROY. 

(Court  of  Errors  of  New  York,  1842.     4  Hill,  329.) 

Error  to  the  Supreme  Court.  The  action  in  the  court  below 
was  upon  a  fire-policy  on  a  building  and  some  personal  property 
belonging  to  the  plaintiff,  which  bore  date  August  27,  1838.  The 
term  of  insurance  was  five  years,  commencing  at  the  date  of  the 


Sec.  2)  FIRE   INSURANCE  339 

policy.  In  the  policy,  the  building  was  described  as  a  brick  dwell- 
ing-house and  shop ;  and,  after  setting  forth  the  size  of  the  build- 
ing and  its  height  above  the  basement,  the  policy  added — "which 
basement  is  privileged  as  a  cabinet-maker's  shop."  The  personal 
property  covered  by  the  policy  consisted  of  "stock  in  trade  in  the 
cabinet  business,"  household  furniture,  wearing  apparel  and  family 
stores.  Among  other  conditions,  contained  in  the  policy  was  this : 
"If  the  said  David  Alston  [the  plaintifif]  shall  make  any  misrepre- 
sentation or  concealment,  or  if  such  building  or  premises  shall 
be  occupied  in  any  way  so  as  to  render  the  risk  more  hazardous 
than  at  the  time  of  insuring,  this  policy  shall  be  void  and  of  no 
effect."  After  issue  joined  in  the  court  below  the  cause  was 
referred. 

On  the  hearing,  the  plaintifif  gave  in  evidence  the  policy,  the 
preliminary  proofs  of  loss,  etc.,  and  then  called  one  Pratt,  who 
testified  as  follows,  viz. :  Witness  knows  the  building  described 
in  the  policy;  it  was  burned  down  the  last  of  August,  1838; 
plaintiff  occupied  the  house,  and  had  for  some  time  occupied  it 
as  his  own.  It  was  totally  destroyed  except  the  brick.  Witness 
made  out  an  estimate  of  the  cost  of  the  house,  and  it  amounted 
to  $1,781,  etc.  Plaintiff  is  a  cabinet-maker  and  had  tools,  stock 
in  trade,  etc.  His  shop  was  in  the  basement  of  the  building.  The 
witness  further  testified,  on  cross-examination,  that  he  lived  near 
the  house  and  saw  the  fire.  The  first  he  saw  of  it,  it  appeared  to 
be  in  the  basement — i.  e.  in  the  shop.  This  was  between  nine  and 
ten  o'clock  in  the  evening,  A  fire  was  kept  in  the  shop,  some- 
times in  the  fire-place  and  sometimes  in  the  furnace — a  portable 
furnace  for  cooking  and  heating  glue. 

The  defendants  then  called  Lyman  Garfield,  their  secretary, 
who  testified  to  the  following  facts :  On  the  27th  of  August,  1838, 
the  plaintiff  called  on  the  witness  for  the  policy  of  insurance,  the 
application  for  it  having  been  sent  in  some  time  previously.  Wit- 
ness told  the  plaintiff  the  company  had  concluded  not  to  accept 
the  proposals;  adding,  that  he  (the  witness)  understood  the  plain- 
tiff was  using  a  fire  in  the  fire-place  of  the  cabinet-maker's  shop 
(the  basement  story  of  the  building)  and  that  the  house  had  be- 
fore taken  fire  from  that  cause.  The  plaintiff  enquired  where  the 
president  of  the  company  (Mr.  Starbuck)  resided.  Witness  in- 
formed him;  whereupon  the  plaintiff  left,  and  in  about  half  an 
hour  returned  with  the  president.  Some  conversation  then  ensued, 
and  the  plaintiff  finally  said:  "I  will  abandon  the  use  of  the  fire- 
place ;  I  have  got  a  stove  and  will  use  that."  Witness  understood 
him  he  had  a  stove  in  the  basement.  Upon  this  statement,  we 
agreed  to  give  him  the  policy,  and  did  give  it  to  him. 

Mr.  Starbuck,  the  president,  was  then  called  by  the  defendants 
and  gave  a  more  full  statement  of  the  conversation  at  the  time 
alluded   to  by   Garfield.      He   testified,   among  other  things,   that 


^40  RErui:sKNTATi()XS  (Ch.  5 

after  the  plaintiff  was  informed  of  the  company's  unwillingness 
to  accept  the  risk,  the  plaintiff  said:  "Suppose  I  should  abandon 
the  fire-place  in  the  basement,  would  you  then  take  it?"  W'it- 
ness  thereupon  consulted  with  the  secretary,  and  then  spoke  to 
the  plaintiff',  who  said  he  would  abandon  the  fire-place  in  the  base- 
ment altogether;  that  he  ^yould  not  use  it  himself  nor  suffer  any 
other  person  to  use  it,  but  would  use  a  stove  which  he  had.  Wit- 
ness and  Mr.  Garfield  then  told  the  plaintiff  if  he  would  do  that, 
they  would  take  the  risk,  and  it  was  taken  accordingly.  The 
building  burned  up  two  or  three  days  afterwards.  The  using  of 
a  fire-place  in  the  basement,  instead  of  a  stove,  was  material  to 
the  risk. 

The  above  testimony  of  Garfield  and  Starbuck  was  objected  to 
by  the  counsel  for  the  plaintiff  in  due  season;  but  the  referees 
were  of  opinion  that  it  was  admissible,  and  therefore  overruled 
the  objection. 

It  appeared  from  other  evidence  given,  that  the  plaintiff  used 
the  fire-place  in  the  basement,  for  the  purpose  of  cooking,  the 
next  day  after  the  policy  was  delivered.  His  affidavit  forming  a 
part  of  the  preliminary  proofs  of  loss  contained  this  clause:  "I 
occupied  at  the  time  [of  the  fire]  the  basement  or  lower  rooms 
[of  the  building]  as  a  cabinet-maker's  shop,  for  the  manufacturing 
of  furniture,  and  believe,  according  to  the  best  of  my  knowledge, 
that  the  fire  originated  in  the  last  mentioned  basement  rooms, 
where  I  was  at  work  late  at  night  varnishing  furniture,  a  fire 
being  on  the  hearth  at  the  time  for  that  purpose,"  etc. 

The  referees  reported  in  favor  of  the  defendants,  and  the  plain- 
tiff afterwards  moved  the  court  below  to  set  aside  the  report,  but 
the  motion  was  denied.  A  report  of  the  case  in  that  court,  to- 
gether with  the  opinion  there  delivered  on  denying  the  motion, 
will  be  found  in  1  Hill,  510  et  seq.  After  judgment,  the  plaintiff 
sued  out  a  writ  of  error. 

Walworth,  Chancellor.  The  loss  in  this  case  was  clearly  cov- 
ered by  the  terms  of  the  policy.  Those  terms  unquestionably 
embraced  a  loss  by  fire  arising  from  the  use  of  the  basement  of 
the  premises  as  a  cabinet-maker's  shop,  which  included  the  ordi- 
nary use  of  fire  for  varnishing  and  the  melting  of  glue.  The 
policy  also,  by  implication  at  least,  gives  the  assured  the  right 
to  occupy  and  use  the  basement  as  it  was  used  at  the  time  when 
the  insurance  was  made;  for  it  contains  an  express  provision  that 
if  the  premises  shall  be  occupied  in  any  way  so  as  to  render  the 
risk  more  hazardous  than  at  the  time  of  insuring,  the  policy  shall 
be  void.  And  the  attempt  now  is  to  prove,  by  parol,  that  the  as- 
sured, at  the  time  this  contract  of  insurance  was  made,  agreed 
that  he  would  thereafter  occupy  this  basement  room  in  such  a 
manner  as  to  render  the  risk  less  hazardous  than  it  was  at  the 
date  of  the  policy.     The  question  then  arises  whether  this   sup- 


Sec.  2)  FIRE    INSURANCE  341 

posed  agreement,  which,  if  actually  made  and  if  there  has  been 
no  misunderstanding  between  the  parties  as  to  its  nature  and 
extent,  was  of  itself  a  part  of  the  contract  of  insurance  and  should 
have  been  inserted  in  the  written  policy,  as  a  condition  or  war- 
ranty, can  be  converted  into  what  the  defendant's  counsel  calls 
a  promissory  representation;  and  thus  avoid  the  policy  on  the 
ground  that  the  assured  has  not  performed  his  part  of  the  agree- 
ment, when  no  such  agreement  is  either  expressed  or  implied  in 
the  written  policy  which  was  executed  by  the  agents  of  the  insur- 
ance company. 

Marshall,  who  I  admit  is  a  writer  of  very  considerable  authority 
on  the  law  of  insurance,  does  indeed  speak  of  two  different  kinds 
of  representation,  one  of  which  he  calls  an  affirmative  and  the 
other  a  promissory  representation.  But  I  have  not  been  able  to 
find  any  case  in  which  a  court  has  adopted  this  distinction.  And 
the  only  other  writer  on  the  law  of  insurance,  who  appears  to 
have  considered  a  representation  as  a  contract  between  the  par- 
ties, is  Ellis.  He  says  "a  representation  in  insurance  is  in  the 
nature  of  a  collateral  contract."  Ellis'  Law  of  Fire  and  Life  Ins. 
29.  I  have  examined  Millar,  Weskett,  Annesley,  Hughes,  Evans, 
Park,  Beaumont,  Phillips,  Emerigon,  Blaney,  Quenault,  Grtin  & 
Joliat,  Vincens,  Lafond,  Persil,  Merlin,  Pardessus,  Boulav  Paty, 
and  the  works  of  some  other  English  and  foreign  writers  on 
the  subject  of  marine,  fire  and  life  insurances;  and  so  far  as  they 
say  anything  on  the  subject,  I  find  them  to  concur  in  saying  that 
misrepresentation,  in  reference  to  insurance  contracts,  is  a  false 
affirmation  as  to  some  fact,  material  to  the  risk;  which  affirma- 
tion is  made  by  the  assured,,  or  his  agent,  either  from  a  mistake 
as  to  the  fact  represented,  or  with  a  design  to  deceive  the  insurer. 

Annesley  says,  if  there  be  a  misrepresentation,  it  will  avoid 
the  policy,  as  a  fraud ;  but  not  as  a  part  of  the  agreement,  as  in 
the  case  of  a  warranty.  And  if  the  representation  is  false  in  any 
material  point,  even  through  mistake,  it  will  avoid  the  policy ; 
because  the  underwriter  has  computed  the  risk  upon  circumstances 
which  did  not  exist.  Ann.  on  Ins.  124.  Blaney  says,  it  is  neces- 
sary that  the  contracting  parties  should  have  equal  knowledge, 
or  ignorance,  of  every  material  fact  or  circumstance  which  mav 
or  can  affect  the  insurance.  And  if  on  either  side  there  is  anv 
misrepresentation,  allegatio  falsi,  or  suppressio  veri,  which  would 
in  any  degree  affect  the  amount  of  the  premium  or  the  terms  of 
the  engagement,  the  contract  will  be  deemed  fraudulent  and  abso- 
lutely void.  Blan.  on  Life  Assurance,  59.  Evans  states  the  dif- 
ference between  a  representation  and  a  warranty  to  be,  that  the 
one  induces  an  error  in  regard  to  the  subject  of  the  contract,  and 
the  other  is  a  stipulation  of  the  contract  itself.  And  he  divides 
representations  into  but  two  classes — those  which  are  intentionally 
false,    and    misrepresentations   through    mistake.      Evans'   Law   of 


342  REPRESENTATIONS  (Ch.  5 

Ins.  58,  64.  Hughes  speaks  of  a  representation  as  the  assertion 
of  a  material  fact  which  the  insured  knows  to  be  false,  or  which 
he  makes  in  an  unqualified  manner  without  knowing  whether  it 
is  true  or  not.  Hughes'  Law  of  Ins.  345.  Philli])s,  an  American 
writer,  whose  treatise  on  the  law  of  insurance  stands  deservedlj^ 
high,  says  a  representation  is  a  material  fact  stated  before  com- 
pleting the  contract;  and  a  misrepresentation  is  the  statement 
of  such  a  fact  which  turns  out  not  to  be  true.  1  Phil,  on  Ins.  90. 
And  Mr.  Justice  Park,  lately  one  of  the  English  judges,  a  recent 
edition  of  whose  valuable  work  on  marine  insurances  and  insur- 
ances on  lives,  and  against  fire,  has  been  published  by  Barrister 
Hildyard,  places  misrepresentations  under  the  head  of  frauds  in 
policies.  He  divides  them  into  two  classes — representations  in- 
tentionally false,  and  the  misstatement  of  a  material  fact  by  mis- 
take. And  he  defines  a  representation  to  be  a  state  of  the  case; 
not  a  part  of  the  written  instrument,  but  collateral  to  it  and  en- 
tirely independent  of  it.  He  also  says,  if  there  be  a  misrepresen- 
tation, it  will  avoid  the  policy  as  a  fraud,  but  not  as  a  part  of 
the  agreement.  1  Park  on  Ins.  8  Lond.  Ed.  404,  433.  See  also 
Quenault  Des  Assur.  Terrestres,  289,  No.  374,  375 ;  Persil  Traite 
Des  Assur.  Terr.  297,  No.  210,  211;  Grun  &  Joliat  Des  Assur. 
Terr.  260,  No.  208 ;  and  2  Boulay  Paty  Cours  De  Droit  Commer- 
cial Maritime,  87,  tit.  10,  §  14.  Chancellor  Kent  also,  in  his  brief 
notice  of  contracts  of  insurance,  speaks  of  two  kinds  of  mis- 
representations only ;  those  which  are  intentional  and  avoid  the 
contract  for  actual  fraud  on  the  part  of  the  assured  or  his  agents ; 
and  those  which  arise  from  mistake  or  oversight,  which  do  not 
afifect  the  policy  unless  they  are  untrue  in  substance  and  are  ma- 
terial to  the  risk.  3  Kent's  Com.  283.  It  is  hardly  possible  to 
suppose  that  if  there  was  such  a  term  known  to  the  law  of  insur- 
ance as  a  promissory  representation,  rendering  the  contract  void 
for  the  non-performance  of  a  stipulation  in  the  nature  of  a  col- 
lateral executory  agreement,  which  the  parties  did  not  think  prop- 
er to  make  a  part  of  the  written  contract,  it  would  have  been 
passed  over  in  silence  by  all  the  writers  I  have  referred  to. 

Nor  do  I  find  any  such  thing  as  a  promissory  representation 
mentioned  in  the  decisions  of  the  courts.  On  the  contrary.  Lord 
Mansfield,  who  may  be  called  the  father  of  the  present  system 
of  commercial  law  in  England,  clearly  repudiates  the  idea  of  a 
representation  being  promissory.     *     *     * 

These  cases  therefore  show  that  a  statement  as  to  a  future 
fact  or  event  which  is  in  its  very  nature  contingent,  and  which 
the  insurer  knows  the  party  could  not  have  intended  to  state  as 
a  known  fact,  but  as  an  intention  or  expectation  merely,  if  hon- 
estly made  and  not  with  an  intent  to  deceive,  is  not  a  collateral 
contract  or  a  promissory  representation  which  the  assured  is 
bound   to   see  performed   to   render   his  policy   valid.      But   if  the 


Sec.  2)  FIRE   INSURANCE  343 

underwriter  considers  the  statement  material  to  the  risk,  and  is 
unwilling  to  insure  at  the  contemplated  premium  without  bind- 
ing the  assured  to  the  performance  of  it  as  a  condition  precedent 
to  his  liability,  he  should  make  it  a  part  of  the  contract  stated 
in  the  policy. 

Where  the  assured  acts  in  good  faith  without  any  intent  to 
deceive,  and  without  concealing  or  misstating  any  fact  within 
his  knowledge  which  it  is  essential  to  the  underwriters  to  know, 
to  enable  them  to  judge  of  the  propriety  of  assuming  the  risk 
and  the  amount  of  premium  and  other  conditions  of  the  policy, 
common  justice  requires  that  the  party  who  pays  the  premium 
should  be  informed,  by  the  terms  of  the  written  agreement,  what 
is  the  real  contract  between  him  and  the  vmderwriters ;  and  it 
should  not  be  left  to  the  uncertain  recollection  of  any  one  to 
prove  a  different  agreement  from  that  which  is  contained  in 
the  written  policy.  For  it  frequently  happens  that  where 
negotiations  are  carried  on  between  parties,  and  they  suppose 
they  understand  one  another  as  to  the  terms  of  the  bargain,  they 
find,  when  they  come  to  reduce  their  agreement  to  writing,  that 
they  do  not  understand  it  alike.  It  is  for  this  reason  that  parol 
proof  is  not  admissible  to  vary  or  alter  the  terms  or  the  legal 
meaning  of  a  written  contract,  by  showing  what  either  party 
said  while  the  negotiation  was  going  on.  Fraud,  misrepresenta- 
tion and  deceit  are  necessary  exceptions  to  this  general  rule ;  but 
there  is  no  good  reason  why  any  thing  which  is  in  fact  a  part  of 
the  contract  between  the  parties,  should  form  an  exception  to  the 
rule  in  an  insurance  case. 

The  case  now  under  consideration,  I  am  inclined  to  think,  shows 
the  importance  of  adhering  rigidly  to  this  rule  in  insurance  cases 
as  well  as  others.  For  although  I  have  no  reason  to  suppose  the 
president  and  secretary  of  the  company  have  not  stated  the  sup- 
posed agreement  in  relation  to  the  use  of  the  fire-place,  exactly 
as  they  understood  it,  I  have  great  doubts  whether  the  plaintiff 
understood  that  he  was  to  be  precluded  by  that  agreement  from 
using  the  fire-place  to  heat  his  glue-pot  and  warm  his  varnish  ;  or 
that  he  was  to  remove  his  cooking  apparatus  from  the  basement 
room  the  instant  the  policy  was  signed,  without  giving  him  a 
reasonable  time  to  put  up  his  stove  for  cooking  in  another  part 
of  the  house.  It  must  be  recollected  that  the  conversation  took 
place  in  dog-days,  when  a  stove  was  not  wanted  to  warm  his 
shop ;  but  when  his  family  were  using  the  fire-place  in  that  room 
for  family  purposes.  He  therefore  most  probably  spoke  in  ref- 
erence to  that  use  of  the  fire-place,  when  he  said  he  would  aban- 
don the  fire-place  and  use  his  stove.  And  as  the  president  and 
secretary  do  not  themselves  agree  in  respect  to  the  words  he  used, 
it  is  possible  that  both  have  misapprehended  what  he  did  in  fact 
mean  to  say  on  the  subject;    or  he  may  have  inadvertently  used 


.'J44  REPRESENTATIONS  (Cll.  5 

language  which  did  not  properly  express  what  he  intended  to 
agree  to  on  the  subject.  That  he  understood  he  was  to  al)andon 
the  use  of  the  fire-place  for  cooking,  is  very  probable.  \'\)v  it 
appears  the  family  only  cooked  there  until  the  next  day,  when 
he  had  probably  gotten  his  stov-e  up  in  another  part  of  the  house, 
or  had  made  some  other  provision  for  the  necessary  fire  for  family 
purposes.  And  if  he  thus  discontinued  cooking  in  the  fire-place 
in  good  faith,  immediately  after  he  had  obtained  his  insurance, 
it  is  hardly  probable  that  he  would  have  used  the  fire-place  for 
the  temporary  purpose  of  varnishing,  if  he  had  understood  that 
his  agreement  with  the  officers  of  the  insurance  company  extended 
so  far  as  to  embrace  such  a  use.  By  the  terms  of  his  policy,  the 
basement  was  privileged  as  a  cabinet-maker's  shop,  which  of  course 
included  the  necessary  use  of  fire  for  gluing  and  varnishing. 

In  Whitney  v.  Mayer,  13  Mass.  172,  the  supreme  court  of  Massa- 
chusetts decided  that  the  underwriter  could  not  set  up  a  parol 
agreement  between  the  parties,  which  was  not  inserted  in  the 
policy,  to  defeat  the  insurance ;  but  that  if  the  underwriter  intended 
to  avail  himself  of  it,  he  should  have  made  it  a  part  of  the  written 
contract.  A  similar  decision  was  made  by  Lord  Tenterden  in 
Flinn  v.  Tobin,  1  Mood.  &  Malk.  Rep.  369.  And  in  this  case,  no 
one  who  reads  the  testimony  can  for  a  moment  doubt  that  a  prom- 
ise to  abandon  the  fire-place  and  use  a  stove,  was  an  agreement, 
and  not  a  representation  of  a  fact.  I  think  the  referees  erred, 
therefore,  in  receiving  parol  evidence  of  such  an  agreement  to 
defeat  the  policy;  and  that  their  report  should  have  been  set 
aside  and  a  venire  de  novo  awarded. 

The  judgment  of  the  court  below  is  therefore  erroneous,  and 
should  be  reversed. 

[The  concurring  opinion  of  BockEU,   Senator,  is  omitted.] 

All  the  members  of  the  Court,  nineteen  being  present,  con- 
curring in  this  result,  the  judgment  was  unanimously  reversed. 


DANIELS  V.  HUDSON  RIVER  FIRE  INS.  CO. 

(Supreme  Judicial  Court  of  Massachusetts,  Norfolk,  1853.    12  Cush.  41G, 
59  Am.  Dee.  192.) 

This  was  an  action  upon  a  policy  of  insurance  against  fire.  At 
the  trial  in  this  court,  February  term,  1853,  held  by  Thomas,  J., 
the  plaintiffs  having  proved  a  prima  facie  case,  the  defendants, 
a  corporation  chartered  by  the  laws  of  the  state  of  New  York, 
relied  upon  a  violation  of  the  statements  in  the  application,  num- 
bered 22  and  24.  The  twenty-second  interrogatory  was:  "Is 
there  a  good  forcing-pump  in  the  factory,  designed  expressly  for 
putting   out   fire,   and   at   all   times    in    condition   for   use?"      The 


Sec.  2)  FIRE    INSURANCE  345 

answer  was:  "A  small  force-pump  for  filling  barrels,  and  with 
hose  to  reach  each  room."  The  twenty-fourth  question  inquired, 
"Are  there  casks  in  each  loft  constantly  supplied  with  water? 
If  there  are,  what  is  their  capacity,  and  how  many  buckets  are 
kept  to  each  cask  for  use  in  case  of  fire?"  Ans.  "There  is  in 
each  room,  casks  of  forty-two  gallons  each,  kept  full  constantly ; 
also,  twenty-four  buckets  in  mill."  The  policy  also  declared  that 
it  was  "made  and  accepted  in  reference  to  the  terms  and  condi- 
tions hereto  annexed,  which  are  to  be  used  and  resorted  to,  in 
order  to  explain  the  rights  and  obligations  of  the  parties  hereto, 
in  all  cases  not  herein  otherwise  specially  provided  for."  The 
second  clause  of  the  first  article  of  the  conditions  of  the  policy 
provided,  that  "if  any  person  insuring  any  building  or  goods  in 
this  office  shall  make  any  misrepresentation  or  concealment,  etc., 
such  insurance  shall  be  void  and  of  no  efifect."  The  assured  also 
covenanted  in  said  application,  "that  the  foregoing  is  a  just,  full, 
and  true  exposition  of  all  the  facts  and  circumstances  in  regard 
to  the  condition,  situation,  value,  and  risk  of  the  property  insured." 

The  remaining  facts  appear  sufficiently  from  the  opinion.  The 
verdict  was  for  the  plaintiffs. ^^ 

Shaw,  C.  J.  This  is  an  action  of  contract,  to  recover  on  a  policy 
of  insurance,  made  by  the  defendant  company,  for  a  loss  by  fire. 
The  insurance  was  upon  the  plaintififs'  factory  building  in  Med- 
way.  and  the  machinery  and  stock.  The  defendant  company  have 
their  office  and  principal  place  of  business  at  Waterford,  N.  Y. 
The  policy,  for  one  year,  purports  to  be  dated  there,  and  signed 
by  the  president  and  secretary;  but  the  negotiation  was  had  by 
an  agent  of  the  company  in  Massachusetts,  and  by  the  terms  of 
the  policy,  it  was  not  to  be  valid  unless  countersigned  by  their 
agent  at  Worcester,  and  it  was  so  countersigned  and  delivered 
by  him.  There  can  be  no  doubt  that  this  is  a  contract  made  in 
Massachusetts,  and  to  be  governed  and  construed  by  the  laws  of 
this  state;  for  though  it  was  dated  in  New  York  and  signed  by 
the  president  and  secretary  there,  yet  it  took  effect,  as  a  contract, 
from  the  countersignature  and  delivery  of  the  policy  in  Massa- 
chusetts. It  is  to  be  interpreted  according  to  the  laws,  and  with 
reference  to  the  usages  and  the  practice  of  this  state,  in  the  same 
manner  with  any  other  Alassachusetts  policy  of  insurance  against 
fire. 

It  came  to  trial  before  one  of  the  justices  of  this  court;  sev- 
eral exceptions  were  taken  by  the  defendants  to  the  directions  and 
decisions  of  the  judge.  These  are  now  brought  before  the  whole 
court  by  bill  of  exceptions. 

1.  The  defendants,  relying  upon  a  violation  of  the  statements 
in  the  application,  contended  that  these  statements  were  warran- 

11  The  statement  of  facts  is  much  abbreviated. 


346  REPRESENTATIONS  (Ch.  5 

ties  or  conditions,  and  if  they  were  not  strictly  and  literally  true 
at  the  time  of  the  application,  that  the  policy  was  void;  and  that 
if  they  were  then  true,  and  the  plaintiffs  afterwards  ceased  to 
comply  with  them,  the  policy  thereupon  became  void,  whether 
the  same  were  or  were  not  material  to  the  risk.  But  the  presiding 
judge  instructed  the  jury,  that  the  statements  of  the  application 
were  not  warranties,  requiring  an  exact  and  literal  compliance, 
but  that  they  were  representations;  and  as  such,  must  have  been 
substantially  true  and  correct  as  to  things  done,  or  existing,  at 
the  time  the  policy  was  issued,  and  that  so  far  as  they  related  to 
the  future — to  things  to  be  done,  and  rules  and  precautions  to 
be  observed — they  were  stipulations,  to  be  fairly  and  substan- 
tially complied  with. 

The  court  are  of  opinion,  that  looking  at  the  policy  and  the 
application,  this  instruction  was  correct.  There  is  undoubtedly 
some  difficulty  in  determining  by  any  simple  and  certain  test  what 
propositions  in  a  contract  of  insurance  constitute  warranties,  and 
what  representations.  One  general  rule  is,  that  a  warranty  must 
be  embraced  in  the  policy  itself.  If  by  any  words  of  reference,  the 
stipulation  in  another  instrument,  such  as  the  proposal  or  appli- 
cation, can  be  construed  a  warranty,  it  must  be  such  as  make 
it  in  legal  effect  a  part  of  the  policy.  In  a  recent  case,  it  was  said 
that  "the  proposal  or  declaration  for  insurance,  when  forming  a 
part  of  the  policy,  has  been  held  to  amount  to  a  condition  or  war- 
ranty, which  must  be  strictly  true  or  complied  with,  and  upon 
the  truth  of  which,  whether  a  misstatement  be  intentional  or  not, 
the  whole  instrument  depends."  Vose  v.  Insurance  Co.,  6  Cush. 
47.  But  no  rule  is  laid  down  in  that  case,  for  determining  how 
or  in  what  mode  such  statements  contained  in  the  application, 
or  in  answer  to  interrogatories,  shall  be  embraced  or  incorporated 
into  the  policy,  so  as  to  form  part  thereof. 

The  difference  is  most  essential,  as  indicated  in  the  definition 
of  a  warranty  in  the  case  last  cited,  and  as  stated  by  the  counsel 
for  the  defendants  in  the  prayer  for  instruction.  If  any  statement 
of  fact,  however  unimportant  it  may  have  been  regarded  by  both 
parties  to  the  contract,  is  a  warranty,  and  it  happens  to  be  untrue, 
it  avoids  the  policy;  if  it  be  construed  a  representation,  and  is 
untrue,  it  does  not  avoid  the  contract  if  not  wilful,  or  if  not  mate- 
rial. To  illustrate  this :  the  application,  in  answer  to  an  interrog- 
atory, is  this :  "Ashes  are  taken  up  and  removed  in  iron  hods ;" 
whereas  it  should  turn  out  in  evidence,  that  ashes  were  taken  up 
and  removed  in  copper  hods ;  perhaps  a  set  recently  obtained, 
and  unknown  to  the  owner.  If  this  was  a  warranty,  the  policy 
is  gone ;  but  if  a  representation,  it  would  not,  we  presume,  affect 
the  policy,  because  not  wilful  or  designed  to  deceive;  but  more 
especially,  because  it  would  be  utterly  immaterial,  and  would  not 
have  influenced  the  mind  of  either  party  in  making  the  contract 


Sec.  2)  FIRE   INSURANCE  347 

or  in  fixing  its  terms.  Hence  it  is,  we  suppose,  that  the  leaning 
of  all  courts  is,  to  hold  such  a  stipulation  to  be  a  representation, 
rather  than  a  warranty,  in  all  cases,  where  there  is  any  room 
for  construction;  because  such  construction  will,  in  general,  best 
carry  into  effect  the  real  intent  and  purpose  which  the  parties 
have  in  view,  in  making  their  contract. 

In  the  present  case,  the  only  clause  in  the  policy  having  any 
bearing  upon  this  question,  is  this:  "And  this  policy  is  made 
and  accepted  in  reference  to  the  terms  and  conditions  hereto  an- 
nexed, which  are  to  be  used  and  resorted  to,  in  order  to  explain 
the  rights  and  obligations  of  the  parties  hereto,  in  all  cases  not 
herein  otherwise  specially  provided  for."  Here  is  no  reference 
whatever  to  the  application  or  the  answers  accompanying  it;  the 
only  reference  is  to  the  conditions  annexed  to  the  policy.  In 
looking  at  these  conditions,  second  clause  of  article  1,  the  pro- 
vision is,  that  "if  any  person  insuring  any  building  or  goods  in 
this  office,  shall  make  any  misrepresentation  or  concealment,  or, 
&c., — mentioning  several  other  cases,  all  of  which  would  tend  to 
increase  the  risk, — such  insurance  shall  be  void  and  of  no  effect." 

The  terms  "misrepresentation"  and  "concealment"  have  a  known 
and  definite  meaning  in  the  law  of  insurance;  and  it  is  that  mean- 
ing and  sense  in  which  we  are  to  presume  the  parties  intended  to 
use  them  in  their  contract  of  insurance,  unless  there  is  something 
to  indicate  a  different  intent.  "Misrepresentation"  is  the  state- 
ment of  something  as  fact,  which  is  untrue  in  fact,  and  which  the 
assured  states,  knowing  it  to  be  not  true,  with  an  intent  to  deceive 
the  underwriter,  or  which  he  states  positively  as  true,  without 
knowing  it  to  be  true,  and  which  has  a  tendency  to  mislead,  such 
fact  in  either  case  being  material  to  the  risk.  "Concealment"  is 
the  designed  and  intentional  withholding  of  any  fact  material  to 
the  risk,  which  the  assured,  in  honesty  and  good  faith,  ought  to 
communicate  to  the  underwriter;  mere  silence  on  the  part  of  the 
assured,  especially  as  to  some  matter  of  fact  which  he  does  not 
consider  it  important  for  the  underwriter  to  know,  is  not  to  be 
considered  as  such  concealment.  "Aliud  est  celare,  aliud  tacere." 
And  every  such  fact,  untruly  asserted  or  wrongfully  suppressed, 
must  be  regarded  as  material,  the  knowledge  or  ignorance  of  which 
would  naturally  influence  the  judgment  of  the  underwriter  in  mak- 
ing the  contract  at  all,  or  in  estimating  the  degree  and  character 
of  the  risk,  or  in  fixing  the  rate  of  the  premium.  If  the  fact  so 
untruly  stated  or  purposely  suppressed  is  not  of  this  character, 
it  is  not  a  "misrepresentation"  or  "concealment"  within  this  clause 
of  the  conditions  annexed  to  the  policy. 

But  further ;  the  clause  in  this  policy  has  none  of  the  character- 
istics of  a  warranty,  because  it  is  not,  in  its  own  terms,  or  by 
reference  to  the  terms  and  conditions  annexed,  an  absolute  stipu- 
lation for  the  truth   of  any  existing  fact,  or  for  the  adoption  of 


348  REI'KKSENTATIONS  (Ch.  5 

anv  precise  course  of  conduct  for  the  future,  making  the  truth  of 
such  fact,  or  a  compliance  with  such  stipulation,  a  condition  pre- 
cedent to  the  validity  of  the  contract,  or  the  right  of  the  assured 
to  recover  on  it.  The  policy  is  made  in  reference  to  the  terms  and 
conditions  annexed;  but  these  are  referred  to,  not  as  conditions 
precedent,  but  "to  be  used  and  resorted  to,  in  order  to  explain 
the  rights  and  obligations  of  the  parties  hereto,  in  cases  not  herein 
otherwise  specially  provided  for."  They  are  not  to  control  or 
alter  any  express  provision  in  the  contract,  or  become  parts  of 
the  policy;  but  they  are  statements  in  a  collateral  document,  which 
both  parties  agree  to,  as  an  authoritative  exposition  of  what  they 
both  understand  as  to  the  facts,  on  the  assumption  and  truth  of 
which  they  contract,  and  the  relations  in  which  they  stand  to  each 
other. 

The  court  are  of  opinion,  therefore,  that  the  statements  in  this 
application  were  not  warranties,  and  could  have  no  greater  effect 
than  that  of  representations,  and  that  the  judge  was  right  in  giv- 
ing such  instruction  to  the  jury. 

2.  Another  exception  was  taken  to  the  direction  of  the  judge 
in  regard  to  the  force-pump,  which  is,  that  the  judge  erroneously 
ruled  that  the  burden  of  proof  was  on  the  defendants,  to  prove  its 
materiality  to  the  risk,  and  also,  whether  it  had  been  complied 
with  or  not.  This  was  correct.  Whether  the  answer  was  respon- 
sive to  the  question  or  not,  it  could  have  only  the  character  of  a 
representation ;  and,  therefore,  if  the  defendants  rely  either  upon 
the  falsity  of  the  representation,  or  the  failure  to  comply  with  an 
executory  stipulation,  it  is  upon  them  to  prove  it;  and  it  is  a 
question  of  fact  for  the  jury,  in  either  aspect. 

3.  With  respect  to  the  representation  and  stipulation  that  a 
water-cask  should  be  kept  in  each  room,  the  presiding  judge  in- 
structed the  jury,  that  if  the  plaintiffs  established  a  rule  that  such 
water-casks  should  be  kept  full,  and  employed  servants  to  execute 
such  rule,  and  if,  through  their  negligence  at  any  time,  they  were 
not  full,  such  negligence  of  servants  would  not  avoid  the  policy. 

We  understand  it  to  be  a  well-settled  principle  in  the  law  of 
lire  insurance,  and,  indeed,  the  strong  tendency  of  modern  judi- 
cial decisions  in  cases  of  marine  insurance  is  in  the  same  direction, 
that  the  negligence  of  subordinates,  many  of  whom  must  often  be 
employed,  without  much  knowledge  of  them  by  employers,  is  one 
of  the  perils  insured  against.  In  Chandler  v.  Insurance  Co.,  3 
Cush.  328,  the  rule  is  laid  down  thus :  "The  general  rule  un- 
questionably is,  in  case  of  insurance  against  lire,  that  the  careless- 
ness and  negligence  of  the  agents  and  servants  of  the  assured 
constitutes  no  defence."  The  question  there  was,  whether  gross 
negligence  on  the  part  of  the  assured  himself,  gross  carelessness, 
equivalent  in  legal  estimation  to  a  wilful  intent  to  burn  the  build- 
ing, would  be  a  good  defence.     It  seems  difficult  to  see  how  an 


Sec.  2")  FTUE    INST'RAXrH  349 

incorporated  company,  who  must  act  by  agents  and  servants,  could 
otherwise  comply  with  their  representations.  If,  indeed,  such 
servants  and  agents  are  habitually  or  frequently  careless  in  per- 
forming their  duties,  it  may  become  negligence  on  the  part  of  the 
employers,  whose  duty  it  is  to  have  a  reasonable  vigilance  over 
them,  and  employ  faithful  servants. 

4.  The  next  exception  turns  on  the  representation  that  a  water- 
cask  was  kept  in  each  room,  and  the  admission  of  evidence  tend- 
ing to  show  in  what  sense  the  parties  understood  the  word  "room." 
This  is  a  point  which  seemed  most  doubtful,  and  which  has  had 
the  particular  attention  of  the  court. 

The  question  arises  upon  the  representation  made  in  answer  to 
the  twenty-fourth  interrogatory.  It  may  be  remarked,  in  passing, 
that  there  is  some  discrepancy  between  the  question  and  answer. 
Whether  designed  or  not,  does  not  appear.  The  question  is. 
"Are  there  casks  in  each  loft  constantly  supplied  with  water?"  The 
answer  is,  "There  is  in  each  room,  casks  of  forty-two  gallons  each 
kept  constantly  full."  If  the  plaintiffs  intended  to  conform  their 
answer  to  the  question  proposed,  then  it  is  manifest,  that  in  their 
view  the  word  "loft"  in  the  question,  and  "room"  in  the  answer, 
would  mean  the  same  thing,  and  the  effect  of  the  answer  would 
be,  that  a  cask  was  kept  in  each  loft.  This  would  raise  another 
question,  whether  the  term  "loft"  would  include  the  basement 
story,  or  only  the  chambers  over  the  basement  the  "rooms  aloft"? 
Or,  did  it  mean  each  story?  These  considerations  are,  perhaps, 
not  material,  except  that  they  have  some  tendency  to  show  that 
the  word  "room"  was  used  without  any  very  precise  or  definite 
meaning.  The  evidence  offered  for  the  purpose  of  falsifying  this 
representation  was,  that  there  was  in  the  basement  story  a  par- 
tition, setting  off  a  part  for  a  particular  purpose,  in  which  no 
water-cask  was  kept, — that  in  the  next  story  above  there  was  a 
small  apartment  partitioned  off,  in  which  there  was  no  water- 
cask;  and  in  the  two  stories  above,  the  water-casks  stood  in  the 
entry  ways  by  the  doors  of  the  main  rooms,  and  not  in  the  main 
rooms. 

If  the  plaintiffs,  in  answering  the  interrogatory  as  put,  intended 
to  say  that  there  is  a  cask  of  water  kept  for  each  loft,  or  each 
story,  the  jury  might  well  find  that  the  representation  was  true; 
if  they  intended  to  use  the  word  "room"  in  a  narrower  sense, 
so  as  to  mean  more  than  one  apartment,  in  each  loft  or  story,  then 
it  becomes  necessary  to  inquire  what  was  the  extent  of  the  word 
"room"  as  used  in  this  answer.  The  word  is  certainly  a  familiar 
one  in  the  English  language,  and  as  ordinarily  used  and  con- 
strued, as  all  words  must  be,  by  the  subject-matter  and  the  con- 
text, is  not  likely  to  be  misunderstood,  yet  it  is  not  without  some 
considerable  varieties  of  meaning.  Apply  it  to  a  dwelling-house, 
and   suppose  one,   in   offering   a   house  to   be   sold   or   let.    should 


350  REPRESENTATIONS  (Ch.  5 

represent  that  there  is  a  fireplace  in  every  room.  Suppose  there 
is  a  cellar,  or  an  attic,  with  or  without  window?,  arc  they  rooms? 
Or  suppose  a  large  apartment  into  which  the  front  door  opens, 
used  for  the  double  purpose  of  an  entry,  and  for  a  sitting-room 
in  warm  weather,  and  furnished  for  that  purpose ;  is  it  a  room 
within  the  representation  that  there  is  a  fireplace  in  it?  Or  sup- 
pose above  stairs,  one  or  more  small  apartments,  capable  of  being 
used  as  a  closet  or  clothes-press,  or  for  a  bedroom ;  would  the 
representation  be  falsified  by  showing  that  either  of  these  divi- 
sions of  the  house  had  no  fireplace  in  it?  The  language  might  be 
somewhat  ambiguous,  and  require  aid  to  ascertain  its  meaning. 

The  interpretation  of  written  contracts,  indeed,  of  all  written 
documents,  is  a  question  of  law  for  the  court;  and  it  is  of  great 
importance  that  the  meaning  of  written  evidence  should  not  be 
altered  or  varied  by  parol  evidence.  But  this  presupposes  that 
the  words  are  used  in  their  ordinary  and  normal  sense,  according 
to  the  established  rules  of  the  language ;  but  if  they  are  foreign 
words,  or  words  used  in  a  peculiar,  unusual,  or  technical  sense, 
evidence  may  be  proper  to  ^how  their  meaning,  and  then  it  is  the 
province  of  the  court  to  declare  and  apply  the  law,  according  to 
the  true  meaning  of  the  language  as  thus  ascertained.  The  rule 
is  laid  down,  in  the  case  of  Eaton  v.  Smith,  20  Pick.  156,  thus: 
"When  a  new  and  unusual  word  is  used  in  a  contract,  or  when  a 
word  is  used  in  a  technical  or  peculiar  sense,  as  applicable  to  any 
trade  or  branch  of  business,  or  to  any  particular  class  of  people, 
it  is  proper  to  receive  evidence  of  usage,  to  explain  and  illustrate 
it,  and  that  evidence  is  to  be  considered  by  the  jury;  and  the 
province  of  the  court  will  be,  to  instruct  the  jury  what  will  be 
the  legal  effect  of  the  contract  or  instrument,  as  they  shall  find 
the  meaning  of  the  word  modified  or  explained  by  the  usage." 

This  principle  seems  to  be  intelligible  enough,  but  the  difficulty 
in  applying  it  as  a  practical  rule  is  this:  The  words  severally 
and  as  first  read  seem  plain,  but  like  other  matters  of  latent 
ambiguity,  it  is  when  they  come  to  be  applied  to  the  subject- 
matter,  that  the  ambiguity  becomes  apparent.  Then  it  is,  that 
evidence  of  usage,  or  other  evidence  aliunde,  becomes  competent 
and  admissible,  to  show  the  sense  in  which  the  words  were  used 
in  the  particular  written  paper.  It  must  depend,  therefore,  much 
upon  the  circumstances  of  each  case,  and  the  posture  of  the  evi- 
dence already  admitted  in  the  trial,  whether  such  evidence  aliunde 
ought  to  be  admitted.  In  the  present  case,  we  are  of  opinion 
that  there  was  sufficient  uncertainty  and  ambiguity  in  the  repre- 
sentation in  question,  to  warrant  the  introduction  of  evidence  of 
usage,  and  it  was  a  question  of  fact  for  the  jury  to  decide, 
whether,  according  to  the  true  meaning  of  the  language  used,  the 
representation  was  substantially  true,  when  made,  and  substan- 
tially complied  with  afterwards. 


Sec.  2)  FIRE    INSURANCE  351 

One  other  ground  was  taken  by  the  defendants  in  this  branch 
of  the  case,  thus :  The  defendants  contended  not  only  that  the 
meaning-  of  the  word  "room"  in  the  appHcation  was  a  question  of 
law  for  the  court  to  decide,  and  also  whether  there  was  such  a 
general  use  of  language ;  but  also,  that  if  there  were  such  use  of 
language,  it  was  insufficient,  unless  it  was  known  and  general 
among  insurers,  as  well  as  manufacturers.  Such  a  direction,  we 
think,  would  not  have  been  conformable  to  the  rules  of  law.  The 
general  rule  on  that  subject  is,  that  if  any  person,  or  any  company, 
foreign  or  domestic,  shall  engage  in  any  branch  or  department 
of  business,  they  must  be  presumed  to  be  acquainted  with  the 
rules  and  usages  of  such  business,  to  be  conversant  with  the  lan- 
guage employed  in  it,  whether  strictly  technical  or  not.  When, 
therefore,  the  defendant  company  undertook  to  insure  a  manu- 
factory in  Massachusetts,  with  the  machinery  and  stock  therein, 
they  must  be  presumed  to  be  acquainted  with  the  structure  and 
arrangement  of  such  building,  and  the  distribution  of  the  apart- 
ments within  it,  with  a  view  to  its  adaptation  to  the  business  to  be 
therein  carried  on,  and  with  the  use  of  the  language  employed  by 
the  owners,  superintendents,  and  persons  employed  therein.  If, 
therefore,  the  language  of  this  representation  was  understood  in 
a  particular  manner  by  manufacturers,  according  to  which  under- 
standing the  representation  was  true,  the  legal  presumption  is 
that  it  was  so  understood  by  the  insurers,  in  their  contract. 

5.  Exception  was  taken  to  the  admission  of  the  witness  Adams 
as  an  expert;  but  no  sufficient  ground  has  been  shown  that  his 
admission  was  erroneous ;  nor  does  it  appear  to  us  that  the  ques- 
tions permitted  to  be  put  to  him,  and  the  answers  he  gave  to 
them,  for  the  limited  purpose  to  which  they  were  confined  by  the 
instructions  given  thereon  to  the  jury,  are  open  to  exception.  Ex- 
ceptions overruled. 


CONTINENTAL  INS.  CO.  v.  KASEY. 

(Supreme  Court  of  Appeals  of  Virginia,  1874.    25  Grat.  268,  18  Am.  Rep.  681.) 

Stapli^s,  J.,  delivered  the  opinion  of  the  court. 

This  is  an  action  of  assumpsit  upon  a  poHcy  of  insurance  executed 
by  "the  Continental  Insurance  Company,"  of  the  city  of  New  York. 
The  action  was  brought  in  the  circuit  court  of  Roanoke  county, 
where,  as  is  averred,  the  insurance  was  effected  and  the  property 
was  located.  A  verdict  and  judgment  were  rendered  in  favor  of  the 
plaintiff.  Upon  the  trial  various  exceptions  were  taken  by  the  de- 
fendants to  the  rulings  of  the  court.  It  is,  however,  only  necessary  at 
present  to  notice  the  defendant's  fourth  bill  of  exceptions,  which 
brings  before  us  the  instructions  offered  during  the  trial. 

Both  parties  asked  for  instructions.     Some  of  those  asked  for  by 


352  REPRESENTATIONS  (Ch.  5 

defendants  were  g'iven,  others  were  refused.  In  relation  to  those 
that  were  refused  it  is  impossil)lc  for  tliis  court  to  say  that  any  error 
was  committed  in  so  doin^^,  for  the  plain  reason  that  the  hill  of  ex- 
ceptions contains  no  part  of  the  evidence.  A  party  complaining^  of 
the  action  of  the  court  in  refusing  his  instructions,  is  required  always 
to  incorporate  in  his  bill  of  exceptions  so  much  of  the  evidence  at 
least  as  tends  to  show  that  the  instructions  have  some  application  to 
the  subject  matter  of  controversy.  Unless  this  is  done  the  court  may 
l)e  continually  required  to  consider  mere  abstract  questions  of  law 
having  no  bearing  upon  the  case.  This  is  the  well  settled  doctrine  of 
the  appellate  courts  everywhere. 

This  brings  us  to  the  consideration  of  the  three  instructions  given 
at  the  instance  of  the  plaintiff.  The  first  and  third  are  substantially 
the  same,  and  may  be  examined  together.  They  declare,  in  effect, 
that  the  plaintiff  has  a  right  of  recovery  upon  the  policy  although  mis- 
representations may  have  been  made  by  him  to  the  defendant  before 
and  in  regard  to  the  property  insured,  unless  such  misrepresentations 
were  material  or  prejudicial,  and  were  wilfully  made  with  intent  to 
defraud  the  defendants.  The  proposition  here  announced  is  an  en- 
tire misconception  of  the  law  governing  contracts  of  insurance.  The 
error  is  in  assuming  that  a  misrepresentation,  to  defeat  the  policy, 
must  be  made  with  intent  to  defraud. 

The  rule  upon  this  subject  is  thus  laid  down  in  Flanders  on  In- 
surance, page  327.  Any  material  misrepresentation  therefore,  or  any 
failure  to  comply  with  the  conditions  of  the  insurance  on  the  part  of 
the  assured,  will  avoid  the  policy,  such  as  misrepresentation  of  the 
construction,  nature,  character,  value  and  situation  of  the  premises  or 
goods  to  be  insured,  or  any  other  misrepresentation  that  induces  the 
insurer  to  take  the  risk  which  he  otherwise  might  have  rejected,  or 
to  take  it  at  a  less  premium. ^^     *     *     * 

As  has  been  seen,  the  instructions  of  the  circuit  court  ignore  these 
principles.  They  assert  that  no  misrepresentation,  however  material, 
affects  the  policy,  unless  made  with  a  fraudulent  intent.  This  was 
clearly  erroneous,  and  renders  it  necessary  that  the  verdict  and  judg- 
ment should  be  set  aside  and  a  new  trial  awarded. 

The  second  instruction  presents  a  question  of  greater  difficulty. 
It  declares  that  although  the  plaintiff  may  have  represented  the  prem- 
ises to  be  frame  and  shingle  houses,  yet  if  the  agent  of  the  company- 
was  present  and  inspected  the  buildings  at  the  time  of  the  agreement 
to  insure,  and  before  the  policy  was  issued,  and  inserted  the  descrip- 
tion in  the  policy,  based  upon  his  own  inspection  as  well  as  the  plain- 
tiff's representations,  and  such  a  description  was  a  mistaken  one. 
the  plaintiff  is  entitled  to  recover,  notwithstanding  the  misdescription 
contained  in  the  policy. 

12  Here  reference  was  made  to  Carpenter  v.  American  Ins.  Co.,  1  Storv,  57, 
Fed.  Cas.  No.  2,428  (18.39),  and  Columbian  Ins.  Co.  v.  Lawrence,  2  Pet.  (U.  S.) 
2.5,  7  L.  Ed.  335  (1829). 


Sec.  2)  FIRE   INSURANCE  353 

The  chief  difficulty  in  the  way  of  maintaining  this  instruction  is 
that  by  the  express  terms  of  the  poUcy,  the  description  of  the  prop- 
erty therein  contained  is  made  an  express  warranty.  And  the  doctrine 
is  well  understood,  that  a  warranty  is  in  the  nature  of  a  condition 
precedent.  It  is  a  matter  of  no  sort  of  importance  whether  in  such 
case  the  condition  be  material  or  immaterial,  it  must  be  literally  per- 
formed. This  is  the  general  rule.  Circumstances,  however,  some- 
times occur  to  prevent  its  application.  For  example,  if  the  company, 
not  relying  upon  the  statements  of  the  insured,  sends  its  own  agent 
to  examine  the  property,  and  thereupon  issues  the  policy  upon  the 
faith  of  his  representations,  it  would  seem  to  be  clear  that  the  insured 
would  not  be  responsible  for  a  misdescription  of  the  property,  how- 
ever material,  though  inserted  in  the  policy  and  constituting  a  war- 
ranty, unless,  indeed,  there  was  a  withholding  of  information  by  the 
insured  incortipatible  with  the  obligations  of  good  faith  and  fair  deal- 
ing- 

But  suppose,  as  assumed  in  the  instruction,  the  agent  makes  an 
examination  of  the  property  in  behalf  of  the  company,  and  inserts 
in  the  policy  a  misdescription,  based  as  well  upon  that  examination 
as  upon  the  representations  of  the  insured,  what  is  the  effect  of  a  mis- 
description thus  attributable  to  the  mistake  of  both  parties?  This  will 
depend  very  much  upon  the  circumstances.  If  the  representation  of 
the  owner  was  not  bona  fide,  or  if  its  effect  is  to  induce  the  company 
to  issue  a  policy  which  it  otherwise  would  have  rejected,  it  may  be 
that  the  insured  ought  to  bear  the  loss,  notwithstanding  the  company, 
through  its  agent,  may  have  contributed  to  the  mistake. 

On  the  other  hand,  if  the  mistake  was  an  innocent  one,  and  the  rep- 
resentation was  in  no  wise  material  to  the  risk,  justice  and  sound 
policy  would  seem  to  require  that  the  company  shall  be  held  to  the 
observance  of  its  contract.  The  rule  of  law  which  invalidates  an  in- 
surance unless  the  warranty  is  strictly  performed  however  immaterial 
it  may  be,  is  an  extremely  technical  one.  Its  operation  is  often  to 
defeat  the  right  of  recovery  contrary  to  the  plain  justice  of  the  case 
and  the  real  intent  of  the  parties.  A  rule  thus  stringent  ought  not 
to  be  applied  to  an  innocent  mistake,  not  affecting  the  risk,  to  which 
both  parties  have  contributed.  The  company  cannot  justly  complain 
that  it  is  liable  in  such  case ;  first,  because  its  own  agent  has  aided  in 
the  misrepresentation ;  and  secondly,  because  its  conduct  would  not 
have  been  different  had  the  fact  been  truly  stated. ^^     '''     *     * 

The  case  before  us  presents  a  striking  illustration  of  the  views  here 
suggested.  The  record  does  not  contain  all  the  evidence  adduced 
on  the  trial.  It  is  very  evident,  however,  that  the  east  end  of  the 
main  building  insured  was  made  of  logs,  weatherboarded  and  plas- 

13  Here  the  court  quotes  extensively  from  Union  Mut.  Life  Ins.  Co.  v. 
Wilkinson,  13  Wall.  (U.  S.)  222,  20  L.  Ed.  617  (1S71),  post,  p.  506. 

Vance  Ins. — 23 


354  REPRESENTATIONS  (Ch.  5 

tered.  No  one  could  see  these  logs,  and  it  is  very  probable  their  ex- 
istence was  unknown  both  to  the  plaintiff  and  the  agent  of  the  com- 
pany. Both  concurred  in  representing  the  buildings  as  frame,  and 
this  description  was  inserted  in  llie  policy.  Now,  conceding  that  this 
was  a  misdescription,  which  is  very  questionable,  to  say  the  least,  no 
one  can  suppose  it  was  material  to  the  policy,  or  that  it  had  the  slight- 
est effect  upon  the  premium.  In  other  words,  the  misrepresenta- 
tion, if  such  it  was,  was  wholly  immaterial.  And  we  are  told  that  this 
constitutes  a  breach  of  warranty,  and  a  consequent  forfeiture  of  the 
policy.  We  cannot  subscribe  to  this  view.  If  any  breach  has  oc- 
curred, we  think  the  company  is  estopped,  under  all  the  circumstances, 
to  insist  upon  it.  This  of  course  is  said  upon  the  assum])tion  that  the 
facts  are  as  stated  in  the  instruction.  We  are  therefore  of  opinion  that 
the  second  instruction  correctly  expounded  the  law,  except  that  it 
does  not  sufficiently  distinguish  between  material  and  immaterial  rep- 
resentations. As  already  stated,  if  the  description  of  the  property 
contained  in  the  policy  was  material  to  the  risk,  the  plaintiff  cannot 
recover,  notwithstanding  the  agent  of  the  company  may  have  con- 
curred in  the  misrepresentation.  Upon  any  future  trial  the  instruc- 
tions may  be  so  modified  as  to  conform  to  this  view.^*  *  *  * 
Judgment  reversed. 


ARMOUR  V.  TRANSATLANTIC  FIRE  INS.   CO.   OF  HAM- 
BURG,  GERMANY. 

(Court  of  Appeals  of  New  York,  18S2.     90  N.  Y.  450.) 

Appeal  from  judgment  of  the  General  Term  of  the  Superior  Court 
of  the  City  of  New  York,  entered  upon  an  order  made  on  the  first 
Monday  of  March,  1881,  which  affirmed  a  judgment  in  favor  of 
defendant,  entered  upon  an  order  dismissing  plaintiffs'  complaint  on 
trial.    Reported  below,  15  Jones  &  S.  352. 

This  action  was  upon  a  policy  of  fire  insurance,  the  material  por- 
tions of  which,  as  well  as  the  facts  pertinent  to  the  questions  dis- 
cussed, are  stated  in  the  opinion. 

RapaIvLO,  J.  The  court  at  the  trial  dismissed  the  complaint  in 
this  action  on  the  defendant's  evidence,  and  refused  the  plaintiffs' 
request  to  submit  the  questions  of  fact  in  the  case  to  the  jury.  The 
only  questions  for  our  consideration  are  whether  the  facts  alleged  on 
the  part  of  the  defendant  were,  or  either  of  them  was,  sufficient  to 
defeat  the  plaintiffs'  claim  to  recover,  and  so  clearly  proved  by  con- 
clusive or  uncontroverted  evidence  as  to  justify  the  court  in  with- 
drawing the  case  from  the  consideration  of  the  jury.  The  action  was 
upon  a  policy  of  insurance  issued  by  the  defendant  upon  a  warehouse 
of  the  plaintiffs  in  the  city  of  Chicago,  which  was  partially  destroyed 

1*  The  remainder  of  the  opinion,  concerning  principally  matters  of  plead- 
ing, is  omitted. 


Sec.  2)  FIRE   INSURANCE  355 

by  fire  upon  the  25th  of  January,  1879.  The  warehouse  consisted  of 
three  sections,  and  the  amount  of  insurance  on  one  of  the  sections 
covered  by  the  plaintiffs'  poHcy  was  $3,000.  The  loss  on  that  section 
was  about  $14,000,  and  the  total  insurance  thereon  about  $17,000. 
The  amount  insured  on  all  three  sections  was  $38,000,  exclusive  of 
defendant's  policy  at  the  time  of  the  loss.  The  pro  rata  share  of  loss 
claimed  from  the  defendant  was  $2,440. 

The  defendant  set  up  three  defenses  :  First.  That  the  policy  was 
issued  upon  a  misrepresentation  of  the  plaintiffs,  through  their  agent, 
that  the  rate  of  insurance  in  Chicago  on  the  premises  insured  was, 
at  the  date  of  their  application  for  said  insurance,  seventy-five  cents 
for  every  $100  insured  for  the  term  of  one  year;  whereas  in  fact  the 
rate  of  insurance  upon  the  property  in  Chicago  at  the  time  of  plain- 
tiff's application  was  $1.25  for  every  $100  insured.  Second.  That, 
at  the  time  of  the  application  for  said  insurance,  the  plaintiffs,  by  their 
agent,  represented  that  the  property  sought  to  be  insured  was  already 
insured  in  the  amount  of  $200,000  in  various  other  companies,  of  which 
a  list  was  furnished ;  that  the  defenciant  relied  upon  the  truth  of  said 
representation  in  making  the  policy  and  accepting  the  risk,  but  that 
in  fact  none  of  the  property  mentioned  in  said  policy  was  insured  in 
the  amount  of  $200,000,  or  to  exceed  the  sum  of  $50,000.  Third. 
That,  according  to  the  terms  of  the  policy,  the  defendant  was  entitled 
to  terminate  it  on  giving  notice  to  the  plaintiffs,  and  that  it  did  so 
elect  to  terminate  it  before  the  alleged  loss  by  fire. 

The  plaintiffs,  after  making  the  prima  facie  proof  necessary  to 
maintain  the  action  on  their  part,  rested  their  case,  and  the  defendant 
introduced  evidence  in  support  of  the  defenses  set  up  by  it.  We  have 
carefully  examined  the  evidence,  and  think  there  may  be  some  ques- 
tion as  to  whether  the  allegation  of  misrepresentation  as  to  the  rate 
of  insurance  should  not  have  been  submitted  to  the  jury;  but  the  de- 
fense of  misrepresentation  as  to  the  amount  of  insurance  on  the  prop- 
erty was,  we  think,  so  fully  established  that  a  verdict  in  favor  of  the 
plaintiffs  could  not  have  been  sustained. 

The  insurance  was  effected  by  the  plaintiffs  through  Mr.  Cameron 
of  Chicago,  who,  with  the  knowledge  of  the  plaintiffs,  employed  a 
broker  in  New  York  named  Dickinson,  to  obtain  the  insurance  in 
that  city.  The  whole  warehouse  was  divided  into  three  separate  sec- 
tions— A,  B  and  C.  Mr.  Cameron  was  authorized  by  the  plaintiffs 
to  procure  $80,000  upon  the  entire  building,  viz.,  $20,000  on  section 
A,  and  $30,000  each  on  sections  B  and  C.  The  plaintiffs  at  that  time 
had  over  $200,000  of  insurance  upon  the  stock  of  merchandise  in  the 
warehouse,  but  had  no  insurance  upon  the  building.  Mr.  Cameron 
by  letter  instructed  Mr.  Dickinson  in  New  York  as  to  the  situation 
of  the  building,  and  informed  him  that  he  probably  should  request 
him  by  telegraph  to  effect  the  insurance  in  question,  in  New  York, 
on  the  building;  that  $200,000  had  already  been  placed  on  the  three 
sections  at  three-quarters  per  cent.     Mr.  Cameron,  in  his  testimony 


356  REPRESENTATIONS  (Cll.  5 

taken  on  commission,  says  that  in  employing  that  language  he  re- 
ferred to  the  insurance  on  the  stock  in  the  warehouse,  and  did  not 
intend  to  refer  to  the  insurance  on  the  building.  But  nevertheless 
the  letter  which  conveyed  Mr.  Cameron's  instructions  states  dis- 
tinctly that  $200,000  had  already  been  placed  in  Chicago,  on  the  three 
sections  of  the  warehouse,  and  Mr.  Dickinson  states  that  he  under- 
stood that  the  v$200,000  of  insurance  was  upon  the  warehouse. 

Mr.  Hoenig,  the  general  manager  of  the  defendant,  testified  that 
when  Dickinson  applied  to  the  defendant  for  the  policy  in  question, 
lie  stated  to  him  that  he  already  had  $200,000  of  insurance  on  the 
building  in  Chicago,  and  that  in  issuing  the  policy  he  acted  upon 
the  statement  of  Mr.  Dickinson  that  the  board  rate  of  insurance  in 
Chicago  was  seventy-five  cents  on  $100,  and  that  there  had  already 
been  procured  insurance  on  the  building  to  the  amount  of  $200,000. 
Mr.  Dickinson  does  not  contradict  this  statement,  but  testifies  that 
he  exhibited  to  Mr.  Hoenig  the  list  of  companies  which  he  had  re- 
ceived from  Chicago,  stating  that  they  were  on  the  risk,  and  that  he 
understood  that  that  risk  was  on  the  building,  and  he  was  not  in- 
formed that  it  was  on  the  stock  until  after  the  fire.  There  is  conse- 
quently no  conflict  of  evidence  on  that  point  between  these  two  wit- 
nesses. 

By  the  terms  of  the  policy  of  the  defendant  other  insurance  was 
permitted  without  notice,  and  it  was  provided  that  losses  should  be 
apportioned  on  the  whole  sum  insured,  and  it  was  further  provided 
that  any  omission  to  make  known  every  fact  material  to  the  risk,  or 
any  overvaluation,  or  any  misrepresentation  whatever,  either  in  a  writ- 
ten application  or  otherwise,  should  avoid  the  policy.  The  representa- 
tion in  this  case  was  not  fraudulent,  and  arose  from  a  mistake  or  mis- 
apprehension of  the  plaintiffs'  agent,  but,  nevertheless,  it  was  a  very 
material  representation,  and  was  untrue,  the  insurance  on  the  entire 
building  being,  as  appears  by  the  testimony  of  one  of  the  plaintiiTs, 
only  $30,000  at  the  time  of  the  application  to  the  defendant,  and  the 
insurance  on  the  section  which  was  injured  only  $17,000.  Had  the 
insurance  been  $200,000,  the  proportion  of  loss  chargeable  to  the  de- 
fendant would  have  been  comparatively  trifling.  The  risk  was 
greatly  enhanced  by  the  comparatively  small  amount  of  insurance 
actually  existing. 

On  the  other  branches  of  the  defense,  the  testimony  indicates  that 
the  defendant  issued  the  policy  to  Mr.  Dickinson  with  the  express 
understanding  that  if  the  board  rate  in  Chicago  was  more  than  three- 
quarters  per  cent.,  the  policy  should  not  take  effect  and  should  be  re- 
turned, and  that  long  before  the  fire,  having  ascertained  that  the  rate 
was  $1.25,  they  recalled  the  policy  and  demanded  its  surrender.  There 
is  however  some  slight  conflict  of  evidence  in  relation  to  these  points, 
but  it  is  unnecessary  to  consider  them,  as  we  find  that  the  misrepre- 
sentation as  to  the  amount  of  other  insurance  is  so  clearly  established 
that  a  recovery  by  the  plaintiffs  could  not  have  been  sustained.     It  is 


Sec.  2)  FIRE    INSURANCE  357 

not  necessary,  in  all  cases,  in  order  to  sustain  a  defense  of  misrepre- 
sentation in  applying  for  the  policy,  to  show  that  the  misrepresenta- 
tion was  intentionally  fraudulent.  A  misrepresentation  is  defined  by 
Phillips  to  be  where  a  party  to  the  contract  of  insurance,  either  pur- 
posely or  through  negligence,  mistake,  or  inadvertence,  or  oversight, 
misrepresents  a  fact  which  he  is  bound  to  represent  truly  (Phil.  Ins.  § 
537),  and  he  lays  down  the  doctrine  that  it  is  an  implied  condition  of 
the  contract  of  insurance  that  it  is  free  from  misrepresentation  or 
concealment,  whether  fraudulent  or  through  mistake.  If  the  misrep- 
resentation induces  the  insurer  to  enter  into  a  contract  which  he  would 
otherwise  have  declined,  or  to  take  a  less  premium  than  he  would  have 
demanded  had  he  known  the  representation  to  be  untrue,  the  effect 
as  to  him  is  the  same  if  it  was  made  through  mistake  or  inadvertence, 
as  if  it  had  been  made  with  a  fraudulent  intent,  and  it  avoids  the  con- 
tract. An  immaterial  misrepresentation,  unless  in  reply  to  a  specific 
inquiry,  or  made  with  a  fraudulent  intent,  and  influencing  the  other 
party,  will  not  impair  the  contract.  But  if  the  risk  is  greater  than  it 
would  have  been  if  the  representation  had  been  true,  the  preponder- 
ance of  authority  is  to  the  effect  that  it  avoids  the  policy,  even  though 
the  misrepresentation  was  honestly  made.  Phil.  Ins.  §§  537-542;  Wall 
V.  Insurance  Co.,  14  Barb.  383. 

A  material  misrepresentation  by  the  agent  for  effecting  the  insur- 
ance will  defeat  it,  though  not  known  to  the  assured,  and  though 
made  without  any  fraudulent  intent  on  the  part  of  the  agent,  to  the 
same  extent  as  though  made  by  the  assured  himself.  Carpenter  v. 
Insurance  Co.,  1  Story,  57,  Fed.  Cas.  No.  2,428.  In  this  case  (which 
was  a  case  of  fire  insurance),  Story,  J.,  says :  "A  false  representation 
of  a  material  fact  is,  according  to  well-settled  principles,  sufficient  to 
avoid  a  policy  of  insurance  underwritten  on  the  faith  thereof,  whether 
the  false  representation  be  by  mistake  or  design."  ^* 

15  "There  is  nothing  to  show  that  the  misstatement  with  respect  to  the 
incumbrance  was  fraudulently  made,  and  we  assume  that  it  was  the  result 
of  an  honest  mistake  on  the  part  of  Mr.  Seal.  The  question,  then,  is  whether, 
under  the  conceded  facts,  the  misrepresentation  rendered  the  contract  void. 
It  has  been  held  that,  when  the  application  is  oral,  and  no  inquiry  is  made 
as  to  the  character  or  condition  of  the  title,  mere  silence  will  not  avoid  the 
policy.  Insurance  Co.  of  North  America  v.  Bachler,  44  Neb.  549,  62  N.  W. 
911  (1895)  ;  Hanover  Fire  Ins.  Co.  v.  Bohn,  48  Neb.  743,  67  N.  W.  774 
(1896):  Slobodisky  v.  Phenix  Ins.  Co.  of  Hartford,  53  Neb.  816,  74  N.  W. 
270  (1898).  But  we  know  of  no  case  holding  that  the  misstatement  of  a 
material  fact  inducing  the  acceptance  of  the  risk  will  not  vitiate  the  contract. 
When  the  insurer  makes  inquiry  about  facts  material  to  the  risk,  he  is  justi- 
fied in  acting  on  the  assumption  that  the  information  imparted  by  the  ap- 
plicant for  insurance  is  correct.  He  is  entitled  to  know  whether  the  prop- 
erty to  be  insured  is  incumbered,  and,  if  so,  to  what  extent,  so  that  he  may 
act  intelligently  in  determining  whether  he  will  accept  or  decline  the  risk. 
The  representations  of  the  applicant  become  the  basis  of  insurance,  and,  if 
they  be  false  touching  matters  material  to  the  risk,  the  contract  obtained 
through  their  influence  cannot  be  enforced  ;  and  it  is  in  such  case  quite  im- 
material whether  the  misstatement  resulted  from  bad  faith  or  from  accident 
or  ignorance.  Davenport  v.  New  England  Mut.  Fire  Ins.  Co..  6  Cush.  (Mass.) 
340  (1850);  Hay  ward  v.  New  England  Mut.  Fire  Ins.  Co.,  10  Cush.   (Mass.) 


358  REPRESENTATIONS  (Ch.  5 

The  rules  as  to  misrepresentations  and  concealments,  or  omissions 
to  state  facts  material  to  the  risk,  are  more  strict  in  cases  of  marine 
than  of  fire  insurance.  But  the  distinctions  are  founded  on  the  differ- 
ences in  the  character  of  the  property,  and  the  greater  facility  the  in- 
surers possess,  of  obtaining  information  as  to  its  condition  and  sur- 
rounding circumstances  in  cases  of  insurance  on  buildings,  etc.,  than 
on  vessels,  which  are  often  insured  when  absent  or  afloat,  and  the  dis- 
tinctions are  applied,  ordinarily,  in  cases  where  the  insurer  sets  up 
the  omission  of  the  insured  to  state  material  facts.  In  those  cases 
there  is  a  difference  between  the  rules  applicable  to  marine  insurances 
and  those  applicable  to  fire  insurance.  But  where  the  defense  is  a 
material  affirmative  misrepresentation  as  to  a  matter  which  is  pre- 
sumably within  the  knowledge  of  the  party  applying  for  the  insur- 
ance, and  as  to  which  the  insurer  has  not  the  same  means  of  knowl- 
edge, there  is  no  ground  for  any  distinction  between  cases  of  fire  and 
marine  insurance.     See  Phil.  Ins.  §  635  et  seq. 

Where  any  doubt  exists  as  to  the  materiality  of  the  misrepresenta- 
tion, it  is  a  question  of  fact  for  the  jury.  But  in  this  case  it  so  clearly 
appears  that  the  amount  of  risk  incurred  by  the  defendant  was  so 
much  greater  than  it  would  have  been  had  the  representation  as  to 
other  insurance  been  true,  that  a  verdict  that  the  representation  was 
immaterial  could  not  have  been  sustained.  Aside  from  these  consid- 
erations how^ever  in  the  present  case  the  parties  stipulated  in  a  policy 
that  any  misrepresentation  whatever,  either  in  a  written  application 
or  otherwise,  should  avoid  the  policy,  and  the  parties,  by  this  agree- 
ment, put  every  material  representation  on  the  same  footing  as  a 
warranty.  Burritt  v.  Insurance  Co.,  5  Hill,  188,  40  Am.  Dec.  345. 
That  that  is  the  effect  of  such  an  agreement  was  reaffirmed  in  this 
court  in  Gates  v.  Insurance  Co.,  2  N.  Y.  49-53. 

The  judgment  should  be  affirmed.    All  concur.    Judgment  affirmed. 

444  (1852);  Brown  v.  People's  Mut.  Ins.  Co.,  11  Cush.  (Mass.)  280  (1853); 
Jacobs  V.  Eagle  Mut.  Fire  Ins.  Co.,  7  Allen  (Mass.)  132  (1863);  Anderson 
V.  Fitzgerald,  4  H.  L.  Cas.  484  (1853);  Byers  v.  Farmers'  Ins.  Co.,  35  Ohio 
St.  606,  35  Am.  Rep.  623  (1880)  ;  Ryan  v.  Springfield  Fire  &  Marine  Ins.  Co., 
46  Wis.  671.  1  N.  W.  426  (1883) ;  Glade  v.  Germania  Fire  Ins.  Co.,  56  Iowa, 
400,  9  N.  W.  320  (1881)."  Seal  v.  Farmers'  &  Merchants'  Ins.  Co.,  59  Neb. 
253,  80  N.  W.  807  (1S99).  See,  in  accord.  Madsen  v.  Farmers'  &  Merchants' 
Ins.  Co.,  87  Neb.  107,  126  N.  W.  1086,  29  L.  R.  A.  (N.  S.)  97,  Ann.  Cas.  1912A, 
985  (1910). 


Sec.  3)  LIFE    INSURANCH  359 

SECTION  3.— LIFE  INSURANCE 


WHITTINGHAM  v.  THORNBURGH  et  al. 
(Court  of  Chancery,  1690.     2  Vem.  206,  Pre.  Ch.  20,  2  Eq.  Cas.  Abo.  635.) 

The  defendant  Thornburgh  in  March,  1689,  caused  a  policy  of 
insurance  to  be  drawn  for  the  ensuring  the  life  of  one  Edward 
Harwell  for  a  year,  and  left  it  at  one  Samuel  Luplon's  office,  to 
get  subscriptions  at  five  pounds  per  cent,  premium ;  and  to  draw 
in  the  plaintififs  and  others  to  under-write  the  policy,  procured 
one  Marwood,  a  near  neighbour  of  Harwell's  to  under-write  one 
hundred  pounds :  and  he  giving  out  he  knew  Harwell  healthy 
and  like  to  live,  and  the  plaintififs  relying  on  such  information, 
under-wrote  the  policy.  Whittingham  for  a  hundred  pounds,  the 
other  four  for  fifty  pounds  apiece.    Harwell  soon  after  died. 

It  appearing  that  Thornburgh  had  no  estate  or  interest  that 
depended  on  Harwell's  life;  that  Marwood's  subscription  was 
only  colourable  to  draw  in  others,  and  that  Harwell  was  in  a 
languishing  condition ;  though  Marwood  affirmed  and  pretended  he 
was  his  neighbour  and  a  healthful  man,  and  the  plaintifif  having 
on  the  first  discovery  of  the  contrivance  oflfered  to  return  the 
premium,  and  published  the  fraud  to  prevent  others  from  being- 
drawn  in ;  and  the  defendants  intending  to  get  a  very  large  sub- 
scription, having  by  a  like  contrivance,  got  between  one  and  two 
thousand  pounds,  on  making  the  like  insurance  on  the  life  of 
William  Sweeting,  The)  Court  therefore  decreed  the  policy  of 
insurance  to  be  delivered  up  to  be  cancelled,  and  a  perpetual 
injunction  against  the  verdict  thereon  obtained  at  law,  and  the 
plaintififs  their  full  costs  both  at  law  and  in  this  court,  and  the 
money  received  for  the  premium  to  go  in  part  of  their  costs. ^® 

16  The  decree  so  as  to  the  payment  of  costs,  etc.,  but  nothing  said  as  to 
the  monev  received  for  the  premium  to  go  in  part  of  costs.  Reg.  Lib.  1680, 
B.  fol.  264.— Rep. 

But  Park  states  that  the  premium  was  ordered  to  be  repaid  by  the  insurer ; 
Park,  Ins.  (5th  Ed.)  p.  216.  Park  further  says:  "In  two  or  three  instances 
in  the  Court  of  Chancery  wliere  the  underwriters  have  been  relieved  from 
the  payment  of  the  sums  insured,  on  account  of  fraud,  the  decree  has  directed 
the  premium  to  be  returned."  In  supporting  the  statement,  in  addition  to 
the  principal  case,  he  cites  De  Costa  v.  Scandret,  2  P.  Wms.  170  (1723),  ante, 
p.  244.  and  Wilson  v.  Ducket,  3  Burr.  1361  (1762),  both  cases  of  marine  in- 
surance. 


3G0  BBPRESENTATIONS  (Cll.  5 

STACKPOLE  V.  SIMON. 

(Nisi  Prius,  1779.    Park,  Ins.  [3d  Ed.]  4;;7.) 

Action  on  a  policy  of  insurance  for  il50.  at  four  guineas  per  cent, 
in  case  Drury  Sheppey  should  die  at  any  time  between  the  1st 
of  April,  1777,  and  the  1st  of  April,  1778,  both  days  included,  and 
during  the  lifetime  of  John  Sheppey,  the  father  of  Drury;  but 
in  case  the  said  John  should  die  before  the  said  Drury,  the  policy 
to  be  void.  The  question  was,  as  to  the  representation  of  the  life 
at  the  time  of  the  insurance.  The  interest  in  the  insurance  was 
£900.  due  from  Drury  Sheppey  to  the  plaintifif.  It  was  admitted, 
that  the  life  expired  within  the  time  limited  in  the  policy.  Drury 
Sheppey  had  a  place  in  the  Custom-house  of  Ireland,  and  was  in 
bad  circumstances.  He  went  to  the  south  of  France  for  the  bene- 
fit of  his  health,  or  to  avoid  his  creditors,  and  there  died.  The 
broker,  who  effected  the  policy,  told  the  underwriters  that  the 
gentleman,  for  whom  he  acted,  would  not  warrant,  but  from  the 
account  he  (the  broker)  had  received,  he  believed  it  to  be  a  good 
life. 

Lord  Mansfield.  As  to  the  interest,  this  policy  may  be  con- 
sidered as  a  collateral  security  for  the  debt  due  to  the  plaintiff. 
Where  there  is  no  warranty,  the  underwriter  runs  the  risk  of  its 
being  a  good  life  or  not.  If  there  be  a  concealment  of  the  knowl- 
edge of  the  state  of. the  life,  it  is  a  fraud.  It  is  a  rule  that  every 
subsequent  underwriter  gives  credit  to  the  representation  made 
to  the  first;  and  it  is  allowed  that  any  subsequent  underwriter  may 
give  in  evidence  a  misrepresentation  to  the  first.  The  broker  here 
does  not  pretend  to  any  knowledge  of  his  own,  but  speaks  from 
information.    There  is  no  fraud  in  him. 

There  was  a  verdict  for  the  plaintiff. 


WATSON  V.  MAINWARING. 
(Court  of  Common  Pleas,  1813.    4  Taunt.  763.) 

This  was  an  action  brought  by  the  executors  of  Dr.  Watson, 
deceased,  against  the  Equitable  Insurance  Office,  to  recover  a  sum 
which  had  been  insured  on  his  life.  Upon  the  trial  of  the  cause 
at  the  sittings  after  Hilary  term,  1813,  before  Gibbs,  J.,  the  office 
resisted  the  demand  on  the  ground  that  when  the  policy  was  eft'ect- 
ed  the  deceased  had,  (in  breach  of  his  declaration  to  the  contrary,) 
a  disorder  tending  to  shorten  life,  and  that  the  policy  was  therefore 
void.  For  the  plaintiff  it  was  proved  by  an  eminent  physician 
of  Bath,  to  whom  Dr.  Watson  had  applied  for  advice,  that  his 
disorder  was  an  affection  of  the  bowels;    that  this   disease   may. 


Sec.  3)  LIFE    INSURANCE  361 

proceed  from  either  of  two  causes,  the  one  a  defect  of  some  of  the 
internal  organs,  the  other  a  mere  dyspepsia;  that  the  first  would 
tend  to  shorten  life ;  that  the  second,  though  it  renders  the  patient 
uncomfortable,  does  not  generally,  unless  it  increases  to  an  exces- 
sive degree,  tend  to  shorten  life,  and  that  the  complaint  with  which 
Dr.  Watson  was  afflicted  was  not  the  organic  dyspepsia.  Several 
other  medical  men  stated  that  they  had  attended  Dr.  Watson  since 
the  policy  had  been  effected,  and  that  he  was  then  quite  free  from 
the  disorder.  On  the  other  hand,  several  medical  persons  stated, 
as  witnesses  for  the  defendants,  that  they  had  seen  him  at  the 
time  of  his  visiting  Bath  previously  to  effecting  the  insurance, 
and  that  they  then  considered  him  as  a  failing  man.  It  was  left 
to  the  jury  whether  the  patient's  complaint  was  the  organic  dys- 
pepsia, and  if  it  was  not,  whether  the  dyspepsia  under  which  he  la- 
boured was  at  the  time  of  effecting  the  policy  of  such  a  degree,  that 
by  its  excess  it  tended  to  shorten  life.  The  jury,  found  that  it  was 
neither  organic  nor  excessive,  and  gave  a  verdict  for  the  plaintiff. 

Shepherd,  Serjt.,  on  this  day  moved  to  set  aside  the  verdict  and 
have  a  new  trial,  contending  that  since  the  assured  afterwards  dies 
of  the  same  disorder  which  he  had  before  effecting  the  policy,  that  cir- 
cumstance was  conclusive  proof  that  he  was  then  afflicted  with  a  dis- 
order tending  to  shorten  life. 

Chambre,  J.  All  disorders  have  more  or  less  a  tendency  to 
shorten  life,  even  the  most  trifling ;  as  for  instance,  corns  may  end 
in  a  mortification  ;  that  is  not  the  meaning  of  the  clause.  If  dyspepsia 
were  a  disorder  that  tended  to  shorten  life  within  this  exception,  the 
lives  of  half  the  members  of  the  profession  of  the  law  would  be  un- 
insurable. 

GiBBS,  J.  According  to  the  rule  contended  for,  the  assured, 
to  be  insurable,  must  have  no  disease  at  all.  It  cannot  be  said  that  this 
was  not  a  case,  if  ever  there  was  one,  fit  to  be  left  to  a  jury;  and 
though  the  office  had  very  good  grounds  to  try  the  cause,  since  it 
has  been  fairly  submitted  to  a  jury,  there  is  as  little  ground  for  the 
Court  to  interfere,  as  in  any  case  that  ever  was  tried. 

Rule  refused. 


MAYNARD  v.  RHODE. 

(Nisi  Prius,  1824.     1  Car.  &  P.  360;    s.  c.  5  Dowl.  &  R.  266.) 

Action  on  two  policies  of  insurance  effected  by  the  plaintiff  at  the 
Pelican  Insurance  Company,  (to  which  the  defendant  was  secretary,) 
on  the  life  of  Colonel  Lyon,  to  whom  the  plaintiff  was  an  annuity  cred- 
itor. One  of  the  policies  was  dated  on  the  16th  of  May,  1823,  and 
was  for  £690.,  the  other  was  dated  on  the  17th  of  June,  and  was  for 
£650. 


362  REPRESENTATIONS  (Ch.  5 

Colonel  Lyon  died  in  October,  1823,  of  a  bilious  remittent  fever. 
The  execution  of  the  policies  was  admitted,  and  also  the  plaintiff's 
interest. 

The  defence  was,  misrepresentation  and  improper  concealment  on 
the  part  of  Colonel  Lyon,  previous  to  the  effecting  of  the  policies. 

To  substantiate  this  defence,  it  was  proved  that  the  office,  previous 
to  the  execution  of  the  policies,  sent  a  number  of  printed  questions 
to  Colonel  Lyon,  for  him  to  answer :  among  which  were  the  two  fol- 
lowing: "Who  is  your  medical  attendant?"  To  which  Colonel  Lyon 
answered,  "I  have  none  except  Mr.  Guy,  of  Chichester;"  and  "Have 
you  ever  had  a  serious  illness?"  To  this  he  answered,  "Never!"  Mr. 
Guy  was  referred  to,  and  he  gave  it  as  his  opinion  that  Colonel  Lyon 
was  an  insurable  life.  But  it  was  proved  that  Mr.  Guy  had  not  been 
called  on  to  attend  him  for  three  years  previous  to  his  giving  his 
certificate;  but  that,  in  the  year  1823,  Colonel  Lyon  was  attended, 
from  the  month  of  February  to  the  month  of  April,  by  Dr.  Veitch, 
a  physician,  and  Mr.  Jordan,  a  surgeon,  for  an  inflammation  of  the 
liver,  and  a  fever,  and  determination  of  blood  to  the  head.  The  for- 
mer of  these  gentlemen  proved  that  he  considered  him  to  be  in  a  dan- 
gerous way,  and  that  he  prescribed  active  medicines,  and  ordered  him 
sometimes  sixteen  leeches  a  day ;  and  that  he  would  not  have  certi- 
fied him  to  be  in  health  till  the  end  of  the  month  of  May.  It  w^as, 
however,  agreed  on  all  hands,  that  the  disease  of  which  he  died, 
had  no  relation  to  any  of  the  complaints  for  which  these  gentlemen 
attended  him. 

Abbott,  C.  J.  The  question  is,  whether  any  wilful  misrepresen- 
tation or  suppression  of  the  truth  took  place  on  the  part  of  Colonel 
Lyon,  to  induce  the  office  to  effect  these  policies ;  and  the  jury  must 
consider  whether  the  reference  to  Mr.  Guy,  wdien  he  was  daily  at- 
tended by  a  physician  and  surgeon  in  town,  was  intended  to  prevent 
a  disclosure  of  his  real  state  of  health?  For,  if  he  referred  to  Mr. 
Guy,  because  he  would  speak  well  of  his  health,  and  thought  that,  if 
he  referred  to  the  other  medical  men,  they  would  not  so  certify, 
though  he  did  not  die  of  the  disease  he  was  then  afflicted  with,  I  am 
clearly  of  opinion,  that  the  defendant  is  entitled  to  a  verdict.  And  if 
the  reference  was  made  to  Mr.  Guy,  because  he  did  not  know  the 
Colonel's  latter  state  of  health,  this  is  such  a  misrepresentation  as  will 
avoid  the  policies.  And  though  the  party  here  was  an  annuity-cred- 
itor of  Colonel  Lyon,  yet,  if  he  allowed  the  Colonel  to  make  these  rep- 
resentations when  the  policy  was  effected,  he  is  bound  by  them;^'^ 

17  In  his  argument  in  the  case  of  Everett  v.  Desborough,  5  Bing.  501,  512 
(1829),  Serjeant  Wilde  makes  the  following  statement  with  reference  to  the 
principal  case:  "In  Maynard  v.  Rhode  the  declaration  in  the  cause  alleged 
that  Colonel  Lyon,  the  life  insured,  had  himself  subscribed  and  delivered 
into  the  Pelican  office  a  declaration  setting  forth  his  ordinary  and  then 
state  of  health,  and  that  such  declaration  did  set  it  forth  truly,  and  was 
part  of  the  consideration  for  the  defendant's  entering  into  the  contract" 


Sec.  3)  LIFE   INSURANCE  363 

and,  however  hard  it  may  be  on  the  plaintiff,  the  rules  of  law  must  be 
adhered  to. 

Verdict  for  the  defendant. 

Before  Abbott,  C.  J.,  and  BaylKy,  Holroyd,  and  LittledalE,  JJ. 

In  Banc. 

Scarlett  moved  for  a  rule  nisi,  for  a  new  trial,  and  contended  that, 
however  a  misrepresentation  or  a  concealment  of  the  state  of  facts 
by  the  insured  might  invalidate  the  policy,  yet  here  the  insurer  and 
insured  knew  equally  little  of  the  fraud ;  and  he  therefore  submitted, 
that  a  fraud  committed  by  a  third  person  would  not  affect  the  policy ; 
more  especially,  as  the  Insurance  Ofhce  made  their  own  inquiries  into 
the  facts. 

BaylEy,  J.  Are  there  not  the  usual  representations  in  the  pol- 
icy? 

Scarlett.  There  are,  my  Lord;  but  though  I  admit  that  if  Colonel 
Lyon  had  procured  the  insurance,  the  policy  would  have  been  clearly 
void ;  yet  the  present  plaintiff  Maynard  was  entirely  innocent  of  the 
fraud,  and  therefore  ought  not  to  be  prejudiced;  yet  the  Lord  Chief 
Justice  laid  down,  that,  if  the  representations  were  falsely  made  by 
Colonel  Lyon,  without  the  privity  of  the  plaintiff,  they  avoided  the 
policy. 

BaylEy,  J.  The  representation  is  made  part  of  the  policy,  and, 
therefore,  the  bargain  is  only  conditional;  and  it  is  equally  a  condi- 
tion in  the  policy,  let  it  be  made  by  whomever  it  may. 

HoIvROYd  and  LittlEdaIvE,  JJ.,  concurred. 

Rule  refused.^® 

18  Lord  Campbell,  in  Wheel  ton  v.  Hardisty,  8  El.  &  Bl.  232,  269  (1857), 
distinguishes  the  principal  case  as  follows:  "So  in  Maynard  v.  Rhode,  5 
Dowl.  &  R.  266  (1824),  the  policy  is  not  set  out;  the  'life'  was  considered 
the  agent  to  effect  the  policy,  which  cannot  be  pretended  here ;  it  was  re- 
garded as  a  conditional  policy ;  and  therefore  the  untrue  representation  by 
the  'life'  of  a  fact  of  which  the  assured  was  not  cognizant  was  taken  to  have 
been  incorporated  in  the  policy."  In  Wheelton  v.  Hardisty,  supra,  it  was 
held  that  the  concealment  of  a  material  fact  made  by  the  life  insured,  with- 
out the  knowledge  of  the  person  taking  out  the  policy,  did  not  avoid  the  con- 
tract. See,  also,  Everett  v.  Desborough,  supra;  Huckman  v.  Fernie,  3  M.  & 
W.  505  (1838) ;  Rawlins  v.  Desborough,  2  Moo.  &  R.  329  (1840) ;  MacDonald 
V.  Law  Union  Ins.  Co.,  L.  R.  9  Q.  B.  332  (1874) ;  Joel  v.  Law  Union  Ins  Co., 
[1908]  2  K.  B.  275. 


364  REPRESENTATIONS  (Ch.  5 

WAINWRIGHT^«  v.  BLAND. 
(Court  of  Exchequer,  1836.    1  Mees.  &  W.  32.) 

Assumpsit  against  the  defendants,  three  of  the  directors  of  the  Im- 
perial Life  Insurance  Company,  on  a  poHcy  of  insurance  for  £3000., 
dated  22d  October,  1830,  iot  insuring  the  life  of  the  deceased.  Miss 
Helen  Frances  Phoebe  Abercromby,  for  the  period  of  two  years  from 
that  date.  The  declaration  averred  the  death  of  Miss  Abercromby 
on  the  21st  of  December,  1830,  and  the  plaintiff's  appointment  as  her 
sole  executor,  by  her  will  dated  the  13th  of  the  same  month.  Plea, 
the  general  issue. 

At  the  trial  before  Lord  Abinger,  C.  B.,  at  the  Middlesex  Sittings 
after  Michaelmas  Term,  it  clearly  appeared  that  the  policy  was  ef- 
fected by  the  deceased,  by  the  persuasion  and  for  the  benefit  of  Mr. 
Wainwright,  the  plaintiff,  and  his  wife,  who  was  the  deceased's  half- 
sister  ;  that  the  premiums  were  paid  by  the  plaintiff ;  that  on  the  de- 
ceased's first  attendance  at  the  company's  office,  on  the  14th  of  Oc- 
tober, 1830,  in  company  with  Mrs.  Wainwright,  she  represented  that 
the  insurance  was  intended  to  secure  a  sum  of  money  to  her  sister, 
which  she  should  be  able  to  do  if  she  outlived  the  term  of  two  years ; 
and  that,  on  being  asked  by  the  actuary  whether  she  had  effected  in- 
surances with  any  other  office,  she  answered,  "I  wish  to  insure  £5000., 
but  as  your  office  only  takes  £3000.,  I  shall  propose  £2000.  to  some 
other  office."  The  defendants  having  subsequently  ascertained  that 
she  had  effected  a  policy  for  £5000.  with  another  office,  and  had  made 
a  proposal  to  a  third  which  had  been  declined,  on  her  attending  again 
at  the  Imperial  Office,  on  the  22d  October,  the  actuary  informed  her 
that  the  directors  were  much  displeased  at  her  not  answering  his  for- 
mer question  in  a  straightforward  way.  She  said,  "I  know  very  little 
of  the  business  myself  ;  I  do  as  my  friends  direct  me."  It  was  proved 
that  she  had,  previously  to  this  time,  effected  insurances  with  various 
offices,  all  of  them  for  a  period  of  two  years  only,  to  the  amount,  in 
the  whole,  of  £11,000.  Miss  Abercromby  died  suddenly  on  the  21st 
December,  1830,  having,  by  her  will,  dated  the  13th,  bequeathed  the 
benefit  of  her  policies  to  her  sister,  and  appointed  the  plaintiff  her 
sole  executor.     It  appeared  that  she  had  executed  two  wills,  both  of 

i»  The  plaintiff  in  this  case  was  Thomas  Griffiths  Wainwright,  distinguished 
as  an  artist  and  essayist  and  as  an  incorrigible  criminal.  He  appears  to 
have  been  an  intimate  associate  of  Hood,  Cunningham,  Hazlitt,  De  Quincey, 
and  Charles  Lamb.  He  began  his  career  of  crime  at  the  age  of  thirty  as  a 
forger.  Two  years  later  he  appears  to  have  poisoned  his  uncle,  whose  prop- 
erty he  inherited.  There  is  little  doubt  but  that  he  poisoned  Helen  Aber- 
cromby, the  life  insured  in  this  case,  with  the  deliberate  purpose  of  obtaining 
the  insurance  money. 

For  other  cases  in  which  insurance  policies  have  been  taken  out  for  the 
manifest  purpose  of  maturing  them  by  murder,  see  Mutual  Life  Ins.  Co.  v. 
Armstrong,  117  U.  S.  591,  6  Sup.  Ct.  877,  29  L.  Ed.  997  (1886);  Valton  v. 
National  Fund  Life  Assur.  Co.,  20  N.  Y.  32  (1859) ;  Id.,  *40  N.  Y.  21  (1864). 


Sec.  3)  LIFE    INSURANCE  365 

which  were  in  the  possession  of  the  plaintiff,  who  was  proved  to 
have  stated,  (showing  them  to  the  witness,)  a  short  time  after  Miss 
Abercromby's  death,  that  they  were  made  "in  order  that  if  the  one 
failed,  the  other  might  do  for  him."  The  plaintiff,  as  her  execu- 
tor, swore  her  personal  property  not  to  exceed  £100. ;  and  it  was 
proved  that  she  was  in  fact  in  indigent  circumstances,  and  with- 
out the  means  of  paying  the  premiums.  In  the  printed  list  of  ques- 
tions required  by  the  articles  of  the  Imperial  Office  to  be  answered 
by  the  assured,  no  question  was  stated  as  to  insurances  effected  by 
the  party  with  other  offices.  The  Lord  Chief  Baron  left  it  to  the  jury 
to  say,  first,  whether  the  insurance  was  effected  by  the  deceased  bona 
fide  for  her  own  benefit,  or  as  the  agent  of  Wainwright;  secondly, 
whether  the  false  representations  made  by  Miss  Abercromby  to  the 
defendants  related  to  a  matter  material  to  be  known  by  them  as  in- 
surers. The  jury  found  that  she  effected  the  insurance  as  the  plain- 
tiff's agent,  and  for  his  benefit,  and  that  the  false  representations  were 
on  material  points ;  and  a  verdict  was  thereupon  entered  for  the  de- 
fendants. 

Erie  now  moved  for  a  rule  nisi  for  a  new  trial.  Assuming  that  the 
pohcy  was  effected  for  the  benefit  of  the  plaintiff,  still,  as  Miss  Aber- 
cromby was  of  full  age,  and  could  be  no  party  to  a  scheme  of  secur- 
ing the  payment  of  the  money  within  the  two  years,  the  plaintiff's  in- 
tention to  obtain  the  benefit  of  the  policy  could  not  operate  to  re- 
lieve the  defendants  from  their  contract  with  the  deceased,  in  whose 
right  the  plaintiff  now  sues  as  her  executor.  Even  his  expectation 
of  her  speedy  death,  supposing  it  to  have  existed,  was  no  answer  to 
an  action  on  the  policy  by  the  party  lawfully  entitled  to  the  benefit  of 
it.  The  question,  whether  she  knew  that  the  plaintiff  intended  all 
this,  was  not  left  to  the  jury.  [Parke,  B.  She  might  not  know  the 
whole:  but  she  must  have  known  she  had  not  funds  to  pay  the  pre- 
miums, and  that  she  intended  Wainwright  to  have  the  benefit  of  the 
insurances,  if  they  became  payable.]  But  where  she  herself,  by  her 
representative  claims  the  benefit  of  the  policy,  the  defendants  cannot  set 
,up  that  there  was  an  intention  that  a  third  party  should  have  the  bene- 
fit of  it.  [Parke,  B.  Your  argument  is,  that  any  person  may  lawfully 
insure  his  Ufe  for  the  benefit  of  another,  whatever  be  the  intention  of 
that  other  party,  and  from  whomsoever  the  funds  are  to  come.]  That 
is  the  argument;  if  she  has  the  legal  interest,  that  satisfies  the  stat- 
ute. [Lord  Abinger,  C.  B.  Independently  of  this  point,  the  jury 
found  that  she  made  a  false  representation  that  it  was  for  her  sister, 
and  also  as  to  her  applications  to  other  offices.]  It  is  questionable 
whether  the  defendants  are  at  liberty  to  rely  on  representations  made 
in  answer  to  parol  inquiries,  when  their  articles  contain  stipulations 
only  as  to  written  inquiries  and  the  answers  to  them.  The  policy  is 
framed  so  as  to  be  void  only  on  a  false  representation  in  writing. 
[GuRNEY,  B.     There  may  be  many  questions  material  to  be  asked, 


366  REPRESENTATIONS  (Ch.  5 

preparatory  to  the  written  contract.]  The  questions  did  not  bear  on 
the  probabiHty  of  the  Hfe  enduring-  for  two  years. 

Lord  Abingur,  C.  B.  There  may  perhaps  be  some  doubt  on  the 
first  point ;  but  it  is  clear  the  policy  was  avoided  by  the  false  repre- 
sentations.   There  can  therefore  be  no  rule. 

Parke:,  B.  From  the  nature  of  the  contract,  a  suppression  of  any 
material  fact,  or  a  false  answer  to  any  material  question,  must  avoid 
the  policy;  Lindenau  v.  Desborough,  3  C.  &  P.  350,  8  B.  &  C.  586,  3 
Man.  &  Ry.  45,  S.  C.  On  the  other  point  there  may  be  some  doubt, 
but  it  is  unnecessary  to  give  any  opinion  upon  it. 

GuRNEY,  B.,  concurred. 

Rule  refused. 


FITCH  v.  AMERICAN  POPULAR  LIFE  INS.  CO. 

(Court  of  Appeals  of  New  York,  1875.     59  N.  T.  557,  17  Am.  Rep.  372.)  20 

RapalIvO,  J.  The  exceptions  mainly  relied  upon  on  the  argu- 
ment are  those  taken  to  the  refusal  of  the  judge  to  grant  the  motion 
for  a  nonsuit;  to  his  refusal  to  charge  the  jury  that  "if  they  believed 
that  Fitch  had  had  any  disease  of  the  eyes  such  as  to  require  care  and 
attention,  no  recovery  could  be  had;"  that  "if  they  believed  that 
Fitch  had  had  any  injury  of  the  eyes  there  could  be  no  recovery;" 
and  that  "if  they  believed  that  there  existed  at  any  time  prior  to  the 
appUcation  either  a  disease  or  any  injury  of  the  eye  there  could  be 
no  recovery."  Also,  to  the  exclusion  of  evidence  that  Fitch  commit- 
ted suicide.  Other  exceptions  were  taken,  and  appear  in  the  case, 
but  if  the  positions  upon  which  they  are  founded  are  sound,  they  are 
available  under  the  motion  for  a  nonsuit,  and  have  been  so  treated 
on  the  argument  and  will  be  here  considered  in  that  connection. 

The  motion  for  a  nonsuit  was  made  upon  the  ground  that  by  the 
undisputed  and  uncontradicted  evidence  it  appeared  that  Fitch,  in  the 
application  he  made  for  the  policy,  made  misrepresentations  as  to 
.  certain  facts,  and  concealed  and  withheld  certain  other  facts,  which, 
under  the  terms  of  the  policy  and  of  the  application  necessarily  made 
it  void. 

It  is  claimed  on  the  part  of  the  defendant  that  the  statements  con- 
tained in  the  application  were  warranties  and  must  be  absolutely  true; 
that  it  was  not  for  the  jury  to  pass  upon  the  question  whether  they 
were  material  to  the  risk,  nor  whether  the  applicant  made  any  in- 
tentional misstatement;  that  the  only  question  is  whether  or  not  the 
statements  were  true,  and  that  if  any  untrue  statement  (except  as 
to  ancestry)  was  made  in  the  application,  the  plaintiff  cannot  recover, 
and  that  it  is  wholly  unimportant  whether  or  not  the  matter  as  to 
which  the  untrue  statement  was  made  had  any  tendency  ,to  increase 

20  The  statement  of  facts  is  omitted. 


Sec.  3)  LIFE    INSURANCE  367 

the  risk  or  any  connection  with  the  cause  of  death,  or  whether  the 
statement  was  known  to  the  apphcant  to  be  untrue. 

The  first  question  to  be  considered  is  w^hether  the  statements  con- 
tained in  the  apphcation  were  absohite  warranties  or  mere  representa- 
tions, and  whether  under  the  terms  of  the  poHcy  and  apphcation,  the 
warranty  therein  mentioned  was  not,  in  effect,  simply  that  the  state- 
ments were  made  in  good  faith.  Although  the  term  "warranty"  is  used 
in  both  instruments,  it  must  be  construed  with  reference  to  the  other 
language  employed  in  the  same  instruments.  These  instruments  were 
prepared  by  the  defendant,  and  themselves  explaiji  the  degree  of  re- 
sponsibility to  be  assumed  by  the  applicant  in  answering  the  ques- 
tions propounded  to  him.  Although  the  word  "warranty"  is  employed, 
yet,  if  the  explanations  accompanying  that  term  show  that  a  strict 
warranty  was  not  intended,  these  explanations  given  by  the  defend- 
ant itself  in  the  papers,  and  which  induced  the  applicant  to  undertake 
to  answer  the  questions  and  enter  into  the  contract,  must  govern. 

The  application  begins  with  a  preamble  headed  "Explanation ;" 
this  explanation  describes  the  nature  of  life  insurance  and  defines  the 
terms  "insured"  and  "assured;"  it  then  proceeds  to  state  that  the 
policies  of  this  company  are  made  in  entire,  unconditional  honest 
good  faith,  and  that  it  is  required  as  a  condition  that  the  application 
be  made  in  equal  good  faith ;  that  if  it  is,  and  the  conditions  fulfilled, 
premiums  paid  when  due,  etc.,  "all  of  which  is  easily  done  w'hen  the 
intention  is  good,  the  assured  may  confidently  rely  upon  the  prompt 
payment  of  the  assurance  by  this  company  as  one  of  the  most  certain 
of  human  events;  the  assurance  can  be  jeopardized  only  by  dishon- 
esty or  inexcusable  carelessness  on  the  part  of  the  applicant,  since 
each  question  and  answer  is  easily  made  correctly  if  only  truthful ; 
*I  do  not  know'  is  as  proper  at  one  time  as  'yes'  or  'no'  at  another; 
*  *  *  the  sole  object  is  to  protect  the  honest  from  the  effects  of 
misstatements,  not  only  of  themselves  but  of  others,  by  having  every 
thing  so  plain  that  it  will  be  clearly  evident  that  a  misstatement  can 
be  made  by  intention  only."  It  then  proceeds  to  propound  questions 
as  to  the  grandparents,  parents,  uncles  and  aunts  on  the  paternal  and 
maternal  sides,  whether  living  or  dead;  their  health  when  living, 
ages  at  death,  causes  of  death,  weight,  height,  complexion,  color  of 
hair,  beard  and  eyes,  and  various  other  questions  concerning  them. 
Then  follow  a  great  number  of  questions  of  the  most  minute  char- 
acter touching  the  insured,  his  constitution,  habits,  etc.,  and,  among 
other  things,  as  to  his  weight ;  how  much  increase  or  diminution  in 
weight  in  one  year,  and  in  five  years ;  what  diseases  he  has  had,  in- 
cluding those  of  childhood ;  whether  any  place  where  he  has  ever 
lived  was  subject  to  any  disease,  and  what;  as  to  his  habits,  how  often 
he  bathes ;  whether  he  rises  and  retires  regularly ;  whether  late  or 
early ;  what  he  wears  next  his  skin ;  what  kind  of  stimulants  he  uses, 
if  any;  whether  he  takes  his  tea  or  coffee  weak  or  strong;  the  ex- 
treme number  of  glasses  of  ale.  beer  or  cider  or  wine  he  takes  in  a 


368  REPRESENTATIONS  (Cll.  5 

day ;  the  quantity  he  takes  in  a  month ;  whether  he  has  ever  been  in- 
toxicated and  how  often ;  whether  the  action  of  his  bowels  is  regular 
every  day ;  whether  he  has  any  practice  tending  to  impair  health, 
etc. ;  whether  his  vocation  endangers  life  or  health ;  what  it  will  be ; 
whether  he  has  reason  to  think  that  his  residence,  vocation  or  any  cir- 
cumstance affecting  him  will  be  more  hazardous  to  life  and  health 
than  is  at  present  the  case ;  whether  his  hands  and  feet  are  usually 
warm  or  cold;  whether  any  kind  of  food  usually  produces  ill  health 
or  indigestion;  whether  he  has  ever  had  any  of  a  long  catalogue  of 
diseases,  many  of  which  are  of  a  character  which  he  might  well  have 
had  without  knowing  it,  and  which  he  might  naturally  deny  igno- 
rantly ;  whether  he  has  ever  had  any  disease  of  or  injury  to  any  organ 
or  has  ever  had  any  symptoms  of  disease  of  any  organ ;  whether  he 
is  acquainted  with  the  laws  of  health  and  whether  he  takes  pains  to 
observe  them,  and  a  host  of  other  questions  which  no  human  being 
could  with  safety  undertake  to  answer  accurately  and  warrant  the 
correctness  of  his  answers.  Then  follow  questions  as  to  his  knowl- 
edge of  the  conditions  of  the  insurance,  and  among  these  whether  he 
is  aware  that  any  fraud  will  vitiate  the  insurance ;  but  he  is  not  asked 
whether  he  is  aware  that  any  unintentional  mistake  in  answering  any 
of  the  host  of  questions  thrust  at  him,  whether  material  to  the  risk 
or  not,  will  be  a  breach  of  warranty,  and  vitiate  his  policy. 

The  applicant  is  required  to  answer  the  questions  thus  propounded 
by  making  upon  or  over  each  question  conventional  marks  one  of 
which  signifies  yes  or  good  or  positive ;  one  no  or  bad  or  negative ; 
double  of  either,  very  or  decidedly;  one  medium,  and  the  other  do 
not  know. 

This  document  which  the  applicant  is  required  to  sign,  concludes 
with  a  declaration  that  his  answers  to  the  questions  and  the  written 
statements  in  the  preceding  statement,  declaration  or  warranty,  to- 
gether with  the  statement  made  to  the  examining  physicians  and  sign- 
ed, are  warranties  correct  and  true,  and  that  there  is  not  concealed, 
withheld  or  unmentioned  therein  any  circumstance  in  relation  to  the 
past  or  present  state  of  the  health,  habits  of  life,  condition  or  inten- 
tions of  the  applicant,  nor  any  fact  concerning  his  relatives  or  an- 
cestry with  which  the  company  ought  to  be  made  acquainted  (with- 
out specifying  what  is  the  nature  of  such  last-mentioned  facts) ;  also 
that  the  statements,  etc.,  shall  be  the  basis  and  form  part  of  the  con- 
tract or  policy  and  if  not  in  all  respects  true  and  correct  the  policy 
shall  be  void. 

This  application  was  signed  by  Fitch,  the  questions  being  wholly 
or  in  part  answered  by  means  of  the  stipulated  hieroglyphics,  and  a 
policy  was  thereupon  issued  on  his  life  in  favor  of  the  plaintiff  as 
assured  for  $3,000.  This  policy  contains  a  declaration  on  the  part  of 
the  company  that  it  is  issued  in  entire  unconditional  honest  good  faith 
and  with  the  just  intent  of  scrupulously  fulfilling  all  the  conditions 
and  engagements  of  the  contract  with  absolute  certainty,  and  then 


Sec.  3)  LIFE    INSURANCE  369 

proceeds  to  state  that  fraud  or  intentional  misrepresentation  violates 
the  policy  and  that  the  statements  and  declarations  made  in  the  ap- 
plication are  warranties  and  in  all  respects  true,  and  do  not  suppress 
or  omit  any  fact  relative  to  the  insured  afifecting  the  interest  of  the 
company  or  which  whether  material  or  not  would  tend  to  influence  the 
company  in  taking  the  risk.  To  this  policy  is  annexed  a  notice  to 
the  policyholders  of  the  conditions  of  the  insurance,  one  of  which  is 
that  proofs  of  the  loss  may  be  presented  at  any  time,  but  that  as  the 
payment  will  be  contested  only  in  case  of  fraud  it  is  agreed  and  pro- 
vided in  order  that  facts  may  be  fresh  and  attainable,  that  no  action 
on  the  policy  shall  be  sustainable  unless  commenced  within  twelve 
months  after  the  decease  of  the  insured. 

It  seems  to  us,  looking  at  all  these  papers  together  and  consider- 
ing the  character  of  the  minute  inquiries  made  of  the  applicant,  the 
extravagance  of  supposing  as  to  many  of  them  that  any  one  could 
undertake  to  answer  them  categorically  as  required  and  warrant  the 
answers,  or  at  most  do  more  than  express  an  opinion  concerning  the 
subject  of  them ;  coupled  with  the  repeated  professions  of  good  faith 
on  the  part  of  the  company  and  exhortations  to  like  good  faith  on  the 
part  of  the  applicant,  and  the  declarations  that  if  the  application  is 
made  in  good  faith  equal  to  that  professed  by  the  company,  and  the 
conditions  fulfilled,  premiums  paid,  etc.,  the  assured  may  confidently 
rely  upon  the  prompt  payment  of  the  assurance  by  the  company  as 
one  of  the  most  certain  of  human  events ;  that  the  assurance  can  be 
jeoparded  only  by  dishonesty  or  inexcusable  carelessness  on  the  part 
of  the  applicant;  that  the  sole  object  is  to  protect  the  honest  from 
the  effects  of  misstatements  by  having  everything  so  plain  that  a  mis- 
statement can  be  made  by  intention  only;  that  fraud  or  intentional 
misrepresentation  violates  the  policy,  and  that  the  payment  will  be 
contested  only  in  case  of  fraud ;  the  true  construction  of  the  papers 
is  that  the  policy  is  to  be  void  only  in  case  of  intentional  and  fraudu- 
lent misrepresentation  or  suppression  of  facts  by  the  applicant,  and 
that  although  the  term  warranty  is  used,  yet  its  legal  effect  is  so  mod- 
ified by  the  explanations  and  declarations  by  which  it  is  accompanied, 
that  it  imports  no  more  than  an  assurance  that  the  statements  are 
made  honestly,  in  good  faith,  and  are  believed  by  the  applicant  to  be 
correct  and  true.  These  explanations  and  declarations  are  so  incon- 
sistent with  the  legal  effect  of  a  warranty,  in  the  strict  legal  sense  of 
the  term,  that  both  cannot  stand  together ;  and  to  hold  the  applicant 
to  the  strict  rules  applicable  to  warranties,  would  be  to  entrap  him 
into  an  agreement  which  he  never  intended  to  make.  The  statement 
that  payment  of  the  loss  will  be  contested  only  in  case  of  fraud,  is 
one  easily  comprehended  by  every  man  of  ordinary  understanding; 
and,  together  with  the  other  plain  declarations,  explanations  and  as- 
surances contained  in  the  papers,  must  have  been  intended,  and  were 
calculated,  to  inspire  confidence  in  applicants  for*  insurance  and  to 
Vance  Ins. — 24 


370  REPRESENTATIONS  (Ch,  5 

induce  them  to  believe  that  an  unintentional  and  honest  mistake  or 
omission  on  their  part,  in  traveling  through  the  maze  of  complicated 
questions  put  to  them,  would  not  be  taken  advantage  of  by  the  com- 
pany. Where  a  warranty  is  understandingly  and  clearly  given  by  an 
insured,  no  matter  how  immaterial  the  fact  warranted  may  be,  he  will 
be  held  strictly  to  his  contract.  But  when  thrown  off  his  guard  and 
induced  to  enter  into  such  a  contract  by  declarations  of  the  insurer, 
such  as  appear  in  this  case  to  have  been  contained  in  the  papers  pre- 
pared by  the  defendant  and  evidencing  the  contract,  the  declaration 
in  the  same  papers  that  the  statements  are  warranties  and  the  basis 
of  the  contract,  etc.,  must  be  so  construed,  if  possible,  as  to  har- 
monize with  the  explanations  and  declarations  of  the  insurer;  and  if 
this  is  not  possible  they  should  be  rejected. 

Under  this  view  of  the  contract  it  was  necessary,  in  order  to  sus- 
tain the  defense,  to  show  not  only  that  the  statements  were  untrue, 
but  that  they  were  known  by  the  insured  so  to  be,  and  that  they  and 
the  alleged  omissions  were  made  intentionally  and  with  a  fraudulent 
design ;  and  to  entitle  the  defendant  to  the  nonsuit  asked,  it  was  nec- 
essary that  this  fraud  should  be  so  conclusively  proved  that  there  was 
no  question  for  the  jury. 

There  was  some  evidence  tending  to  show  fraud  in  the  statement 
and  in  omitting  to  mention  certain  facts,  but  this  evidence  was,  in 
our  judgment,  far  from  being  of  that  conclusive  character  and  so  un- 
controverted  as  to  have  justified  the  judge  in  nonsuiting  the  plaintiff. 
The  main  facts  relied  upon  were,  that  some  six  years  before  the  pol- 
icy was  applied  for  the  deceased  had  had  an  inflammation  of  the  eyes, 
termed  by  the  physicians  conjunctivitis.  The  evidence  tended  to  show 
that  this  was  caused  by  some  sand  being  thrown  in  his  eyes  while  in 
the  army,  in  1864,  and  that  he  had  been  discharged  from  the  army  for 
this  cause;  that  this  conjunctivitis  was  merely  a  temporary  inflamma- 
tion of  the  eye,  of  which  he  had  been  long  since  cured,  and  that  it  was 
not  calculated  to  affect  the  duration  of  life ;  that  he  had  been  confined 
in  the  hospital,  in  Virginia,  by  reason  of  this  inflammation  of  the 
eyes,  in  October,  1864,  when  he  was  furloughed,  and  that  he  was 
treated  for  the  same  complaint  by  a  Dr.  Benson,  in  November,  1864, 
and  was  finally  discharged  from  the  army  in  May,  1865. 

It  was  attempted  to  be  proved  that  his  eyes  bore  traces  of  his  hav- 
ing had  iritis  at  some  period  of  his  life,  but  this  proof  was  contro- 
verted by  evidence,  and  therefore  would  not  have  justified  a  nonsuit. 
The  policy  was  issued  in  November,  1870,  and  it  is  not  claimed  that 
he  then  had  any  disease  of  the  eye.  The  application  contained  an  in- 
quiry, whether  the  deceased  "had  ever  had  any  illness,  local  disease  or 
injury  in  any  organ,"  which  question  he  answered  in  the  negative. 
This  is  claimed  to  have  been  a  misrepresentation  and  breach  of  war- 
ranty, by  reason  of  which  the  plaintiff  should  have  been  nonsuited. 

The  president  of  the  defendant,  who  appears  to  have  been  a  physi- 
cian, enumerates  about  fifty  parts  of  the  human  body  which  come  un- 


Sec.  3)  LIFE    INSURANCE  371 

der  the  denomination  of  organs,  including  among  others  the  eye,  the 
nerves,  bones,  cartilaq-es,  veins,  glands  of  the  skin,  etc. ;  and  it  is 
claimed  by  the  defendant  that  an  injury  to  or  disease  of  any  of  these 
organs  at  any  previous  period  necessarily  rendered  the  answer  given 
by  the  deceased  a  breach  of  warranty  or  a  misrepresentation  which 
should  avoid  the  policy.  If  a  finger  had  been  broken,  the  skin  injured 
or  a  vein  cut  at  any  period  of  the  applicant's  life,  the  policy  would, 
according  to  this  doctrine,  be  void. 

We  think  that,  according  to  the  construction  which  we  have  put 
upon  the  contract  in  question,  the  judge  would  not  have  been  jus- 
tified in  holding  that  the  omission  to  mention  a  temporary  injury  to 
the  eye  by  sand  being  thrown  into  it,  which  had  produced  inflamma- 
tion six  years  before  the  policy  was  applied  for,  and  which  was  then 
cured,  was  conclusive  evidence  of  fraud,  or  a  breach  of  warranty  suf- 
ficient to  avoid  the  policy.  If  of  any  importance  it  was  at  most  evi- 
dence of  fraud,  to  be  submitted  to  the  jury. 

These  policies  are  provisions  made,  usually,  by  persons  of  slender 
means,  for  the  benefit  of  their  families  in  case  of  death ;  they  some- 
times devote  their  small  savings  for  many  successive  years  to  paying 
the  premiums.  To  justify  us  in  holding  that  all  the  answers  given  to 
the  multitude  of  questions  asked  in  the  case  before  us  are  warranties, 
and  that  a  mistake  or  unintentional  omission  as  to  any  of  them  should 
avoid  the  policy,  the  clearest,  most  unequivocal  and  unqualified  lan- 
guage should  be  employed  in  the  policy  and  conditions.  A  company 
cannot  be  permitted  in  the  same  papers  to  say  to  the  assured,  to  in- 
duce him  to  enter  into  the  contract,  that  nothing  but  fraud  or  inten- 
tional misstatements  shall  avoid  his  policy,  or  that  payment  will  be 
contested  only  in  case  of  fraud,  and  when  the  claim  for  payment  is 
presented,  to  set  up  as  a  defense  a  merely  technical  breach  of  war- 
ranty in  relation  to  some  trivial  matter.  In  a  case  like  this,  consid- 
ering the  number  and  character  of  the  inquiries  made  of  the  insured, 
if  the  answers  were  all  held  to  be  warranties,  it  would,  in  substance, 
be  optional  with  the  company  whether  to  pay  or  not,  for  it  would  be 
a  marvel  if  some  flaw  could  not  be  found  in  the  application.  No  in- 
telligent person  would  knowingly  invest  his  earnings  in  so  precarious 
a  security. 

Another  alleged  ground  of  nonsuit  was  the  response  of  the  appli- 
cant to  the  question :  "Family  physician,  and  each  one  who  has  ever 
given  the  party  medical  attendance?  If  neither  exists,  name  some 
medical  man,  an  acquaintance,  who  knows  the  party  well."  The  an- 
swer was :  "Have  none."  This  answer  was  upon  its  face  incomplete. 
It  applies  only  to  the  call  for  the  name  of  the  family  physician. 
Whether  the  suppression  of  the  name  of  Dr.  Benson,  who  had  at- 
tended the  applicant  for  inflammation  of  the  eyes,  in  November,  1864, 
and  again,  in  1867,  for  some  other  complaint  not  mentioned,  and  of 
the  doctor  who  was  called  in  to  visit  his  boy  in  1870,  and  attended  him 
twice,  at  Troy,  were  fraudulent  suppressions,  were  questions  for  the 


372  REPRESENTATIONS  (Cll.  5 

jury.  If  the  defendant  had  desired  a  fuller  answer  to  the  question  it 
should  have  insisted  upon  it  at  the  time. 

The  same  remarks  apply  to  the  statements  of  the  applicant  as  to 
his  vocation,  his  residence,  and  to  the  question  whether  he  had  been 
medically  examined  for  the  army  or  navy,  or  with  reference  to  in- 
surance, and  to  his  omission  to  mention  the  fact  of  his  discharge 
from  the  army.  There  was  no  such  conclusive  evidence  of  fraud  or 
intentional  misrepresentation  as  required  the  court  to  pass  upon  the 
fact.  The  refusals  to  charge  as  requested  are  covered  by  the  remarks 
already  made ;  and  this  disposes  of  all  the  material  exceptions  ex- 
cept the  rejection  of  evidence  that  Fitch,  the  deceased,  committed  sui- 
cide. 

The  policy  contained  no  stipulation  that  it  should  be  void  in  case 
of  the  death  of  the  insured  by  suicide.  It  was  not  taken  out  for  the 
l^enefit  of  Fitch  but  of  his  wife  and  children.  Although  they  were 
bound  by  his  representations,  and  any  fraud  he  may  have  committed 
in  taking  out  the  policy,  the  policy  having  been  obtained  through  his 
agency,  yet  they  were  not  bound  by  any  acts  or  declarations  done  or 
made  by  him  after  the  issue  of  the  policy,  unless  such  acts  were  in 
violation  of  some  condition  of  the  policy.  We  have  examined  the  va- 
rious grounds  upon  which  the  defendant  claims  that  this  evidence 
was  admissible,  but  are  of  opinion  that  they  are  not  sufficient. 

The  order  of  the  General  Term  should  be  reversed  and  the  judg- 
ment entered  upon  the  verdict  affirmed,  with  costs.  All  concur 
except  Church,  C.  J.,  and  Folger,  J.,  not  voting. 

Order  reversed,  and  judgment  accordingly. 


Ch.6)  WAIiUANTIES  373 

CHAPTER  VI 
WARRANTIES 


SECTION  1.— MARINE  INSURANCE 


OF  NONCOMPLIANCE  WITH  WARRANTIES. 

(Park,  Insurance  [3(1  Ed.  179G]  p.  318.) 

A  warranty  in  a  policy  of  insurance  is  a  condition  or  a  contingency, 
that  a  certain  thing  shall  be  done,  or  happen,  and  unless  that  is  per- 
formed, there  is  no  valid  contract.  It  is  perfectly  immaterial  for 
what  view  the  warranty  is  introduced ;  or  whether  the  party  had  any 
view  at  all :  but  being  once  inserted,  it  becomes  a  binding  condition  on 
the  insured ;  and  unless  he  can  show  that  he  has  literally  fulfilled  it. 
or  that  it  was  performed,  the  contract  is  the  same,  as  if  it  had  never 
existed.     *     *     * 

We  have  said  that  a  warranty  must  be  strictly  and  literally  perform- 
ed ;  and  therefore  whether  the  thing,  warranted  to  be  done,  be  or  be 
not  essential  to  the  security  of  the  ship ;  or  whether  the  loss  do  or  do 
not  happen,  on  account  of  the  breach  of  the  warranty,  still  the  insured 
has  no  remedy :  because  he  himself  has  not  performed  his  part  of  the 
contract,  and  if  he  did  not  mean  to  perform,  he  ought  not  to  have 
bound  himself  by  such  a  condition.  And  though  the  condition  broken 
be  not,  perhaps,  a  material  one,  yet  the  justice  of  the  law  is  evident 
from  this  consideration  :  that  it  is  absolutely  necessary  to  have  one  rule 
of  decision,  and  that  it  is  much  better  to  say,  that  warranties  shall 
in  all  cases  be  strictly  complied  with,  than  to  leave  it  in  the  breast  of 
a  judge  or  jury  to  say,  that  in  one  case  it  shall,  and  in  another  it  shall 
not.  The  very  meaning  of  a  warranty  is  to  preclude  all  inquiries 
into  the  materiality,  or  the  substantial  performance  of  it :  and  although 
sometimes  partial  inconveniences  may  arise  from  such  a  rule;  yet 
upon  the  whole,  it  will  certainly  produce  public  salutary  effects.^ 


JEFFERIES  V.  LEGENDRA. 

(Court  of  Kina;  and  (,»uoeirs  Bench,  1691.     4  Mod.  58;    s.  c,  3  Lev.  320,  Car- 
thew,  216,  Holt,  465,  1  Shower,  320,  2  Salk.  443.) 

An  action  on  the  case  was  brought  by  the  plaintiff  upon  a  policy  of 
assurance  of  goods  from  London  to  Naples  upon  the  ship  called  the 
Olive  Branch.    The  adventure  was  to  begin  at  the  time  of  the  lading 

1  See  The  History  of  the  Development  of  the  Warranty  in  Insurance  Law, 
20  Yale  Law  Journal,  523-534. 


374  WARRANTIES  (Ch.  6 

of  the  ship  at  London,  and  seven  guineas  was  the  premium  for  every 
one  hundred  pounds  insured,  dangers  of  the  seas  only  excepted.  At 
the  bottom  of  this  poHcy,  these  words  were  subscribed  upon  which  the 
question  now  arose,  viz.  "warranted  to  depart  with  convoy."  The 
plaintiff  in  his  declaration  averred  that  the  ship  did  depart  with  con- 
voy ;  that  she  was  taken  by  the  French ;  and  that  the  defendant  had 
notice  of  it,  but  did  not  pay  the  money,  &c. 

Upon  non  assumpsit  pleaded,  the  jury  found  a  special  verdict  to  this 
purpose,  viz. :  They  find  the  policy  of  assurance ;  that  the  defendant 
subscribed  it ;  that  the  ship  departed  out  of  the  River  Thames  under 
the  convoy  of  a  man  of  war ;  that  about  the  Isle  of  Wight  she  was 
separated  from  the  convoy  by  bad  weather,  and  put  in  at  Torbay,  and 
was  there  detained  by  contrary  winds ;  that  the  master  of  the  ship 
expecting  to  meet  the  convoy  departed  out  of  the  harbour,  but  could 
not  meet  her,  being  hindered  by  stress  of  weather ;  and  that  the  ship 
was  taken  by  the  French,  and  so  lost,  etc. 

The  question  was.  What  the  true  meaning  of  those  words  are,  viz. 
"warranted  to  depart  with  convoy"?^ 

Curia.  If  the  insured  have  acted  contrary  to  the  agreement,  the 
policy  fails  as  much  as  if  there  had  been  a  deviation.  The  word  "de- 
part" is  only  terminus  a  quo ;  if  the  ship  had  departed  from  London, 
and  come  back  again  by  fraud,  that  had  been  no  departure  within  the 
intention  of  this  agreement.  But  upon  this  departure,  as  it  is  found, 
the  voyage  was  begun  with  convoy ;  they  were  afterwards  separated  by 
stress  of  weather,  and  both  endeavoured  to  save  themselves,  and 
afterwards  to  find  out  each  other. 

And  there  being  no  fraud  found  in  the  master,  judgment  was  given 
for  the  plaintiff,  though  it  might  have  been  otherwise  if  the  convoy 
had  run  from  the  ship,  and  by  that  means  she  had  been  taken. ^ 


LETHULIERS'  CASE. 

(Court  of  King's  Bench,  1692.    2  Salk.  443.) 

Action  on  a  policy  of  insurance  by  the  defendant  at  London,  insuring 
a  ship  from  thence  to  the  East  Indies,  warranted  to  depart  with  con- 
voy ;  and  shews,  that  the  ship  went  from  London  to  the  Downs,  and 
from  thence  with  convoy,  and  was  lost.  After  a  frivolous  plea  and 
demurrer,  the  case  stood  upon  the  declaration ;  to  which  it  was  ob- 
jected, that  here  was  a  departure  without  convoy. 

Et  per  Cur.     The  clause,  "warranted  to  depart  with  convoy,  must 

2  Arguments  of  counsel  are  omitted. 

3  As  to  the  construction  of  warranties  "to  depart  wifh  convoy,"  see,  fur- 
ther, Lilly  V.  Ewer,  1  Doug.  72  (1779);  D'Eguino  v.  Bewicke,  2  H.  Bl.  551 
(1795)  ;  Anderson  v.  Pitcher,  2  B.  &  P.  164  (ISOO)  ;  Veedon  v.  Wilmot,  Park, 
Ins.  (eth  Ed.)  444  n. ;    Hibbert  v.  Pigou,  Park,  Ins.  (6th  Ed.)  443,  post,  p.  380. 


Sec.  1)  MARINE    INSURANCE  375 

be  construed  according  to  the  usage  among  merchants,  i.  e.  from  such 
place  where  convoys  are  to  be  had,  as  the  Downs,  &c. 

Holt,  C.  J.,  contra :  We  take  notice  of  the  laws  of  merchants  that 
are  general,  not  of  those  that  are  particular  usages.  Tt  is  no  part  of 
the  law  of  merchants  to  take  convoy  in  the  Downs.    Vide  Yelv.  136. 


WOOLMER  V.  MUILMAN. 

(Court  of  King's  Bench,  1763.     3  Burr.  1419;  s.  c,  1  W.  Bl.  427.) 

This  was  a  special  case  reserved,  at  nisi  prius  at  Guildhall,  before 
Lord  Mansfield,  for  the  opinion  of  the  court. 

It  was  an  action  on  the  case  brought  for  the  recovery  of  a  total  loss 
on  a  policy  of  insurance  made  on  goods  and  merchandizes  on  board 
the  ship  Bona  Fortuna,  at  and  from  North  Bergen  to  any  port  or 
places  whatsoever,  until  her  safe  arrival  in  London. 

It  was  underwritten  thus — "Warranted  neutral  ship  and  property." 

The  defendant  underwrote  the  said  policy  for  il50.  on  the  23d  day 
of  September,   1762. 

The  defendant  having  pleaded  the  general  issue,  and  paid  into  court 
the  premium  received  by  him  for  the  said  insurance,  this  cause  came 
on  to  be  tried  at  Guildhall,  London,  on  the  21st  day  of  May,  1763, 
before  Lord  Mansfield :  When  it  was  admitted  that  the  plaintififs  had 
interest  on  board  the  ship  to  a  large  value,  to  wit,  to  the  amount  of 
the  sum  insured. 

The  ship,  with  the  goods  and  merchandizes  so  loaden  and  being  on 
board  her,  after  her  departure  from  North  Bergen,  and  before  her 
arrival  at  London,  proceeding  on  her  voyage,  was  by  the  force  of  winds 
and  stormy  weather  wrecked,  cast  away,  and  sunk  in  the  seas ;  and  the 
said  goods  and  merchandize  were  thereby  wholly  lost. 

It  was  expressly  stated,  "That  the  ship  or  vessel  called  the  Bona 
Fortuna,  at  and  before  the  time  she  was  lost,  were  not  neutral  prop- 
erty, as  warranted  by  the  said  policy." 

The  question  therefore  was,  "Whether  the  plaintiffs  can.  under  the 
circumstances  of  this  case,  recover  in  this  action." 

Mr.  Wallace  was  for  the  plaintiff,  and  Mr.  Yates  for  the  defendant. 
But 

Lord  Mansfield  stopped  Mr.  Yates;  and  said  it  was  too  plain  to 
argue. 

This  was  no  contract :  For,  the  man  insured  neutral  property :  And 
this  was  not  neutral  property.    Therefore  we  must  give 

Judgment  for  the  defendant. 


376  WAKHANTJES  (Cll.  6 

BEAN  V.  STUPART. 

(Court  of  King's  Bench,  1778.     1  Doug.  11.) 

The  plaintiff  insured  the  ship  called  the  Martha,  at  and  from  London 
to  New  York,  the  voyage  to  commence  from  a  day  specified ;  and,  on 
the  margin  of  the  policy,  were  written  these  words,  "Eight  nine-pound- 
ers with  close  quarters,  six  six-pounders  on  her  upper  decks,  thirty 
seamen,  besides  passengers."  The  ship  sailed  from  the  Downs  on  the 
1st  of  March,  and  was  taken- on  the  10th,  by  an  American  privateer, 
and  was  sent,  with  a  prize-master  on  board,  to  make  the  port  of 
Boston.  On  the  30th  of  May,  the  plaintiff  brought  this  action  against 
Stupart,  an  underwriter  on  the  policy ;  on  which  Stupart  paid  the 
premium  into  court,  and  pleaded  the  general  issue.  About  the  6th  of 
July,  and  before  the  trial,  accounts  were  received  that  the  ship  had 
been  retaken  some  time  in  May  and  carried  into  Halifax. 

The  cause  came  on  for  trial  before  Lord  Mansfield,  and  a  special 
jury,  at  Guildhall,  at  the  sittings  after  Trinity  Term,  18  Geo.  IIL  The 
defence  set  up  was,  that  there  were  not  thirty  seamen  on  board  the 
ship,  according  to  the  terms  of  the  stipulation  in  the  margin  of  the 
policy :  and,  in  fact,  it  appeared  upon  the  evidence,  that,  to  make  up 
that  number,  the  plaintiff  reckoned  the  steward,  cook,  surgeon,  some 
boys,  and  apprentices,  and  some  persons  described  as  men  learning  to 
be  seamen ;  and  that  only  twenty-six  persons  had  signed  the  ship's  arti- 
cles. It  also  appeared  that  there  were  seven  or  eight  passengers  on 
board. 

Bearcroft,  of  counsel  for  the  defendant,  contended — That  this  was  a 
warranty,  not  a  representation,  and  that  being  so,  it  must  be  literally 
and  strictly  complied  with.  That  seamen  meant  men  trained  to  the 
occupation  of  mariners,  either  such  as  are  called  able-bodied,  or  at 
least  ordinary  seamen,  in  opposition  to  landmen,  and  could  never  in- 
clude boys,  or  the  steward,  cook,  and  surgeon,  of  a  ship.  That,  at  any 
rate,  none  but  those  who  had  signed  the  articles  were  to  be  considered 
as  seamen,  and  then  the  number  warranted  was  not  compleat.  That, 
in  the  late  case  of  Pawson  against  Ewer  [Pawson  v.  Watson,  2  Cowp. 
785,  ante,  p.  318],  it  had  been  determined,  that  the  strict  words  of  a 
representation  need  not  be  fulfilled,  provided  the  departure  from  them 
is  not  materially  to  the  prejudice  of  the  insurers,  but  that,  in  the  case 
of  a  warranty,  it  is  otherwise,  that  being  a  condition,  and  taken  as  part 
of  the  policy ;  and  that  the  circumstance  of  the  stipulation,  in  this  in- 
stance, being  written  on  the  margin,  made  no  sort  of  difference.  He 
said  the  nature  of  the  voyage,  which  was  of  a  very  dangerous  sort, 
explained  the  condition,  and  that  real  seamen  must  have  been  meant. 
He  also  argued  (though  but  slightly)  that,  whatever  might  be  the  con- 
struction of  the  policy,  the  plaintiff  was  not  entitled  to  recover  as  for 
a  total  loss,  because  the  ship  had  been  retaken,  and  had  never  been 
infra  praesidia  hostium.    Witnesses  were  examined  to  explain  what  is 


Sec.  1)  MARINE    INSURANCE  377 

generally  understood  by  the  word  seamen,  and  it  was  either  in  proof, 
or  admitted,  that,  at  the  custom-house  and  Greenwich  hospital,  boys 
are  included  in  that  word. 

Lord  MaxsfiKld  observed,  in  summing  up  to  the  jury,  that  the  im- 
port of  words  must  be  collected  from  the  subject,  to  which  they  are 
applied.  That  if,  in  the  present  case,  the  insured  had  stipulated  for 
thirty  seamen,  besides  boys  and  landmen,  then  it  would  have  been  clear 
that  the  terms  had  not  been  complied  with ;  but  that,  in  this  policy, 
seamen  were  contrasted  with  passengers,  and,  in  that  sense,  the  word 
seemed  to  include  boys  as  well  as  men :  but  he  left  the  construction  to 
the  jury. 

The  jury  having  found  a  verdict  for  the  plaintiff  as  for  a  total  loss, 
the  defendant,  in  this  term,  obtained  a  rule  to  shew  cause  why  there 
shopld  not  be  a  new  trial. 

On  the  day  for  shewing  cause,  LyOrd  Mans]?ie;IvD,  after  reporting 
the  facts  as  above  related,  and  that  he  had  left  the  construction  of  the 
word  "seamen"  to  the  jury,  observed  that  he  himself  had  thought  there 
was  little  doubt  on  the  question,  after  what  had  passed  in  the  cause  of 
Pawson  v.  Ewer.  That  the  warranty  might  have  been  so  worded  as 
only  to  include  able  seamen  (as  if  seamen  had  been  opposed  to  land- 
men) ;  but  that,  as  expressed  here,  the  contract  being  with  passen- 
gers, the  whole  of  the  crew  or  ship's  company  appeared  to  be  meant. 
That  this  was  the  general  maritime  sense  of  the  word. 

Bearcroft,  and  Lee,  argued  in  support  of  the  rule  for  a  new  trial. 
They  observed,  that,  although  the  Solicitor  General,  who  had  conducted 
the  cause  for  the  plaintiff,  had  not  opened  the  stipulation  in  the  policy 
expressly  either  as  a  warranty,  or  as  a  representation,  but  had  insisted 
that  it  had  been  complied  with,  his  lordship  had  assumed  it  to  be  a 
warranty;  as  they  said  it  certainly  was.  That,  being  a  warranty,  the 
case  of  Pawson  v.  Ewer  did  not  apply.  That  the  sense  of  the  word 
"seamen"  is  well  understood,  and  the  distinction  between  seamen  and 
landmen  or  boys,  as  fully  established  as  that  between  clergymen  and 
laymen.  That  a  seamen  is  only  such  a  person  as  is  liable  to  be  pressed. 
As  to  the  question,  whether  it  was  a  total  or  an  average  loss,  they  cited 
the  case  of  Hamilton  v.  Mendez,  B.  R.  T.,  1  G.  Ill,  2  Burr.  1198.  and 
contended,  that  the  jury  had  never  taken  that  point  into  their  consid- 
eration". 

Lord  Mansfield.  The  whole  argument  for  the  defendant  turns 
upon  begging  the  question.  There  is  no  doubt,  but  that  this  is  a  war- 
ranty. Its  being  written  on  the  margin  makes  no  difference.  De  Hahn 
v.  Hartley,  1  T.  R.  343.  Being  a  warranty,  there  is  no  doubt  but  that 
the  underwriters  would  not  be  liable,  if  it  were  not  complied  with,  be- 
cause it  is  a  condition  on  which  the  contract  is  founded.  But  the  ques- 
tion is,  whether,  in  this  warranty,  the  word  "seamen"  was  used  in 
the  strict  literal  sense  or  not.  If  it  was,  the  warranty  has  not  been 
complied  with.  It  is  a  matter  of  construction.  Boys  are  reckoned 
seamen,  not  only  at  the  custom-house,  and  Greenwich  hospital,  but  in 


378  WARRANTIES  (Cll.  6 

the  distribution  of  prizes.  I  think  the  parties  were  not  sanguine  at 
the  trial.  The  special  jury,  and  the  bye-standers,  were  perfectly  clear. 
They  hardly  seemed  to  think  it  a  serious  question  in  this  cause.  There 
is  scarcely  now  such  a  thing  as  a  ship  entirely  manned  with  seamen 
strictly  so  called.  Even  on  board  the  King's  ships,  they  are  satisfied 
with  a  few  strict  seamen,  and  able-bodied  landmen  make  up  the  rest 
of  the  crew.  I  had  no  doubt  of  the  sense  of  the  word  in  this  policy, 
and  the  jury  decided  it.  With  regard  to  the  other  question,  it  was 
stated  as  a  forlorn  hope ;  but  certainly,  when  the  action  was  brought, 
there  was  no  prospect  of  a  recapture  of  the  ship ;  she  was  considered  as 
totally  lost  in  a  remote  part  of  the  world.  The  report  which  after- 
wards prevailed  of  her  being  retaken,  some  months  after  the  capture, 
was  loose  and  general ;  no  circumstances  known,  no  account  of  her 
situation,  nor  of  what  part  of  the  cargo  might  be  saved.  In  short 
there  is  no  doubt,  but  that  it  was  a  case  where  the  owner  might  aban- 
don. 

The  rule  discharged. 


VEZIAN  V.  GRANT. 

(Nisi  Prius,  1779.    Park,  Ins.  [3d  Ed.]  326.) 

On  the  8th  of  December,  1777,  a  policy  was  underwritten  by  the 
defendant  on  goods  in  a  French  ship,  Le  Comte  de  Trebon,  "at  and 
from  Martinico  to  Havre  de  Grace,  with  liberty  to  touch  at  Guada- 
loupe ;  warranted  to  sail  after  the  12th  of  January,  and  on  or  before 
the  first  of  August,  1778."  The  insurance  was  made  by  the  plain- 
tiff on  account  of  Jacques  Horteloupe  and  Louis  Delamare,  of  Havre 
de  Grace,  owners  of  the  ship  and  cargo ;  at  which  time  it  was  not 
known  whether  she  would  load  at  Martinico  or  Guadaloupe,  they 
having  goods  to  come  from  both  places ;  the  policy  was  therefore 
intended  to  cover  the  risk  from  both,  or  either  of  them.  The  ship, 
having  finished  her  outward  voyage  at  Martinico,  sailed  from  thence 
on  the  6th  of  November,  1777,  for  Guadaloupe,  where  she  took  in  her 
whole  loading,  without  returning  to  Martinico,  which  the  captain  in- 
tended to  do,  had  he  not  got  a  complete  cargo  at  Guadaloupe;  from, 
whence  she  sailed  on  the  26th  of  June,  1778,  and  was  taken  on  the 
3d  of  September.  The  plaintifif  demanded  payment  of  the  loss  from 
the  underwriters,  which  being  refused,  he  brought  actions  against 
them  for  the  recovery  thereof.  This  cause  came  on  to  be  tried  at 
Guildhall,  before  Mr.  Justice  Buller,  when  the  defendant's  objections 
were,  that,  according  to  the  words  of  the  policy,  the  voyage  was  to 
commence  from  Martinico,  and  not  from  Guadaloupe;  and  that  the 
warranty  of  the  time  of  sailing  was  not  complied  with,  the  ship  hav- 
ing sailed  from  Martinico  before  the  12th  of  January  1778,  to  wit, 


Sec.  1)  MARINE    INSURANCE  379 

on  the  6th  of  Novemher  1777.  The  jury,  under  the  direction  of  the 
learned  judge,  were  of  that  opinion,  and  accordingly  found  a  verdict 
for  the  defendant.* 


KENYON  V.  BERTHON. 

(Nisi  Trius,  1779.     Parle,  Ins.  [3d  Ed.]  .'^22.) 

In  an  action  on  a  poHcy  of  insurance,  it  appeared  that  the  follow- 
ing words  were  written  transversely  on  the  margin  of  the  policy : 
"In  port  20th  July,  1776."  In  fact,  the  ship  had  sailed  the  18th  of 
July.  The  question  was,  whether  this  marginal  note  was  a  warranty 
or  a  representation. 

Lord  MansfiKld.  The  question  is,  whether  the  ship's  being  in 
port  on  the  20th  is  part  of  the  condition  of  the  instrument.  When 
it  is  on  the  face  of  the  instrument,  it  is  a  part  of  the  policy ;  so  that 
here,  if  the  ship  was  not  in  port,  it  is  no  contract.  As  to  its  being  only 
in  the  margin,  that  makes  no  difference ;  it  is  all  part  of  the  contract 
when  it  is  once  signed.  And  though  the  difference  of  two  days  may 
not  make  any  material  difference  in  the  risk,  yet  as  the  condition  has 
not  been  complied  with,  the  underwriter  is  not  liable.^ 

*  Warranties  of  time  of  sailing  have  always  been  strictly  enforced.  Breach 
of  such  a  warranty  is  not  excused  by  impossibility  of  performance,  as  where 
time  of  sailing  was  delayed  because  of  an  embargo.  Hore  v.  Whitmore,  2 
Cowp.  784  (1778).  See,  also,  as  to  construction  of  warranties  of  sailing  time, 
Ciiiikshanlv  v.  Janson.  2  Taunt.  310  (1810)  ;  Bond  v.  Nutt,  2  Cowp.  610 
(1777)  :  Thellusson  v.  Fergusson,  1  Doug.  361    (1780). 

In  the  West  India  trade  the  "summer  rislvs,"  from  January  12  to  August  1, 
are  esteemed  by  underwriters  much  less  perilous  than  the  "winter  I'islis" 
falling  in  the  remainder  of  the  year.     See  Amould,  Mar.  Ins.  §  641. 

5  "At  the  sittings  at  Guildhall  after  M.  19  Geo.  Ill,  in  a  cause  of  Kenyou 
and  Another  v.  Berthon,  Doug.  12,  note  (1778),  the  following  words  were 
Avritten  transversely  on  the  margin  of  the  policy :  'In  port  20th  of  July,  1776.' 
The  ship  was  proved  to  have  sailed  the  18th  of  July,  and  Lord  Manstield  held 
that  this  was  clearly  a  waiTanty ;  and  though  the  difference  of  two  days 
miglit  not  make  any  material  difference  in  the  risk,  yet  as  the  condition  had 
not  been  complied  with,  the  underwriter  was  not  liable.  But  (1)  though  a 
written  paper  be  wrapt  up  in  the  policy,  wlien  it  is  brought  to  the  under- 
writers to  subscribe,  and  shewn  to  them  at  that  time;  or  (2)  even  though 
it  be  watered  to  the  policy  at  the  time  of  subscribing,  still  it  is  not,  in  either 
case,  a  warranty,  or  to  l)e  considered  as  part  of  the  policy  itself,  but  only 
as  a  representation.  The  first  of  those  points  occurred  in  a  cause  of  Paw.sou 
V.  Barnevelt,  Thursday,  July  25,  1779,  tried  before  Lord  Mansfield  at  Guild- 
hall at  the  sittings  in  Trinity  Term,  18  Geo.  Ill,  where  the  policy  was  the 
same  as  in  the  case  of  Pawson  v.  Ewer  [Cowp.  785'  (1778)].  The  counsel  for 
the  defendant  offered  to  produce  witnesses  to  prove,  that  a  written  memoran- 
dum inclosed,  was  always  considered  as  part  of  the  policy.  But  his  lordship 
said,  it  was  a  mere  question  of  law,  and  would  not  hear  the  evidence;  but 
decided,  that  a  written  paper  did  not  become  a  strict  warranty  by  being  fold- 
ed up  in  the  policy.  The  second  occurred  in  Bize  v.  Fletcher  [Doug.  284], 
Monday  May  31,  1779,  infra,  M.  20  Geo.  Ill,  p.  284,  tried  at  Guildhall,  after 
E.  19  Geo.  Ill,  where  it  appeared  that,  at  the  time  when  the  insurers  under- 
wrote the  policy,  a  slip  of  paper  was  watered  to  it,  describing  the  state  of 
the  ship  as  to  repairs  and  strength,  and  also  mentioned  several  particulars  of 
her  intended  voyage,  which  particulars,  in  the  event,  had  not  been  complied 
with.     Lord  Manstield  ruled,  that  this  was  only  a  representation ;  and,  if  the 


380  WARRANTIES  (Ch.  & 

HIBBERT  V.  riGOU. 

(Court  of  King's  Bench,  1785.     I'ark,  Ins.   [3d  Ed.]  339.) 

This  case  came  before  the  court  upon  a  rule  to  shew  cause  why  the 
verdict,  which  the  defendant  had  obtained,  should  not  be  set  aside, 
and  a  new  trial  had.  It  was  an  action  upon  a  policy  of  insurance  on 
the  ship  Arundel,  Captain  Mann,  at  and  from  Jamaica  to  London, 
warranted  to  depart  with  convoy.  The  insurance  was  at  18  guineas 
per  cent,  to  return  3  per  cent,  if  the  ship  sailed  on  or  before  the  first 
of  August.  The  facts  appearing  on  the  report  of  Lord ,  Mansfield, 
who  tried  the  cause,  are  these :  On  the  25th  of  July  the  Arundel  sailed 
from  Morant  harbour  to  Kingston,  where  she  met  the  Glorieux  man 
of  war.  Captain  Cadogan,  who  was  likewise  on  his  way  to  join  Ad- 
miral Graves  at  Bluefields,  in  order  to  take  the  fleet  of  merchant 
ships,  which  were  to  sail  from  thence  upon  the  first  of  August,  under 
his  command,  and  to  convoy  them  to  Great  Britain.  Captain  Mann, 
upon  their  meeting  in  Kingston  harbour,  asked  for  sailing  orders  from 
Captain  Cadogan,  who  said  he  had  none,  not  having  himself  at  that 
time  joined  the  Admiral :  but  he  was  sure  that  Admiral  Graves  would 
not  sail  from  Bluefields  till  the  Glorieux  joined  him.  However,  if  he 
should  have  sailed,  he.  Captain  Cadogan,  would  give  Captain  Mann 
sailing  orders,  and  take  every  care  of  the  Arundel  in  his  power.  They 
proceeded  together,  and  arrived  at  Bluefields  on  the  28th  of  July; 
but  they  found  that  Admiral  Graves  had  sailed  two  days  before.  The 
Glorieux  and  Arundel  then  sailed  from  Bluefields,  the  former  firing 
guns,   giving  signals,   and   behaving   in  every   respect  like  a   convoy. 

jury  should  think  there  was  no  fraud  intended,  and  that  the  variance  be- 
tween the  intended  voyage  as  described  in  the  slip  of  paper,  and  the  actual 
voyage  as  performed,  did  not  tend  to  increase  the  risk  to  the  underwriters, 
he  directed  them  to  find  for  the  plaintiff,  who  accordingly  had  a  verdict." 
Pawson  V.  Barnevelt,  1  Doug.  12,  note  4    (1779). 

In  Routledge  v.  Burrell,  1  H.  Bl.  254  (1789),  and  in  Worsley  v.  Wood,  6  T. 
R.  710  (1796),  it  was  held  that  the  terms  of  printed  proposals  referred  to  in 
policies  under  seal  became  conditions  or  warranties  of  such  policies.  The 
doctrine  of  Worsley  v.  Wood  was  re-examined  and  fully  approved  in  London 
Guarantee  Co.  v.  Fearnley,  I/.  R.  5  App.  Cas.  911   (1S80). 

In  many  states  statutes  now  require  that  any  writing  made  a  part  of  the 
contract  shall  be  actually  attached  to  the  policy.  For  example,  see  Ritter  v. 
Mutual  Life  Ins.  Co.,  169  U.  S.  lo'J,  18  Sup.  Ct.  300,  42  L.  Ed.  693   (1898). 

"RiDEKS."— In  Goddard  v.  East  Texas  Fire  Ins.  Co.,  67  Tex.  69,  1  S.  W. 
906,  60  Am.  Rep.  1  (1886),  it  was  held,  following  Bize  v.  Fletcher,  supra,  that 
certain  conditions  printed  upon  a  slip,  or  "rider,"  which  was  attached  to  the 
policy  at  its  margin  by  mucilage,  did  not  form  any  part  of  the  contract ;  nei- 
ther the  policy  nor  the  annexed  slip  making  any  reference  to  the  other.  It 
was  also  noted  that  the  words  of  the  slip  did  not  form  such  a  manifest  con- 
nection with  those  in  the  policy  at  the  point  where  it  was  affixed  as  to  show 
a  clear  intention  to  make  them  a  part  of  the  contract.  But  when  the  words 
printed  on  a  "rider"  come  in  proper  sequence,  and  refer  specitically  to  the 
policy  to  which  it  is  attached,  they  are  held  to  be  properly  a  part  of  the  con- 
tract. Mascott  V.  Insurance  Co.,  68  Vt.  253,  35  Atl.  75  (1896)  ;  Jackson  v. 
Assurance  Co..  106  Mich.  47,  63  N.  W.  899,  30  L.  R,  A.  636  (1895)  ;  Guuther 
V.  Insurance  Co.    (C.  C)  34  Fed.  501    (1888). 


Sec.  1)  MAIUNE    INSrilANflC  381 

Upon  the  5th  of  August  a  signal  was  made,  that  the  fleet  was  in  sight; 
•and  on  the  7th  they  joined  the  fleet  off  Cape  Anthonio.  The  Arundel 
was  afterwards  lost  in  September,  in  a  dreadful  storm,  which  dis- 
persed the  whole  fleet,  and  in  which  a  vast  number  of  the  ships  per- 
ished. Upon  this  evidence,  the  jury  were  of  opinion,  under  the  direc- 
tion of  the  Chief  Justice,  that  the  terms  of  the  warranty  had  not  been 
performed,  and  they  therefore  found  a  verdict  for  the  underwriters, 
the  defendants.  After  this  question  had  been  fully  argued  at  the  bar, 
the  three  judges,  Mr.  Justice  Ashhurst  being,  at  that  time,  one  of  the 
Lords  Commissioners  of  the  Great  Seal,  delivered  their  opinions  sev- 
erally. 

Lord  Mansfield.  Though  the  underwriters  and  insured  are  equal- 
ly innocent ;  yet  I  cannot  help  saying,  that  now,  as  well  as  at  the 
trial,  my  inclination  led  me  to  wish,  that  the  plaintiffs  were  in  the 
right.  But  the  more  it  is  argued,  it  is  the  less  liable  to  dispute.  There 
are  hypothetical  contracts  and  conditional  contracts.  In  the  former, 
the  contract  depends  upon  an  event  taking  place ;  there  is  no  latitude ; 
no  equity ;  the  only  question  is,  has  that  event  happened.  But  condi- 
tional contracts  admit  of  a  more  liberal  construction.  Now  the  only 
question  upon  this  contract  is,  whether  this  ship  has  departed  with 
convoy.  A  great  deal  must  be  referred  to  the  usage  of  merchants. 
The  government  appoints  a  convoy  for  the  trade,  and  also  names  a 
place  of  rendezvous.  Then  comes  the  reference  to  the  usage  of  mer- 
chants; the  voyage  is  begun  at  Kingston;  but  the  risk  only  com- 
mences at  Bluefields.  Now  though  Lord  Rodney  desires  the  captain 
•of  the  Glorieux  to  take  any  ships  he  may  pick  up  in  his  way,  and  con- 
voy them  to  Bluefields ;  yet  the  warranty  in  the  policy  by  the  usage, 
does  not  require  convoy  to  Bluefields.  The  second  reference  to  the 
usage  of  merchants  is,  what  is  esteemed  a  convoy  by  merchants?  A 
convoy  is  a  naval  force,  under  the  command  of  that  person,  whom 
government  has  appointed.  They  trust  to  the  knowledge  of  govern- 
ment, which  must  be  supposed  to  be  better  acquainted  with  the  plans 
and  force  of  the  enemy,  and  with  the  strength  necessary  to  repel 
their  attempts.  Now  this  is  the  general  usage,  to  which  matters  of 
this  kind  are  referred.    Then  let  us  see  what  the  case  is  here. 

Lord  Rodney  appoints  Admiral  Graves  to  go  with  ten  sail  of  the 
line  to  Bluefields ;  and  from  thence  to  convoy  the  Jamaica  trade  to 
Great  Britain.  When  they  come  to  the  place  of  rendezvous,  they  take 
sailing  orders  from  the  Admiral,  which  are  essential  to  convoy,  as  by 
them  they  know  the  signals,  for  what  places  they  are  to  steer,  in 
case  of  dispersion  by  storm,  or  any  other  just  cause.  Admiral  Graves, 
on  the  26th  of  July,  for  reasons  best  known  to  himself,  thinks  he  has 
got  all  the  ships,  for  which  he  ought  to  stay,  and  proceeds  on  his  voy- 
age. He  leaves  no  order  for  the  Glorieux  to  follow  him  to  Cape  An- 
thonio ;  and  though  it  is  very  true,  that  it  is  in  the  power  of  the  Com- 
mander in  Chief  to  change  the  place  of  rendezvous,  yet  in  this  case 
it  is  not  true,  as  was  supposed  in  argument,  that  Cape  Anthonio  was 


382  WARRANTIES  (Cll.  6 

appointed.  At  the  time  of  sailing  from  Rliicfields,  the  Olorieux  was 
no  part  of  the  convoy;  for  she  did  not  come  there  until  two  days 
after  the  fleet  was  gone. 

Upon  these  facts  it  did  appear  to  me,  and  to  the  jury  at  the  trial, 
that  the  warranty  was  not  complied  with.  I  continue  of  the  same 
opinion  now ;   and  that  this  rule  should  be  discharged. 

Mr.  Justice  WiivivES.  I  cannot  perfectly  coincide  with  everything 
which  Lord  Mansfield  has  laid  down.  The  form  of  the  contract  is 
in  general  words,  "to  depart  with  convoy,"  without  mentioning  any 
particular  day,  or  pointing  out  any  specific  convoy.  The  terms  of 
the  policy  seem  to  me  to  have  l)een  literally  and  substantially  com- 
plied with ;  for  there  was  no  laches  on  the  part  of  the  Arundel ;  she 
came  with  all  possible  expedition,  and  was  at  Bluefields  two  days  be- 
fore the  time  appointed  for  sailing.  When  Captain  Alann  found  that 
the  fleet  was  gone,  he  did  everything  in  his  power  for  the  security 
of  the  ship ;  for  he  put  himself  under  the  protection  of  the  Glorieux, 
which  Avas  appointed  by  Lord  Rodney  to  make  a  part  of  the  convoy : 
and  it  appears  in  evidence,  that  in  every  respect  Captain  Cadogan  be- 
haved as  a  convoy.  I  have  searched  a  good  deal  for  cases ;  ^  and  I 
can  only  find  one  in  Strange  1250,  upon  the  subject  of  sailing  orders; 
and  I  do  not  think  that  case  goes  so  far  as  to  say,  that  sailing  orders 
are  essential  to  a  convoy.  The  loss  of  the  Arundel  happened  long 
subsequent  to  her  joining  the  fleet ;  and  I  am  therefore  of  opinion, 
that  the  warranty  in  this  policy  has  been  substantially  performed. 

[The  opinion  of  BuIvLe^r,  J.,  concurring  with  the  ChiKF  Justice;,  is 
omitted.] 

Rule  discharsfed.'^ 


HYDE  V.   BRUCE. 
(Court  of  King's  Bench,  17SB.     Marshall,  Ins.  249.) 

There  was  a  warranty  that  a  ship  should  have  20  guns,  and  it 
appeared  that  she  had  in  truth  22  guns,  but  only  25  men,  which  num- 
ber is  far  short  of  the  necessary  complement  for  20  guns ;  in  an  action 
on  the  policy  it  was  objected  that  this  warranty  implied  a  competent 
number  of  men  to  work  twenty  guns,  in  case  the  ship  should  be  at- 
tacked. But  it  was  determined  that  the  warranty  did  not  include  any- 
thing not  necessarily  implied  in  it. 

Lord  Mansfield  said:     If  a  warranty  be  meant  to  mislead,  it  is 

6  In  a  note  attached  to  the  report  of  the  principal  case,  Parlv  cites  the  case 
of  Veedon  v.  Wilmot,  decided  in  1744,  in  the  time  of  Lord  Chief  Justice  Lee, 
in  which,  under  facts  strikingly  similar,  it  was  held  that  there  was  no  breach 
of  warranty  of  departing  with  convoy,  and  plaintiff  had  judgment. 

7  In  another  action  on  the  same  policy  against  another  of  the  underwriters, 
it  was  proved  clearly  that  the  Glorieux  was  in  fact  a  part  of  the  convoy. 
Thereupon  plaintiffs  secured  a  verdict.     See  Park,  Ins.   (3d  Ed.)  342,  note  u. 


Sec.  1)  MARINE    INSURANCE  383 

a  fraud,  as  much  as  a  false  representation.  In  this  case  there  is  no 
ground  to  impute  fraud,  and  therefore  the  plaintiff  is  entitled  to  re- 
cover. * 


DE  HAHN  V.  HARTLEY. 

(Court  of  King's  Bench,  1786.    1  Term    R.  343.) 

This  was  an  action  upon  promises  brought  by  the  plaintiff  (an  un- 
derwriter), to  recover  back  the  amount  of  a  loss  which  he  had  paid 
upon  a  policy  of  insurance. 

Plea  the  general  issue. 

The  cause  was  tried  before  Buller,  J-,  at  the  sittings  after  last 
Easter  term  at  Guildhall,  when  the  jury  found  a  special  verdict,  which 
stated, 

That  the  defendant  on  the  14th  June,  1779,  at  London,  gave  to 
one  Alexander  Anderson,  then  being  an  insurance  broker,  certain 
instructions  in  writing  to  cause  an  insurance  to  be  made  on  a  certain 
ship  or  vessel  called  the  Juno,  which  were  in  the  words  and  figures 
following:  "Please  get  £2000.  insured  on  goods  as  interest  may  ap- 
pear ;  slaves  valued  at  £30.  per  head ;  comwood  £40.  per  ton ;  ivory 
£20.  per  hundred  weight;  gum  copal  £5.  per  pound;  at  and  from 
Africa  to  her  discharging  port  or  ports  in  the  British  West  Indies ; 
warranted  copper-sheathed,  and  sailed  from  Liverpool  with  14  six 
pounders,  (exclusive  of  swivels,  etc.)  50  hands  or  upwards,  at  12,  not 
exceeding  15,  guineas.  Juno — Beaver.  S.  Hartley  and  Company, 
June  14th,  1779."' 

That  the  said  Alexander  Anderson,  in  consequence  of  the  said 
written  instructions  from  the  said  defendant  on  the  said  14th  June, 
1779,  at  London  aforesaid,  etc.,  did  cause  a  certain  writing  or  policy 
of  assurance  to  be  made  on  the  said  ship  or  vessel  called  the  Juno 
in  the  words  and  figures  following:  (reciting  the  policy,)  which  was 
upon  any  kind  of  goods  and  merchandizes,  and  also  upon  the  body, 
tackle,  apparel,  etc.,  of  and  in  the  ship  Juno,  at  and  from  Africa  to 
her  port  or  ports  of  discharge  in  the  British  West  Indies,  at  and  after 
the  rate  of  £15.  per  cent. 

The  verdict,  after  reciting  two  memoranda,  which  are  not  material, 
then  proceeded  to  state  that  in  the  margin  of  the  said  policy  were  writ- 
ten the  words  and  figures  following,  "Sailed  from  Liverpool  with  14 
six  pounders,  swivels,  small  arms,  and  50  hands  or  upwards;  copper 
sheathed." 

That  on  the  said  14th  of  June,  1779,  and  not  before,  at  London 
aforesaid,  etc.,  the  plaintiff  underwrote  the  said  policy  for  the  sum 

8  Lord  Mansfield's  opinion  in  tliis  case,  according  to  Douglas,  is  as  follows 
(3  Doug.  213)  :  "A  warranty  makes  a  contingency,  without  which  the  con- 
tract is  void.  But  a  representation,  if  true,  is  not  to  have  the  same  effect  un- 
less there  is  fraud." 


.'{84  WARRANTIES  (Cll.  G 

of  £200.  and  received  a  premium  of  £31.  10s.  Od.  as  the  considera- 
tion thereof. 

That  the  said  ship  or  vessel  called  the  Juno  sailed  from  Liverpool 
aforesaid  on  the  13tli  Octol)cr,  1778,  having  then  only  46  hands  on 
board  her,  and  arrived  at  Heaumaris,  in  the  isle  of  Anglesea,  in  six 
hours  after  her  sailing  from  Liverpool  as  aforesaid  with  the  pilot 
from  Liverpool  on  board  her,  who  did  pilot  her  to  Beaumaris  on  her 
said  voyage ;  and  that  at  l^>eaumaris  aforesaid  the  said  ship  or  vessel 
took  in  six  hands  more,  and  then  had,  and  during  the  said  voyage  until 
the  capture  thereof  hereinafter  mentioned,  continued  to  have  52  hands 
on  board  her. 

That  the  said  ship  or  vessel  in  the  said  voyage  from  Liverpool 
aforesaid  to  Beaumaris  aforesaid,  until  and  when  she  took  in  the 
said  six  additional  hands,  was  equally  safe  as  if  she  had  had  50  hands 
on  board  her  for  that  part  of  the  said  voyage. 

That  divers  goods,  wares,  and  merchandizes  of  the  said  defendant 
of  great  value  were  laden  and  put  on  board  the  said  ship  or  vessel, 
and  remained  on  board  her  until  and  at  the  time  of  the  capture  thereof 
hereinafter  mentioned.  And  that  on  the  14th  March,  1779,  the  said 
ship  or  vessel  while  she  remained  on  the  coast  of  Africa,  and  before 
her  sailing  for  her  port  of  discharge  in  the  British  West  India  Islands, 
was  upon  the  high  seas,  with  the  said  goods,  wares,  and  merchan- 
dizes on  board  her  as  aforesaid,  met  with  by  certain  enemies  of  our 
lord  the  now  king,  and  captured  by  them,  etc.,  and  thereby  all  the  said 
goods,  wares  and  merchandizes  of  the  said  defendant,  so  laden  on 
board  her  as  aforesaid,  were  wholly  lost  to  him. 

That  when  the  said  plaintiff  received  an  account  of  the  said  loss 
of  the  said  ship  or  vessel,  he  paid  to  the  said  defendant  the  said  sum 
of  £200.  so  insured  by  him  as  aforesaid,  not  having  then  had  any  notice 
that  the  said  ship  or  vessel  had  only  46  hands  on  board  her  when  she 
sailed  from  Liverpool  as  aforesaid.  But  whether  upon  the  whole 
matter,  etc. 

Law,  for  the  plaintiff,  was  stopped  by  the  court. 

Wood,  for  the  defendant, 

Admitted,  that  a  marginal  note  in  a  policy  of  insurance  may  be  a 
warranty;  but  contended,  that  this  was  distinguishable  from  the  case 
of  Bean  v.  Stupart  [Doug.  11,  ante,  p.  376],  and  all  the  other  cases 
on  the  subject.  In  the  cases  decided,  it  has  always  been  a  warranty 
of  a  fact  relating  to  the  voyage  insured :  but  in  the  present  case,  that 
which  is  written  in  the  margin  has  no  relation  whatever  to  the  voyage  ; 
for  it  relates  merely  to  the  force  of  the  ship  at  Liverpool  before  the 
voyage  commenced,  and  is  totally  unconnected  with  the  risk  insured. 
The  insurance  is  "at  and  from  Africa  to  her  port  of  discharge  in  the 
British  West  Indies;"  and  the  warranty  is  from  Liverpool;  which 
is  antecedent  to  the  voyage  insured,  and  is  merely  a  representation 
of  the  state  of  the  ship  when  she  set  out  on  her  voyage  from  Liver- 


Sec.  1)  MARINE    INSURANCE  •  385 

pool.  Then  if  it  be  only  a  representation,  it  is  immaterial  whether 
complied  with  or  not,  because  it  is  found  by  the  verdict  that  the  ship 
was  equally  safe  with  the  number  of  hands  she  had  on  board,  as  if  she 
had  had  the  whole  number  contained  in  the  warranty.  The  warranty 
then  can  only  relate  to  her  being  copper  sheathed :  that  part  indeed 
was  extremely  material,  because  otherwise  the  risk  would  have  been 
considerably  increased ;  and  that  extended  to  the  voyage  insured : 
but  the  other  part  of  the  marginal  note  was  merely  a  representation, 
because  the  manner  of  sailing  from  Liverpool  was  unconnected  with 
the  risk  insured. 

But  even  if  the  court  should  consider  the  whole  as  a  warranty,  it 
has  been  substantially  complied  with. 

Lord  Mansfield,  C.  J.  There  is  a  material  distinction  between 
a  warranty  and  a  representation.  A  representation  may  be  equitably 
and  substantially  answered :  but  a  warranty  must  be  strictly  complied 
with.  Supposing  a  warranty  to  sail  on  the  1st  of  August,  and  the  ship 
did  not  sail  till  the  2d,  the  warranty  would  not  be  complied  with.  A 
warranty  in  a  policy  of  insurance  is  a  condition  or  a  contingency, 
and  unless  that  is  performed,  there  is  no  contract.  ^  It  is  perfectly 
immaterial  for  what  purpose  a  warranty  is  introduced ;  but  being 
inserted,  the  contract  does  not  exist  unless  it  is  literally  complied  with. 
Now  in  the  present  case,  the  condition  was  the  sailing  of  the  ship  with 
a  certain  number  of  men ;  which  not  being  complied  with,  the  policy 
is  void. 

AsHHURST,  J.  The  very  meaning  of  a  warranty  is  to  preclude  all 
questions  whether  it  has  been  substantially  complied  with;  it  must 
be  literally  so. 

BuLLER,  J.  It  is  impossible  to  divide  the  words  written  in  the  mar- 
gin in  the  manner  which  has  been  attempted;    that  that  part  of   it 

9  This  and  similar  statements  attributed  to  Lord  Mansfield  serve  as  tlie 
basis  for  the  contention  that  the  breach  of  an  executory  warranty  avoids  the 
policy  ab  initio,  so  as  to  defeat  any  recovery  for  damage  suffered  prior  to 
such  breach  of  warranty.  Thus,  where  a  vessel  insured  at  and  from  a  given 
port,  warranted  to  deport  with  convoy,  while  in  port  suffered  an  injury  clear- 
ly within  the  terms  of  the  policy,  does  the  fact  that  she  deported  and  made 
her  voyage  safely  without  convoy  constitute  such  an  avoidance  of  the  policy 
as  to  defeat  all  right  to  recover  for  the  damage  in  port?  The  English  text- 
writers  insist  that  such  is  the  necessary  conclusion.  Arnould,  Mar.  Ins.  § 
634;  1  Marshall,  Ins.  (Ed.  ISIO)  348,  349.  But  the  American  authorities  take 
the  view  that  the  policy  is  avoided  only  from  the  time  of  the  breach  of  an 
executory  warranty,  without  prejudice  to  any  rights  that  may  have  previous- 
ly accrued  under  the  policy.  See  Hendricks  v.  Commercial  Ins.  Co.,  S  Johns. 
(N.  Y.)  1  (1811);  Taylor  v.  Lowell,  3  Mass.  .337,  340,  3  Am.  Dec.  141  (1807); 
1  Phillips,  Ins.  §§  764,  771 ;  3  Joyce,  Ins.  §  1952.  The  latter  view  is  adopted  by 
the  California  Civil  Code  (section  2612)  and  by  the  English  Marine  Insur- 
ance Act  of  1906  (6  Edw.  VII,  c.  41),  which  declares,  in  section  33  (3)  :  "A 
warranty,  as  above  defined,  is  a  condition  which  must  be  exactly  complied 
with,  whether  it  be  material  to  the  risk  or  not'.  If  it  be  not  so  complied  with, 
then,  subject  to  any  express  provision  in  the  policy,  the  insurer  is  discharged 
from  liability  as  from  the  date  of  the  bi-each  of  warranty,  but  without  preju- 
dice to  any  liability  incurred  by  him  before  that  date." 
Vance  Ins. — 25 


386  WARRANTIES  (Ch.  6 

which  relates  to  the  copper  sheathing  should  be  a  warranty,  and  not 
the   remaining  part.     But   the  whole   forms  one  entire  contract,  and 
must  be  complied  with  throughout. 
Judgment  for  the  plaintiff.  ^^ 


LA  MESURIER  v.  VAUGHAN. 

(Court   of  King's  Bench,   1805.     6  East,  382.) 

This  was  an  action  upon  a  policy  of  insurance  at  and  from  New 
York  to  Gibraltar  on  goods  "on  board  of  the  good  ship  called  'the 
American  ship  President,'  or  by  whatever  other  name  or  names  the 
same  ship  should  be  called."  The  declaration,  after  stating  the  policy, 
averred  that  the  defendant  became  an  assurer  of  £300.  on  goods  on 
board  of  the  ship  mentioned  in  the  policy;  that  a  large  quantity  of 
goods  was  loaded  and  put  on  board  of  the  said  ship  at  New  York,  to 
be  carried  from  thence  upon  the  said  voyage ;  and  that  in  the  course 
of  the  voyage  the  ship  and  goods  were  lost  by  capture.  It  was  shown 
at  the  trial  that  the  plaintiff's  clerk  was  directed  to  secure  the  insur- 
ance on  the  ship  "The  President,"  and  to  designate  her  as  American. 
By  the  mistake  of  the  broker  procuring  the  insurance,  the  name  of 
the  vessel  was  given  as  "The  American  ship  President."  At  the  trial 
before  Lord  Ellenborough,  C.  J.,  there  was  a  verdict  for  the  plain- 
tiffs. The  question  reserved  for  the  full  bench  was  whether  the 
plaintiffs  ought  to  be  nonsuited,  or  the  verdict  to  stand. 

Lord  Ellenborough,  C.  J.  Certainly  a  true  description  both  of 
the  name  of  the  ship  and  of  the  voyage  intended  should  be  observed 
to  the  extent  which  the  terms  of  the  policy  itself  require.  But  the 
framers  of  this  policy,  contemplating  that  there  might  be  a  mistake 
in  the  name  given  to  the  ship  have  added  these  words,  "or  by  what- 
ever other  name  or  names  the  same  ship  should  be  called :"  they 
have  therefore  provided  for  the  event  which  has  occurred  of  a  mis- 
take in  the  name.  It  is  said,  however,  that  giving  effect  to  those  words 
will  introduce  fraud,  and  will  prejudice  the  underwriters;  but  when- 
ever such  a  case  occurs  we  shall  deal  with  it  accordingly.  The  present 
is  the  case  of  a  plain  mistake  of  the  broker  who  eft'ected  the  policy, 
who  received  intelligible  instruction  to  insure  goods  on  board  an 
American  ship  called  The  President,  but  has  stated  it  all  as  one  name 
of  a  ship  called  "The  American  ship  President,"  instead  of  stating 
it  as  part  name  and  part  description.  Then  it  is  objected,  that  the 
underwriter  has  by  this  mistake  been  deprived  of  the  benefit  of  a  war- 
ranty that  the  ship  was  American :  that  is  true ;  but  is  he  not  to  look 
at  the  instrument  he  subscribes ;  and  if  there  were  no  warranty,  he 
would  have  a  higher  premium.     I  did  not  know  that  there  had  been 

10  This  judgment  was  unanimously  athrmed  in  the  Exchequer  Chamber. 
2  T.  R.  186   (1787). 


Sec.  1)  MARINE    INSURANCE  387 

any  authority  upon  the  subject,  but  my  brother  Lawrence;  has  found 
one,  which  is  a  decision  by  Lord  C.  J.  Lee  on  this  very  point. 

Lawrence,  ].,  read  the  note  of  the  case,  alluded  to : 

"Hall  V.  Mollineaux,  (6  East,  385)  17th  December,  1744,  at  Guild- 
hall, cor.  Lee,  C.  J.  An  insurance  was  made  upon  a  ship  called  'The 
Leopard,  or  by  whatsoever  other  name  or  names  the  same  ship  should 
be  called,'  whereof  was  master  for  that  voyage  A.  B.  or  whosoever 
else  should  be  master.  Upon  the  evidence  of  A.  B.  it  appeared  that 
the  ship  of  which  he  was  master  was  called  The  Leonard,  and  was 
never  called  by  the  name  of  The  Leopard.  And  it  was  insisted  by  the 
defendant's  counsel  that  this  was  not  the  ship  insured,  it  being  of  an- 
other name ;  and  that  the  words,  'by  whatsoever  other  name  or  names 
the  same  ship  should  be  called,'  would  not  help  it ;  because  those  words 
meant  where  a  ship  was  called  by  the  name  in  the  policy  and  likewise 
by  some  other  name ;  and,  not  as  here,  where  it  was  never  called  by 
the  name  in  the  policy.  For  the  plaintiff  it  was  urged,  that  the  words 
are  'by  whatsoever  other  name  the  same  ship  shall  be  called';  and 
therefore  it  was  only  necessary  to  prove  the  identity,  which  was  done 
here  by  Captain  A.  B.,  who  said  that  he  was  the  master  of  The  Leon- 
ard :  and  that  the  name  was  no  more  than  one  description  of  the  ship. 
And  of  this  opinion  was  the  Chief  Justice." 

Even  without  this  authority  I  do  not  see  the  mischief  which  it  is  sup- 
posed may  arise  to  the  underwriter  in  this  case.  If  there  had  been 
another  ship  with  the  same  name  as  that  mentioned  in  the  policy,  on 
board  of  which  the  plaintiffs  had  had  goods,  there  might  arise  that 
inconvenience.  But  if  the  underwriter  cannot  be  prejudiced  by  the 
mistake,  the  same  reason  does  not  apply.-  And  the  very  circumstance 
of  introducing  such  words  as  those  relied  on  into  the  policy  shews  the 
indift'erence  of  the  underwriter  as  to  the  name  of  the  ship.  Then  as 
to  his  being  deprived  of  the  warranty  by  means  of  this  error,  he  must, 
look  to  that  before  he  subscribes  the  policy. 

LE  Blanc,  J.,  declared  himself  of  the  same  opinion,  and  that  he 
was  glad  to  be  fortified  in  it  by  the  authority  of  the  case  referred  to. 
And  added,  that  if  the  decision  would  induce  underwriters  and  brokers 
to  read  policies  before  they  were  subscribed,  and  to  see  whether  what 
was  written  contained  matter  of  warranty  or  description,  it  would  have 
a  good  effect. 

Postea  to  the  plaintiffs. 


LEWIS  v.  THATCHER. 

(Supreme  Judicial  Court  of  Massachusetts,  1819.     15  Mass.  431.) 

Assumpsit  on  a  policy  of  insurance,  "on  property  on  board  the 
Swedish  brig  Sophia,  from  Hayti  to  her  port  of  discharge  in  the  Unit- 
ed States ;"  the  plaintiffs  declaring  for  a  total  loss,  by  capture  and 
condemnation  by  the  British. 


388  WARRANTIES  (Ch.  6 

At  the  trial  of  the  action  before  the  Chief  Justice,  the  jury  found 
specially,  "that  the  brig  Sophia,  mentioned  in  the  policy  declared  on, 
was,  at  the  time  the  policy  was  made,  and  at  the  time  of  the  capture 
alleged,  regularly  documented  as  a  Swedish  vessel ;  but  that  she  was, 
in  point  of  fact,  at  the  said  time,  the  property  of  American  citizens, 
and  was  so  documented  to  avoid  capture  by  the  British ;  that  it  was 
generally  understood  by  underwriters,  and  particularly  by  the  defend- 
ants in  this  case,  that  American  vessels  were  frequently  documented 
as  Swedish,  and  that  such  vessels  were  insured  as  Swedish  vessels ; 
and  it  was  known  to  the  defendants,  when  they  subscribed  the  policy, 
that  the  vessel  mentioned  in  the  declaration  was  so  circumstanced." 
Upon  these  facts,  the  jury  returned  a  verdict  for  the  plaintiff. 

The  Chief  Justice  stated  that  it  was  proved,  at  the  trial,  that  prop- 
erty belonging  to  the  plaintiff  was  on  board  a  brig  Sophia,  owned  and 
documented  as  appears  in  the  verdict;  and  that  the  vessel,  as  well  as 
the  said  property,  was  condemned  in  a  British  court  of  vice-admiralty, 
as  enemies'  property,  or  otherwise  liable  to  capture  and  condemnation. 

The  defendant  contended  that  no  proof  could  be  received,  to  con- 
tradict the  decree  of  condemnation ;  which  being  overruled,  evidence 
was  given,  tending  to  show  that  the  brig  belonged  to  subjects  of  the 
king  of  Sweden,  and  that  she  had  papers  suitable  for  a  vessel  of  that 
nation.  To  this  the  defendant  opposed  testimony  that  the  brig,  in 
fact,  belonged  to  merchants  of  Boston,  citizens  of  the  United  States. 
This  evidence  was  objected  to  by  the  plaintiff,  on  the  ground  that 
parol  evidence  ought  not  to  be  received  to  contradict  the  written  doc- 
umentary title.  This  also  was  overruled ;  and  the  verdict  was  re- 
turned upon  all  the  evidence  offered.  If,  in  the  opinion  of  the  whole 
Court,  the  evidence  was  rightfully  received,  and  the  action  was  well 
maintained  upon  the  facts  found  in  the  verdict,  respecting  the  prop- 
erty in  the  vessel,  and  the  knowledge  of  the  parties,  judgment  was  to 
be  entered  thereon ;  but  if,  for  any  cause,  the  verdict  ought  to  be  set 
aside,  a  new  trial  was  to  be  granted,  or  a  nonsuit  entered,  according 
to  the  direction  of  the  Court. 

Parkkr,  C.  J.,  delivered  the  opinion  of  the  Court.  In  the  case  of 
Higgins  V.  Livermore,  14  Mass.  106,  which  was  a  policy  upon  the 
same  vessel,  it  was  determined  that  the  phrase,  "Swedish  brig  Sophia," 
amounted  to  a  warranty  that  the  vessel  was  in  fact  a  Swede,  or  at 
least  that  she  was  regularly  documented  as  such.  This  qualification 
of  the  opinion  was  unfortunate,  as  it  probably  led  to  the  present  action 
— in  which  an  attempt  is  made  to  recover,  although  it  is  agreed  that 
the  vessel  belonged  to  American  citizens,  and  was  only  colorably  fur- 
nished with  the  documents  tending  to  prove  her  a  Swede. 

We  are  all  of  opinion  that  the  warranty  is  absolute  and  unqualified, 
and  that  parol  evidence  ought  not  to  have  been  admitted,  to  prove 
that  something  less  than  such  warranty  was  intended  by  the  parties 
to  the  contract.  It  would  be  unfit  to  admit  such  evidence,  and  it  is 
certainly  against  law  so  to  do;    for  where  there  is  a  written  contract 


Sec.  1)  MARINE    INSURANCE  389 

that  must  be  abided  by,  and  the  parties  should  conform  their  contract 
to  their  actual  intentions. 

There  have  been  cases  before  us,  where  the  assured  has  stipulated 
that  the  vessel  should  sail  with  neutral  papers,  or  be  documented  as 
a  neutral.  In  such  cases  there  is  no  difficulty,  the  meaning  of  the  par- 
ties being  clearly  understood.  But  to  say,  in  writing,  that  they  will 
warrant  one  thing,  and  then  prove  that  they  meant  to  warrant  some- 
thing less,  would  be  opening  a  door  to  frauds  and  perjuries  which  the 
rules  of  law  have  aimed  to  close. 

If  what  the  plaintiff  contends  for  was  the  true  intent  and  meaning 
of  the  underwriters,  it  may  be  dishonorable  in  them  to  insist  upon  the 
strict  letter  of  the  contract ;  but  if  they  claim  their  bond,  the  law  will 
give  it  them.  And  it  is  for  the  public  good  that  parties  should 
know  that,  when  they  undertake  to  stipulate,  in  writing,  in  contracts 
of  this  nature,  they  must  make  the  contract  speak  their  real  intentions ; 
and  not  solemnly  declare  one  thing  in  writing,  and  then  avoid  the 
effect  of  it  by  verbal  declarations. 

The  cases  mentioned,  in  which  the  usage  of  trade  has  been  held  to 
control  the  description  of  a  voyage  in  the  policy,  are  by  no  means 
analogous.  The  underwriter  and  the  assured  are  both  presumed,  by 
the  law,  to  make  their  contracts  with  reference  to  such  usages ;  and 
they,  in  fact,  make  a  part  of  the  contract.  But  there  cannot  be  a 
usage,  by  which  a  warranty  that  a  vessel  was  neutral  should  be  held 
to  mean  that  she  was  not  neutral,  but  only  pretended  to  be  so. 

Plaintiffs  nonsuit.^^ 


NELSON  v.  SALVADOR. 

(Nisi  Prills,  1829.     Moody  &  M.  309.) 

Assumpsit  on  a  policy  of  insurance  on  sugars  on  board  the  ship 
George  at  and  from  Tobago,  "warranted  to  sail  on  or  before  the  1st 
of  August,  1827;"  the  time  of  sailing  being  afterwards  altered  by 
the  substitution  of  the  10th  of  August  for  the  1st. 

F.  Pollock  for  the  plaintiffs  stated  to  the  jury,  that  the  ship  was 
cleared  outwards  on  the  9th  of  August,  that  the  whole  of  her  cargo 
and  all  her  passengers  were  on  board  on  the  morning  of  the  10th,  and 
that  on  the  afternoon  of  that  day  she  prepared  to  leave  the  port.  She 
was  then  moored  by  two  anchors.  One  of  them  was  weighed,  some 
of  the  sails  set,  and  the  ship  proceeded  about  thirty  fathoms,  by  heav- 

11  The  fact  that  in  the  policy  the  vessel  insured  is  called  by  the  English 
translation  of  her  Spanish  name  is  held  not  to  be  a  warranty  that  she  is  Eng- 
lish. See  Clapham  v.  Cologan,  3  Camp.  382  (1S13).  But  where  the  vessel 
was  described  as  "the  good  American  ship  Rodman,"  it  was  held  that  the 
ship  was  warranted  to  be  American.  Barker  v.  Insurance  Co.,  S  Johns.  (N. 
Y.)  307,  5  Am.  Dec.  339  (1811).  To  the  same  effect  are  Baring  v.  Claggett, 
8  Bos.  &  P.  201  (1802)  ;  Baring  v.  Christie,  5  East,  398  (1804)  ;  Lothian  v. 
Henderson,  3  Bos.  &  P.  499,  516   (1802). 


390  WARRANTIES  (Ch.  6 

ing  in  that  quantity  of  the  cable  of  the  remaining  anchor.  When  they 
were  about  to  heave  that  anchor,  the  captain  observed  a  very  heavy 
swell  setting  into  the  bay,  and  feared  to  take  his  departure  lest  he 
should  be  lost  in  getting  out.  Nothing  more  therefore  was  done  until 
the  morning  of  the  11th,  when  the  ship  actually  left  the  port.  She  was 
lost  on  her  way  home.  The  learned  counsel  said,  that  the  point  aris- 
ing on  these  circumstances  was  quite  a  new  one ;  and  the  question 
was,  Whether  such  a  warranty  meant  more  than  that  the  ship  should 
be  in  condition,  and  ready  to  sail  if  the  weather  permitted?  It  can- 
not be  required  that  she  should  actually  sail,  to  the  imminent  hazard 
of  the  ship  and  crew;  and  the  underwriters  would  have  had  little 
reason  to  be  satisfied,  if  she  had  sailed  to  fulfill  the  warranty,  and  had 
been  lost  in  getting  out  of  the  harbour. 

The  circumstances  opened  were  then  proved. 

Sir  J.  Scarlett,  for  the  defendant.  Does  not  your  lordship  think 
the  case  is  over? 

Lord  Te;nTe;rden,  C.  J.  I  think  so ;  there  is  no  saiHng  here.  The 
warranty  means  that  the  ship  shall  be  on  her  voyage  on  the  given 
day.  If  the  circumstances  proved  amounted  to  a  compliance  with  it, 
the  ship  might  be  detained  by  bad  weather  for  a  fortnight  or  more 
without  unmooring;  and  in  that  case  the  risk  might  be  materially 
altered.    The  plaintiff  must  be  nonsuited. 

His  Lordship  then  turned  to  the  jury,  which  was  special,  and  said 
— "I  hope,  gentlemen,  you  agree  with  me;"  and  several  of  them  im- 
mediately expressed  their  concurrence. 

Nonsuit. 


COGSWELL  v.  CHUBB  et  al. 

(Supreme  Court  of  New  York,  Appellate  Division,  First  Department.     1896. 
1  App.  Div.  93,  86  N.  Y.  Supp.  1076.) 

Patterson,  J,^^  The  defendants  in  this  action  were  underwrit- 
ers on  a  policy  of  marine  insurance  on  the  steam  yacht  Fieseen,  the 
property  of  the  plaintiff.  The  insurance  was  for  the  term  of  one  year, 
beginning  April  10,  1893,  for  $21,000,  at  which  sum  the  vessel  was 
valued,  and  these  defendants  were,  by  the  terms  of  the  policy  to  pay 
the  ^/loo  part  of  any  loss  or  damage  occasioned  by  any  of  the  perils 
insured  against.  On  the  9th  of  September,  1893,  while  in  the  lower 
New  York  bay,  and  under  way,  and  in  tow  of  another  yacht,  she 
came  into  collision  with  a  steamship,  and  was  damaged  to  the  extent 
of  about  $16,000,  and  this  action  was  brought  to  recover  the  ^/loo 
part  thereof.  The  trial  resulted  in  a  direction  to  the  jury  to  find  a 
verdict  for  the  defendants,  from  the  judgment  entered  upon  which, 
and  from  an  order  denying  a  motion  for  a  new  trial,  the  plaintiff  has 
appealed. 

12  Part  of  the  opinion  is  omitted. 


Sec.  1)  MARINE    INSURANCE  391 

A  stipulation  of  the  policy,  written  in  between  printed  portions  there- 
of, is  in  the  following  words:  "Warranted  to  navigate  only  the  inland 
waters  of  the  United  States  and  Canada  and  not  below  the  Thousand 
Islands."  It  appears  in  the  record  that,  on  the  9th  day  of  September, 
1893,  the  Fieseen,  before  the  collision  referred  to,  went  out  upon  the 
high  seas  beyond  the  Sandy  Hook  and  Scotland  lightships,  and  into 
the  open  waters  of  the  Atlantic  Ocean;  and  that  fact  is  set  up  as  a 
breach  of  warranty,  avoiding  the  policy,  and  preventing  a  recovery 
thereon.  There  does  not  appear  to  be  any  doubt,  on  the  evidence, 
that  the  vessel,  on  the  9th  of  September,  had  been  on  the  open  ocean, 
at  least  10  miles  off  from  the  Sandy  Hook  Lighthouse,  to  the  south- 
ward and  eastward,  as  testified  by  Capt.  Wicks,  of  the  Electra,  and 
she  was  south  and  southeast  of  the  Scotland  light.  Capt.  Pressey,  of 
the  Vamoose,  says  the  Fieseen  raced  with  the  boat  commanded  by 
him  that  day,  and  that  the  race  began  about  2  miles  to  the  south  and 
east  of  the  Scotland  light,  and  they  ran  about  18  miles  in  varying 
courses.  The  witness  Bulin  says  the  Fieseen  ran  about  10  miles  east 
from  the  Scotland  lightship.  Air.  Stanwood  swears  she  went  about 
12  miles  east-northeast,  directly,  from  Sandy  Hook. 

The  effect  of  the  whole  evidence  is  that  the  vessel  went  out  of  in- 
land waters.  Such  waters  are  canals,  lakes,  streams,  rivers,  water 
courses,  inlets,  bays,  etc.,  and  arms  of  the  sea  between  projections  of 
land.  That  ordinary  and  accepted  signification  of  the  words  "inland 
waters"  must  be  considered  the  sense  in  which  the  parties  used  them 
in  their  contract  of  insurance,  unless,  by  agreement  or  understanding, 
some  other  was  assigned  to  them ;  and  there  is  nothing  in  the  record 
to  show  that  a  different  or  wider  meaning  was  intended  to  be  given 
them.  Going  to  the  open  ocean,  and  then  returning,  was  a  plain 
breach  of  the  warranty,  the  consequence  of  which  was  to  avoid  the 
policy;  for,  hard  as  the  artificial  rule  may  be,  it  is  too  firmly  settled 
to  be  questioned  that  the  breach  of  an  express  warranty,  whether  ma- 
terial to  the  risk  or  not,  whether  a  loss  happens  through  the  breach 
or  not,  absolutely  determines  the  policy,  and  the  assured  forfeits  his 
rights  under  it.  Chase  v.  Insurance  Co.,  20  N.  Y.  52 ;  Stevens  v. 
Insurance  Co.,  26  N.  Y.  397;  Day  v.  Insurance  Co.,  1  Daly,  13;  West- 
fall  V.  Insurance  Co.,  2  Duer,  490 ;    1  Phil.  Ins.  p.  418,  §  762. 

It  is  claimed,  however,  on  the  part  of  the  appellant,  that  the  words 
"inland  waters,"  as  used  in  the  policy,  are  not  limited  to  their  ordi- 
nary signification,  but  that  a  usage  existed,  respecting  the  waters  fre- 
quented by  yachts  such  as  the  Fieseen,  in  view  of  which  usage  the 
policy  was  written,  and  that  the  warranty  should  be  construed  by  that 
usage,  and  a  broader  meaning  applied  to  the  words — one  that  would 
include  in  the  category  of  inland  waters  the  roadstead  outside  of  Sandy 
Hook,  and  as  far  as  the  yacht  went  out  upon  the  sea  on  the  9th  of 
September.  Evidence  of  usage  to  explain,  or,  rather,  to  give  effect 
to,  the  meaning  of  the  policy,  is  very  commonly  resorted  to  in  cases 
of  this  character;   and,  as  said  by  Mr.  Phillips  (1  Phil.  Ins.  p.  73,  § 


392  WARRANTIES  (Cll.  6 

119),  "the  subject-matter  of  marine  insurance  and  other  mercantile 
contracts  makes  it  necessary  to  go  out  of  the  written  instruments  in 
order  to  interpret  them." 

P)Ut  before  usage  can  be  appealed  to  there  must  be  proof  that  there 
really  is  a  usage, — something  existing  and  in  connection  with  which 
the  underwriter  is  assumed  to  have  taken  the  risk.  All  that  is  in  evi- 
dence on  the  subject  is  that  it  is  customary  for  many  yachts  and  other 
craft,  of  large  and  small  dimensions,  whenever  an  international  yacht 
race  takes  place,  to  accompany  the  competing  boats  over  an  ocean 
course.  This  scarcely  establishes  a  usage  of  the  character  to  qualify 
an  express  warranty.  International  yacht  races  are  of  infrequent  oc- 
currence. That  yachts  covered  by  insurance  go  upon  the  ocean  to 
follow  them  does  not  appear.  This  policy  was  written  April  11,  1893. 
It  is  not  shown  that  an  international  yacht  race  was  in  contempla- 
tion for  the  year  during  which  the  policy  was  to  run.  Attending  the 
yacht  race  at  Newport,  and  the  custom  of  yachts  to  assemble  at  that 
port  in  the  summer  for  the  squadron  races,  do  not  establish  a  usage, 
for  the  same  reasons.  All  of  this  testimony  is  insufficient  to  prove 
that  the  parties  contracted  for  anything  other  than  what  is  expressed 
in  the  plain  and  accepted  meaning  of  the  words  of  the  warranty. ^^ 

The  further  contention  is  made  that,  the  loss  happening  after  the 
policy  attached,  and  the  breach  of  the  warranty  in  no  wise  producing 
or  contributing  to  the  loss,  but  it  being  occasioned  by  independent 
causes,  the  plaintiff  may  recover,  notwithstanding  the  breach.  The 
learned  counsel  for  the  plaintiff  admits  that  the  English  authorities 
are  against  this  view,  as  they  very  decidedly  are.  The  American  cases 
of  breaches  of  implied  warranties  of  seaworthiness,  cited  on  the  argu- 
ment, and  in  the  appellant's  brief,  do  not  establish  a  contrary  rule 
affecting  the  express  warranty  contained  in  this  policy.     *     *     * 

Judgment  affirmed,  with  costs. ^* 


SECTION  2.— FIRE  INSURANCE 


WOOD   v.   HARTFORD   FIRE   INS.   CO. 
(Supreme  Court  of  Errors  of  Connecticut,  1840.    13  Conn.  533,  35  Am.  Dee.  92.) 

Sherman,  J.^^  It  is  not  necessary  to  advert  to  all  the  points  which 
have  been  discussed  in  this  case,  by  the  learned  counsel.  The 
general  rule  in  regard  to  what  constitutes  a  warranty,  in  a  con- 
tract of  insurance,  is  well  settled.    Any  statement  or  description,  or 

13  Compare  with  the  principal  case  Hennessey  v.  Manhattan  Fire  Ins.  Co., 
28  Hun  (N.  Y.)  98  (1882),  Greenleaf  v.  Insurance  Co.,  37  Mo.  25  (1865),  and 
Wilkins  v.  Tobacco  Ins.  Co.,  30  Ohio  St.  317,  27  Am.  Rep.  455  (1876),  in 
which  similar  provisions  were  much  more  liberally  construed. 

14  Affirmed  on  appeal  157  N.  Y.  709,  53  N.  E.  1124  (1899). 
16  The  statement  of  facts  is  omitted. 


Sec.  2)  FIRE    INSURANCE  393 

any  undertaking  on  the  part  of  the  insured,  on  the  face  of  the  policy, 
which  relates  to  the  risk,  is  a  warranty.  Whether  this  is  declared 
to  be  a  warranty  totidem  verbis,  or  is  ascertained  to  be  such,  by 
construction,  is  immaterial.  In  either  case,  it  is  an  express  war- 
ranty, and  a  condition  precedent.  If  a  house  be  insured  against 
fire,  and  is  described  in  the  policy  as  being  "copper  roofed,"  it  is 
as  express  a  warranty,  as  if  the  language  had  been,  "warranted 
to  be  copper  roofed ;"  and  its  truth  is  as  essential  to  the  obligation 
of  the  policy,  in  one  case  as  in  the  other.  In  either  case,  it  must 
be  strictly  observed.  There  may  often  be  much  difficulty  in  as- 
certaining from  the  construction  of  the  policy,  whether  a  fact,  qual- 
ity or  circumstance  specified,  relates  to  the  risk,  or  is  inserted  for 
some  other  purpose — as  to  shew  the  identity  of  the  article  insured, 
etc.  This  must  be  settled,  before  the  rule  can  be  applied.  But 
when  it  is  once  ascertained,  that  it  relates  to  the  risk,  and  was  in- 
serted in  reference  to  that,  it  must  be  strictly  observed  and  kept, 
or  the  insurance  is  void. 

The  word  "warranted"  dispels  all  ambiguity,  and  supersedes  the 
necessity  of  construction.  If  a  house  be  insured  against  fire,  and 
the  language  of  the  policy  is,  "warranted,  during  the  policy,  to 
be  covered  with  thatch,"  the  insurer  will  be  discharged,  if,  during 
the  insurance,  the  house  should  be  covered  with  wood  or  metal, 
although  his  risk  is  diminished ;  for  a  warranty  excludes  all  argu- 
ment in  regard  to  its  reasonableness,  or  the  probable  intent  of  the 
parties.  "It  is  quite  immaterial,"  says  Marshall,  [on  Insurance, 
249,]  "for  what  purpose,  or  with  what  view,  it  is  made  ;  or  whether 
the  assured  had  any  view  at  all  in  making  it: — unless  he  can  shew, 
that  it  has  been  literally  fulfilled,  he  can  derive  no  benefit  from  the 
policy."  And  he  adds,  [page  251,]  that  "it  is  also  immaterial  to 
what  cause  the  non-compliance  is  attributable;  for  if  it  be  not  in 
fact  complied  with,  though  perhaps,  for  the  best  of  reasons,  the 
policy  is  void." 

These  positions  are  in  conformity  with  numerous  and  high  au- 
thorities, and  with  the  reason  of  the  rule.  Parties  may  contract 
as  they  please.  When  a  condition  precedent  is  adopted,  the  court 
cannot  enquire  as  to  its  wisdom  or  folly,  but  must  exact  its  strict 
observance.  An  entry  on  the  margin  of  the  policy,  or  across  the 
lines,  or  on  a  separate  paper,  expressly  referred  to  in  the  policy, 
will  be  construed  a  warranty,  if  it  relates  to  the  risk;  that  is,  if  it 
defines,  or,  in  any  respect,  limits,  the  risk  assumed.  It  may,  in- 
deed, where  the  explicit  language  of  a  warranty  is  not  adopted, 
be  difficult  to  ascertain  whether,  on  a  fair  construction,  the  clause 
was  meant  to  define  or  limit  a  risk;  but  when  this  is  ascertained, 
the  insured  has  no  right  to  dispense  with  it,  or  substitute  in  its 
place  another  risk,  however  advantageous  to  the  insurer.  No  man 
can  be  compelled  to  adopt  a  better  bargain  than  his  own. 

It  is  immaterial  whether  the  non-performance  or  violation  of  the 


394  WARRANTIES  (Ch.  6 

warranty,  be  with,  or  without,  the  consent  or  fault  of  the  insured. 
Its  strict  observance  is  exacted,  by  law ;  and  no  reason  or  neces- 
sity will  dispense  with  it.^" 

The  argument  of  the  defendants  is,  therefore,  conclusive,  if  the 
policy  warrants  this  building  to  be  and  continue  a  paper-mill,  and 
it  was  not  one,  at  the  time  of  the  loss. 

In  the  policy,  this  establishment  is  described  as  "the  one  undi- 
vided half  of  the  paper-mill,  which  they  [the  insured]  own  at  West- 
ville,  together  with  the  half  of  the  machinery,  wheels,  gearing, 
etc.;  the  other  half  being  owned  by  William  Buddington."  If 
this  relates  to  the  risk,  it  is  a  warranty.  That  it  does,  is  evident 
from  the  memorandum  in  the  conditions  of  the  policy,  where  "pa- 
per-mills" are  enumerated  among  those  articles  which  "will  be 
insured  at  special  rates  of  premium :"  that  is,  a  paper-mill  is  the 
subject  of  peculiar  risks,  and  is  to  be  insured  upon  special  stipu- 
lations. Therefore,  the  description  of  this,  in  the  policy,  as  a 
"paper-mill,"  relates  to  the  risk,  and  is,  consequently,  a  warranty. 
It  is  the  only  subject  of  insurance;  and  if  it  was  not  a  paper-mill, 
at  the  time  of  the  loss,  the  warranty  was  not  kept,  and  the  plain- 
tiffs cannot  recover,  although  the  change  may  have  diminished  the 
hazard,  and  been  effected  without  their  knowledge,  or  against  their 
will. 

It  is  contended,  that  the  paper-mill  had  become  converted  into 
a  grist-mill.  *  *  *  [The  court  finds  that  this  contention  is 
not  supported  by  the  evidence.]  The  property  insured  has  not 
been  changed;  the  warranty  has  been  kept;  and  the  obligations 
of  the  defendants  have  not  been  impaired,  by  any  increase  of  haz- 
ard, resulting  from  the  alterations  in  the  mill. 

We  advise  that  judgment  be  entered  for  the  plaintiffs.^^ 

16  "When  Fowler  v.  ^tna  Fire  Ins.  Co.  first  came  before  us,  in  6  Cow. 
(N.  Y.)  673,  16  Am.  Dec.  460  (1827),  we  held  that  the  description,  in  the 
policy  of  the  house  which  contained  the  goods  insured,  as  a  frame  house 
filled  in  with  brick,  amounted  to  a  warranty  that  it  was  a  house  answering 
that  description,  and  that  the  plaintiffs  could  not  recover,  unless  the  proof 
strictly  sustained  the  warranty.  The  well-established  principle  in  marine 
insurance,  that  a  warranty  is  in  the  nature  of  a  condition  precedent,  and 
must  be  fulfilled  or  performed  by  the  insured  before  performance  can  be  en- 
forced against  the  insurer,  we  held  to  be  equally  applicable  to  fire  as  to  ma- 
rine policies ;  we  knew  of  no  case  or  principal  which  would  authorize  a  differ- 
ent rule  of  construction  in  the  one  case  from  that  which  the  same  terms  had ' 
uniformly  received  in  the  other." — Fowler  v.  .SStna  l^re  Ins.  Co.,  7  Wend. 
(N.  Y.)  270   (1S31). 

17  "In  Wood  V.  Hartford  Fire  Ins.  Co.,  13  Conn.  533,  545,  35  Am.  Dec.  92 
(1840),  this  court  seem  to  have  applied  the  strict  technical  rules  of  marine 
insurance  to  fire  policies,  and  they  accordingly  held,  that  language  in  a  policy 
as  follows :  'Upon  the  one  undivided  half  of  the  paper-mill  owned  by  the 
plaintiff  in  Westville  in  New  Haven,'  under  the  circumstances,  made  a  war- 
ranty, and  that  the  mill  must  continue  to  be  a  paper-mill,  neither  more  nor 
less,  or  the  policy  would  immediately  become  void.  This  application  of  the 
rule,  if  the  court  concurred  in  the  views  expressed  by  its  organ,  seems  to 
maintain  the  entire  similarity  between  marine  and  fire  policies.  And  this  is 
undoubtedly  true,  if  it  be  conceded,  that  the  description  and  reference  in  the 


Sec.  2)  FIRE   INSURANCE  395 

O'NIEL  V.  BUFFALO  FIRE  INS.  CO. 

(Court  of  Appeals  of  New  York,  1849.    3  N.  Y.  122.) 

O'Niel  sued  the  Buffalo  Fire  &  Marine  Insurance  Company,  in  the 
Recorder's  Court  of  the  City  of  Buffalo,  on  a  fire  policy,  and  had  a 
verdict  and  judgment.  The  Supreme  Court  affirmed  the  judgment  on 
error  brought,  and  the  defendants  appealed  to  this  court. 

Ruggi.e;s,  J.  The  defendants  insured  the  plaintiff.  John  O'Niel, 
against  loss  or  damage  by  fire,  to  the  amount  of  $2,000,  on  his  two- 
story  frame  building  fronting  on  Ridout  and  Market  streets,  in  the 
town  of  London,  Canada  West,  occupied  by  the  Hon.  George  J.  Good- 
hue, as  a  private  dwelling.  The  insurance  was  for  one  year  from  the 
26th  of  April,  1847,  on  which  day  the  policy  bears  date.  The  house 
was  destroyed  by  fire  on  the  6th  of  December  of  the  same  year.  Good- 
hue, who  occupied  the  house  at  the  date  of  the  policy,  removed  from 
and  ceased  to  occupy  it  about  three  weeks  before  the  fire. 

It  does  not  appear  whether  the  policy  in  question  was  made  out  ac- 
cording to  the  written  application  of  the  plaintiff,  or  upon  a  survey 
made  by  the  agent  of  the  company.  If  on  a  written  application,  a 
falsity  in  the  description  avoids  the  policy,  according  to  the  printed 
conditions  annexed  to  it;  but  by  the  same  conditions  the  company  is 
responsible  for  the  accuracy  of  a  survey  made  by  its  own  agent.  As- 
suming that  there  was  a  written  application  by  the  plaintiff,  describing 
the  house  as  occupied  by  Goodhue,  the  description  in  the  policy  must 
be  regarded  as  a  warranty  of  the  fact  that  he  was  the  occupant  at  the 
date  of  the  policy,  and  nothing  more.  The  description  imports  nothing 
more.  The  defendant  insists  that  the  description  warrants  not  only 
that  he  was  the  occupant  at  the  date  of  the  policy,  but  that  he  was  to 
remain  the  occupant  during  the  continuance  of  the  risk.  But  the  par- 
ties have  not  thought  proper  to  express  themselves  to  that  effect.  A 
warranty  may  be  either  affirmative,  as  where  the  insured  undertakes 
for  the  truth  of  some  positive  allegation;  or  promissory,  as  where  the 
insured  undertakes  to  perform  some  executory  stipulation.  Marsh. 
on  Ins.  347.  Here  was  an  affirmative  stipulation,  that  the  house  was 
then  occupied  by  Goodhue,  but  not  a  promissory  agreement  that  he 
should  continue  to  occupy  it.  If  it  had  been  the  intention  of  the  par- 
ties to  make  it  a  condition  that  he  should  remain  the  occupant  during 
the  term  of  the  insurance,  it  would  have  been  easy  to  say  so,  and  there 

policy,  makes  a  warranty.  But  we  are  not  aware,  that  the  court  meant  to 
hold,  that  in  all  cases,  everything  which  gets  into  a  policy,  as  description  or 
mere  reference,  whether  survey  or  answers,  is  an  exact  warranty,  and  not 
representation.  This  would  be  a  very  broad  principle  of  law,  of  great  im- 
portance, demanding  mature  and  careful  consideration,  before  we  sanction 
it,  and  one  which  we  are  not  called  upon  to  decide,  in  this  case;  because, 
however  the  general  principle  may  be,  here  there  is  no  question  of  the  kind 
for  decision." — Ellsworth,  J.,  in  Glendale  Mfg.  Co.  v.  Protection  Ins.  Co.,  21 
Conn.  19,  35,  54  Am.  Dec.  309  (1851). 


396  WARRANTIES  (Ch.  6 

is  no  good  reason  in  this  case  for  supposing  the  parties  intended  what 
they  have  not  expressed. 

The  defendants,  in  support  of  their  construction  of  the  contract, 
refer  us  to  the  cases  of  marine  poHcies.  In  those  cases,  if  the  vessel 
insured  is  described  as  a  Swedish,  American  or  Spanish  ship,  the  de- 
scription is  in  most  cases  held  to  be  a  warranty,  not  only  that  the  ves- 
sel is  Swedish,  American  or  Spanish,  accordingly,  but  that  her  docu- 
ments and  papers  are  in  conformity  with  her  nationality,  and  that  she 
is  to  remain  and  be  navigated  in  that  character,  as  long  as  the  risk 
continues.  A  marine  policy  is  a  commercial  contract,  and  it  is  con- 
strued according  to  the  import  of  the  words  as  they  are  understood 
among  merchants.  Marsh.  347.  Without  the  proper  documents  and 
papers  the  ship  insured  would  have  no  national  character,  and  the 
possession  of  such  papers  are,  therefore,  a  part  of  what  is  warranted ; 
and  the  continuance  of  that  character  is  manifestly  material  to  the 
risk,  and  indeed  the  main  object  of  the  warranty;  and  for  that  reason 
it  is  held  to  be  implied  for  the  purpose  of  carrying  out  the  clear  inten- 
tion of  the  parties.  If  a  fact  be  in  plain  terms  expressly  warranted, 
its  materiality  to  the  risk  is  of  no  importance ;  it  becomes  a  condition 
precedent,  although  entirely  immaterial.  But  where  a  circumstance  is 
sought  to  be  included  by  implication  in  the  warranty,  it  never  can  be 
supposed  that  the  parties  intended  to  include  it  unless  it  be  manifestly 
material  to  the  risk.  In  the  case  of  a  marine  policy  where  the  vessel 
was  described  as  a  British  brig,  and  the  insurance  was  against  the 
perils  of  the  sea  only,  and  the  risk  to  terminate  on  capture,  it  was  held 
that  the  description  in  the  policy  was  not  a  warranty  that  the  brig  had 
a  British  register  and  other  papers  necessary  to  a  national  character, 
because  it  was  in  that  case  immaterial  to  the  risk  whether  she  had  or 
not.     Mackie  v.  Pleasants,  2  Bin.  (Pa.)  363. 

In  the  case  under  consideration  there  is  nothing  in  the  contract  of 
insurance,  or  in  the  evidence,  to  show  that  the  hazard  on  the  house  was 
greater  when  vacant  than  if  it  had  been  occupied  by  Goodhue.  The 
rate  of  insurance  is  not  usually  made  to  depend  on  such  a  circumstance, 
and  the  continuance  of  Goodhue's  occupation  as  tenant  not  being  em- 
braced within  the  words  of  the  warranty,  and  not  being  manifestly 
material  to  the  risk,  cannot  be  brought  within  it  by  inference  or  im- 
plication. 

The  ground  of  complaint,  so  far  as  relates  to  the  point  under  consid- 
eration, is  that  the  house  was  insured  as  a  private  dwelling,  occupied 
by  Goodhue,  and  not  as  a  vacant  building ;  but  that  it  was  suffered  by 
the  assured  to  become  vacant  without  the  assent  of  the  insurers.  On 
this  point  the  case  of  Catlin  v.  Springfield  Insurance  Company,  1  Sumn. 
435,  Fed.  Cas.  No.  2,522,  was  a  much  stronger  case  in  favor  of  the  in- 
surers, and  yet  the  plaintiff  recovered.  The  insurance  was  "on  a  dwell- 
ing house  in  Vermont,  owned  by  Hayden  &  Hobart  of  Burlington,  and 
at  present  occupied  by  one  Joel  Rogers  as  a  dwelling-house,  but  to  be 
occupied  hereafter  a»  a  tavern  and  privileged  as  such."     The  ground 


Sec.  2)  FIRE    INSURANCE  397 

of  defense  was  that  the  building  was  insured  to  be  occupied ;  that  when 
burnt  it  had  been  a  long  time  vacant,  often  deserted,  derelict,  and  was 
destroyed  by  foul  means ;  and  that  had  the  house  been  occupied  as 
insured,  the  loss  could  not  have  occurred  from  the  cause  which  de- 
stroyed it.  It  was  held  that  the  words  in  the  policy  did  not  constitute 
a  warranty  that  the  house  should,  during  the  continuance  of  the  risk, 
be  constantly  occupied  as  a  tavern,  and  that  the  risk  continued  although 
it  was  vacant.  And  Mr.  Justice  Story,  in  delivering  his  opinion,  said 
that  "the  doctrine  had  never,  to  his  knowledge,  been  asserted,  nor 
should  he  deem  it  maintainable,  that  a  policy  against  fire  on  the  house 
of  A.  in  Boston,  described  as  a  dwelling-house,  would  be  void  if  the 
house  should  cease  for  a  time  to  have  a  tenant."  This  objection,  there- 
fore, to  the  plaintiff's  recovery  must  fail.^^  *  *  * 
Judgment  affirmed.^ ^ 

18  The  remainder  of  the  opinion,  dealing  with  certain  conditions  in  the 
policy,  is  omitted. 

19  See.  in  accord,  Cumberland  Valley  Mut.  Protection  Co.  v.  Douglas,  58 
Pa.  419,  98  Am.  Dec.  298   (1868). 

When  Words  of  Description  Constitute  a  Warranty. — The  general 
rule  to  be  deduced  from  the  cases  is  that  when  the  descriptive  words  define 
or  qualify  the  risk  they  are  to  be  deemed  warranties.  See  Burleigh  v.  In- 
surance Co.,  90  N.  Y.  220  (1SS2),  (building  described  as  "detached  at  least  one 
hundred  feet") ;  Planters'  Ins.  Co.  v.  Myers,  55  Miss.  479,  30  Am.  Rep.  521 
(1874) ;  Alexander  v.  Germania  Ins.  Co.,  66  N.  Y.  464,  23  Am.  Rep.  76  (1876), 
reversing  5  Thomp.  &  C.  (N.  Y.)  208  (1874) ;  Bobbitt  v.  Liverpool  &  L.  &  G. 
Ins.  Co.,  66  N.  C.  70,  8  Am.  Rep.  494  (1872) ;  Keller  v.  Liverpool  .&  L.  &  G. 
Ins.  Co.,  27  Tex.  Civ.  App.  102.  65  S.  W.  695  (1901).  But,  when  such  descrip- 
tive words  are  merely  used  to  designate  or  identify  tlie  subject-matter  of 
the  insurance,  an  erroneous  description  does  not  affect  the  insurance. 
Howard  Fire  &  Marine  Ins.  Co.  v.  Cornick,  24  111.  455  (1860);  Newman 
V.  Springfield  Fire  &  Marine  Ins.  Co.,  17  Minn.  123  (Gil.  98)  (1871) ;  Cumber- 
land Valley  Mut.  Protection  Co.  v.  Schell,  29  Pa.  31  (1857) ;  Everett  v.  Conti- 
nental Ins.  Co..  21  Minn.  76  (1874) :  Vilas  v.  New  York  Central  Ins.  Co.,  9 
Hun  (N.  Y.)  121  (1879) ;  Western  &  Atlantic  Pipe  Lines  v.  Home  Ins.  Co..  145 
Pa.  346,  22  Atl.  665,  27  Am.  St.  Rep.  703  (1891) ;  Massell  v.  Protective  Mut. 
Fire  Ins.  Co.,  19  R.  I.  565,  35  Atl.  209  (1896) ;  Wilkins  v.  Germania  Fire  Ins. 
Co.,  57  Iowa,  529,  10  N.  W.  916  (1881). 

See  cases  collected,  Vance,  Ins.  p.  286,  note  57 ;  Id.  pp.  437,  439 ;  2  Cooiey, 
Briefs  on  Insurance,  p.  1274  et  seq. 

The  same  general  principles  apply  to  the  description  of  the  location  of  per- 
sonal property  insured.  See  Niagara  Fire  Ins.  Co.  v.  Elliott,  85  Va.  962,  9 
S.  E.  694,  17  Am.  St.  Rep.  115  (1889)  ;  Longueville  v.  Assurance  Co.,  51  Iowa, 
553,  2  N.  W.  394,  33  Am.  Rep.  146  (1879)  ;  Kratzenstein  v.  Assurance  Co.,  116 
N.  Y.  54,  22  N.  E.  221,  5  L.  R.  A.  799  (1889)  ;  Shivers  v.  Farmers'  Mut.  Fire 
Ins.  Co.,  99  Miss.  744,  55  South.  965   (1911). 

But,  when  the  property  is  of  such  character  that  its  use  does  not  necessi- 
tate its  removal  from  the  place  described  as  its  location,  the  court  will  infer 
that  the  statement  of  the  location  was  meant  to  be  a  characterization  of  the 
risk.  Lakings  v.  Insurance  Co.,  94  Iowa,  476,  62  N.  W.  783,  28  L.  R.  A.  70 
(1895)  ;  Annapolis  &  E.  R.  Co.  v.  Baltimore  Fire  Ins.  Co.,  32  Md.  37,  3  Am. 
Rep.  112  (1870)  ;  English  v.  Insurance  Co.,  55  Mich.  273,  21  N.  W.  340,  54 
Am.  Rep.  377  (1884).  Thus  where  a  stock  of  goods  is  insured  as  contained  in 
a  certain  building,  it  will  not  be  covered  by  the  policy  when  removed  to  an- 
other place.  English  v.  Insurance  Co.,  55  Mich.  273,  21  N.  W.  340,  54  Am. 
Rep.  377   (1884). 

The  language  of  the  standard  fire  policy,  which  insures  the  goods  described 
"while  located  and  contained  as  described  hereia,   and  not  elsewhere,"   ap- 


398  WARRANTIES  (Ch.  6 

RIPLEY  V.  ^TNA  INS.  CO. 

(Court  of  Appeals  of  New  York,  1864.     30  N.  Y.  lliG,  86  Am.  Dec.  362.) 

Appeal  from  the  general  term  of  the  Supreme  Court,  in  the  first 
district,  where  a  judgment  entered  upon  a  verdict  in  favor  of  the 
plaintiff,  and  an  order  denying  a  motion  for  a  new  trial,  had  been 
affirmed  (29  Barb.  552). 

The  action  was  upon  a  policy  of  insurance  issued  by  the  defend- 
ants whereby  they  insured  the  Glendale  Woolen  Company  against 
loss  or  damage  by  fire  to  their  factory  and  contents  for  a  term  of 
one  year.  The  premises  insured  were  destroyed  by  fire  between 
three  and  four  o'clock  Sunday  morning,  April  8,  1849,  when  no 
watchman  was  in  the  building.  The  survey  attached  to  the  policy 
contained  this  question  and  answer:  "Is  there  a  watchman  in  the 
mill,  during  the  night?"  Answer — "There  is  a  watchman,  nights." 
It  was  proved  that  it  was  not  customary  for  the  assured  to  keep 
a  watchman  on  the  premises  from  12  o'clock  Saturday  night  to  12 
o'clock  Sunday  night,  and  there  was  some  evidence  tending  to  show 
that  defendant's  agents  who  wrote  the  insurance  had  knowledge  of 
this  custom.    Plaintiff  sued  as  assignee  of  the  assured.^" 

MuLiviN,  J.  Much  evidence  was  given  on  the  trial  for  the  purpose 
of  reforming  the  application  for  insurance,  so  that  the  answers 
to  the  questions  in  regard  to  the  keeping  a  watchman  in  the  factory 
should  be  made  to  express  the  understanding  of  both  parties  on 
that  subject.  But,  inasmuch  as  the  learned  justice  who  tried  the 
cause  held  that  the  application  needed  no  reformation ;  that,  by 
its  terms,  the  insured  were  not  bound  to  keep  a  watchman  in  the 
factory  from  twelve  o'clock  on  Saturday  night  until  twelve  o'clock 
on  Sunday  night;  the  case  is  relieved  of  the  questions  raised  on  the 
trial,  as  to  the  competency  of  the  evidence  given  for  the  purpose  of 
procuring  a  reformation  of  the  contract,  and  whether  a  case  was 
made  by  the  evidence  that  would  have  entitled  the  plaintiff  to  that 
relief. 

Before  proceeding  to  ascertain  what  the  construction  of  the  clause 
of  the  application  under  consideration  is,  it  is  important  to  know 
whether  it  is  a  warranty  or  a  representation  merely. 

pears  to  exclude  any  question  of  construction.  British  America  Assur.  Co. 
V.  Miller,  91  Tex.  414,  44  S.  W.  60,  39  L.  R.  A.  545,  66  Am.  St.  Rep.  901 
(1898)  ;  Village  of  L'Anse  v.  Fire  Association  of  Philadelphia,  119  Mich.  427, 
78  N.  W.  465,  43  L.  R.  A.  838,  75  Am.  St.  Rep.  410  (1899).  But  see  De  Graif 
V.  Insurance  Co.,  38  Minn.  501,  38  N.  W.  696,  8  Am.  St.  Rep.  685  (1888),  in 
which  a  five-year  policy  on  live  stock  described  as  in  a  wood  barn  was  held 
to  cover  loss  of  a  horse  killed  by  lightning  in  another  barn  subsequently  built. 

See  Vance,  Ins.  p.  440 ;  2  Cooley,  Briefs  on  Insurance,  1283. 

20  The  statement  of  facts  is  much  abbreviated,  and  the  latter  part  of  the 
opinion,  dealing  with  plaintiff's  claim  of  waiver  of  that  condition  in  the  poli- 
cy requiring  action  upon  the  contract  to  be  brought  within  one  year,  is 
omitted. 


Sec.  2)  FIRE    INSURANCE  399 

The  paper  which  contained  the  questions  and  answers  in  regard 
to  keeping  a  watchman  in  the  factory  is  called,  in  the  policy,  a  sur- 
vey, and  this  survey  is  expressly  referred  to  in  the  policy  and  made 
a  part  of  it. 

Angell,  in  his  work  on  Fire  and  Marine  Insurance,  defines  a 
warranty  as  being  a  stipulation  inserted  in  writing  on  the  face  of 
the  policy,  on  the  literal  truth  or  fulfillment  of  which  the  validity 
of  the  entire  contract  depends.  The  stipulation  is  considered  to 
be  on  the  face  of  the  policy  although  it  may  be  written  on  the 
margin,  transversely,  or  on  a  subjoined  paper  referred  to  in  the 
policy. 

What  is  said  on  the  subject  of  a  watch  in  the  factory  is  con- 
tained in  the  survey,  filled  out  by  the  insured  and  delivered  to  the 
agent  of  the  insurer,  and  the  policy  refers  to  and  makes  this  survey 
a  part  of  itself.  It  is,  therefore,  clearly  within  the  definition  of  a 
warranty  as  laid  down  by  the  learned  author  of  the  treatise  cited, 
as  well  as  that  given  by  our  own  courts  to  that  term.  Jefferson  Ins. 
Co.  V.  Cotheal,  7  Wend.  7Z,  22  Am.  Dec.  567;  Brown  v.  Cattar- 
augus Ins.  Co.,  18  N.  Y.  385;  Chase  v.  Hamilton  Ins.  Co.,  20  N. 
Y.  52. 

If  at  the  time  the  survey  was  made  the  factory  was  not  in  oper- 
ation, and  the  statements  contained  in  it  as  to  the  watch  kept 
therein  is  to  be  considered  promissory  rather  than  an  affirmative 
warranty,  yet  the  rights  and  duties  of  the  parties  are  not  altered. 
If  the  promise  has  not  been  kept — the  condition  precedent  perform- 
ed— the  insurer  is  not  bound  by  the  policy.  Angell,  Ins.  §  145 ;  2 
Duer,  Ins.  749;    1  Arn.  502. 

The  clause  of  the  survey  being  a  warranty,  it  then  becomes  im- 
portant to  ascertain  its  construction,  in  order  to  determine  whether 
it  has  been  broken.  In  construing  contracts  of  insurance,  efifect 
must  be  given  to  the  intention  of  the  parties,  as  in  the  construction 
of  all  other  contracts. 

The  rule  is  very  clearly  stated  by  Lord  Ellenborough,  in  Robert- 
son V.  French,  4  East,  135.  The  same  rule  of  construction  which 
applies  to  all  other  instruments  applies  equally  to  this  instrument 
of  a  policy  of  insurance,  viz. :  that  it  is  to  be  construed  according 
to  its  sense  and  meaning  as  collected,  in  the  first  place,  from  the 
terms  used  in  it,  which  terms  themselves  are  to  be  understood  in 
their  plain,  ordinary  and  popular  sense,  unless  they  have  generally 
in  respect  to  the  subject-matter,  as  by  the  known  usage  of  trade,  or 
the  like,  acquired  a  peculiar  sense  distinct  from  the  popular  sense 
of  the  same  word,  or  unless  the  context  evidently  points  out  that 
they  must,  in  the  particular  instance,  and  in  order  to  effectuate  the 
immediate  intention  of  the  parties  to  that  contract,  be  understood 
in  some  other  special  and  peculiar  sense." 

It  was  of  the  highest  importance  to  the  insurer,  in  order  that 
it  might  be   able  intelligibly  to  decide  whether  it  would   assume 


400  WARRANTIES  (Ch.  6 

the  risk,  or,  if  it  assumed  it,  to  fix  the  premium  to  be  charged,  to 
know  whether  a  watch  was  kept  in  the  factdry  proposed  to  be  in- 
sured, at  wliat  time  such  watch  was  kept,  and  the  means,  if  any, 
of  determining  whether  he  discharged  faithfully  his  duty.  The  ques- 
tion "Is  there  a  watchman  in  the  mill  during  the  night?"  was  a 
very  significant  one,  and  the  answer,  "There  is  a  watchman  nights," 
was  a  full  response  to  the  inquiry.  A  watch  clock  being  construct- 
ed so  as  to  require  the  watchman  to  be  at  it  each  hour,  or  his  ab- 
sence would  be  discovered  in  the  morning,  the  question  whether 
there  was  a  watch  clock  was  also  a  very  significant  one.  Their 
answer  was,  there  was  no  clock,  but  the  bell  was  struck  every 
hour,  from  eight  p.  m.  until  it  rang  for  work  in  the  morning,  fur- 
nished perhaps  the  next  best  means  of  securing  watchfulness  on 
the  part  of  the  watchman. 

The  next  question  to  which  an  answer  was  required  is:  "Is  the 
mill  left  alone  at  any  time  after  the  watchman  goes  ofif  duty  in 
the  morning  till  he  returns  to  his  charge  at  evening?"  To  which 
it  was  answered :  "Only  at  meal  times,  and  on  the  Sabbath  and 
other  days  when  the  mill  does  not  run." 

Fires  in  the  factory  might  be  produced  in  either  of  four  modes : 
From  fire  used  in  the  building,  from  the  friction  of  the  machinery, 
spontaneous  combustion,  and  by  an  incendiary.  There  was  no  dan- 
ger from  fire  used  in  the  building,  when  the  building  was  not  oc- 
cupied, except  for  a  few  hours  after  each  day's  work  closed,  and 
until  it  was  put  out.  Nor  was  there  any  danger  from  friction,  un- 
less the  machinery  was  in  motion ;  nor  from  incendiaries,  unless 
when  there  was  no  person  in  the  mill ;  but  there  was  constant 
danger  from  spontaneous  combustion.  A  watch  in  the  factory 
during  the  night  afforded  a  great  security  against  injury  from  fire 
from  any  cause,  in  the  night;  and  as  the  danger  existed  every  night 
in  the  week,  it  was  important  to  the  insurers  to  know  whether  a 
w^atch  was  on  hand  every  night. 

It  being  important  to  the  insurer  to  know  whether  a  watch  was 
kept  every  night,  and  the  question  put  being  general  whether  a 
watch  was  kept  during  the  night,  the  answer  that  there  is  a  watch 
nights,  must  have  been  understood  to  apply  to  every  night.  No 
exception  being  made  in  the  question,  and  there  being  an  obvious 
necessity  for  a  watch  every  night,  both  parties  must  have  under- 
stood the  question  and  answer  to  apply  to  every  niglit.  If  the  in- 
sured intended  to  exclude  any  night,  they  should  have  done  it  clear- 
ly and  distinctly.  It  was  no  more  difficult  to  say  that  no  watch 
was  kept  from  tAvelve  o'clock  Saturday  night  to  twelve  o'clock  Sun- 
day night,  than  it  was  to  exclude  the  Sabbath  in  the  answer  to 
the  next  question.  And  the  fact  that  an  exception  was  made  in 
the  next  answer,  is  some  evidence  that  none  was  intended  to  be 
made  in  the  first. 


Sec.  2)  FIRE    INSURANCE  401 

It  seems  to  me  quite  clear,  that  the  answer  "there  is  a  watchman 
nights,"  is  to  be  understood  to  mean  there  was  a  watchman  in 
the  factory  every  night.  But  evidence  was  given  on  the  trial,  of 
a  custom  of  factories  in  that  section  of  the  country  not  to  keep  a 
watch  from  twelve  Saturday  night  till  twelve  o'clock  Sunday  night, 
and  that  the  answers  are  to  be  construed  in  reference  to  such  cus- 
tom. "A  custom  in  order  to  become  a  part  of  a  contract,  must  be 
so  far  established,  and  so  far  known  to  the  parties,  that  it  must 
be  supposed  that  their  contract  was  made  in  reference  to  it.  For 
this  purpose  the  custom  must  be  established,  and  not  casual — uni- 
form, and  not  varying — general,  and  not  personal,  and  known  to 
tUe  parties."    2  Pars.  Cont.  53  ;  Dawson  v.  Kittle,  4  Hill,  107. 

Within  the  above  rule  it  seems  there  was  no  such  evidence  as 
would  authorize  the  court  to  find  a  custom  amongst  the  factories 
in  the  vicinity  of  the  one  insured  which  should  be  permitted  to  con- 
trol the  language  of  the  contract  in  question.  The  answers  to  the 
questions  in  the  survey  must  be  interpreted  according  to  the  pop- 
ular meaning  of  the  language  used. 

[The  court  here  determined  that  the  trial  court  was  in  error 
when  it  admitted  parol  evidence,  to  show  that  the  agent  of  the  in- 
surer had  been  told  that  no  watchman  was  kept  on  the  premises 
between  midnight  Saturday  and  midnight  Sunday,  since  such  evi- 
dence would  vary  the  terms  of  the  warranty.] 

The  next  inquiry  in  order  is:  Has  the  warranty  been  broken? 
On  this  subject  there  is  no  dispute.  It  is  conceded  by  the  defend- 
ant that  if  the  answer  to  the  question  as  to  the  watchman  cannot 
be  construed  as  it  was  construed  by  the  learned  judge  at  the  circuit, 
then  it  was  broken  because  it  is  true  that  no  watch  was  kept  from 
twelve  o'clock  on  Saturday  night  until  twelve  o'clock  on  Sunday 
night. 

The  effect  of  the  breach  of  the  warranty  is  to  annul  the  policy 
without  regard  to  the  materiality  of  the  warranty,  or  whether  the 
breach  had  any  thing  to  do  in  producing  the  loss. 

The  effect  is  very  well  stated  by  Marshall,  in  his  work  on  Insur- 
ance, 249.  He  says :  "A  warranty  being  in  the  nature  of  a  con- 
dition precedent,  and  therefore  to  be  performed  by  the  insured  be- 
fore he  can  demand  performance  of  the  contract  on  the  part  of  the 
insurer,  it  is  quite  immaterial  for  what  purpose  or  with  what  view 
it  is  made,  or  whether  the  insured  had  any  view  at  all  in  making  it. 
But  being  once  inserted  in  the  policy,  it  becomes  a  binding  condi- 
tion on  the  insured,  and  unless  he  can  show  it  has  been  literally 
performed,  he  can  derive  no  benefit  from  the  policy.  The  very 
meaning  of  a  warranty  is  to  preclude  all  question  whether  it  has 
been  substantially  complied  with  or  not.  If  it  be  affirmative,  it 
must  be  literally  true;  if  promissory,  it  must  be  strictly  performed. 
*  *  *  With  respect  to  the  compliance  with  warranties,  there  is 
Vance  Ins. — 26 


402  WARRANTIES  (Ch.  6 

no  latitude,  no  equity.  The  only  question  is:  Has  the  thing  war- 
ranted taken  place  or  not.  If  it  has  not,  the  insurer  is  not  answer- 
able for  any  loss,  even  though  it  did  not  happen  in  consequence  of 
the  breach  of  warranty."     *     *     * 

In  no  aspect  of  the  case  am  I  able  to  discover  any  ground  on 
which  this  action  can  be  maintained.  The  judgment  of  the  Gener- 
al Term  must  be  reversed,  and  a  new  trial  ordered,  costs  to  abide 
the  event. 

Judgment  reversed  and  new  trial  ordered.^^ 


NATIONAL  BANK  v.  INSURANCE  CO. 

(Supreme  Court  of  the  United  States,  1877.     95  U,  S.  673,  24  L.  Ed.  563.) 

Error  to  the  Circuit  Court  of  the  United  States  for  the  Western 
District  of  Missouri. 

This  is  an  action  on  a  policy  of  insurance  issued  by  the  Hartford 
Fire  Insurance  Company  to  W.  D.  Oldham,  on  certain  mill  property, 
building,  and  machinery,  and  by  him  transferred  and  assigned  to  the 
First  National  Bank  of  Kansas  City,  Mo.  The  parties,  by  written 
stipulation,  waived  a  jury;  and,  upon  a  special  finding  of  facts,  the 
Circuit  Court  gave  judgment  for  the  company.  The  bank  thereupon 
sued  out  this  writ  of  error. 

It  appears  from  the  special  finding  that  in  the  application  Oldham 
stated  that  the  building  and  machinery  insured  were  each  worth 
$15,000,  whereas  in  fact  the  building  was  worth  only  $8,000  and  the 
machinery  only  $12,000.  But  the  court  found  that  such  overestimates 
were  not  fraudulent  or  intentional. 

The  policy  refers  to  the  application  in  these  words :  "Special  ref- 
erence being  had  to  assured's  application  and  survey,  No.  1462,  on 
file,  which  is  his  warranty,  and  a  part  hereof." 

The  policy  further  recites :  "If  an  application,  survey,  plan,  or  de- 
scription of  the  property  herein  insured  is  referred  to  in  this  policy, 
such  application,  survey,  plan,  or  description  shall  be  considered  a 
part  of  this  policy,  and  a  warranty  by  the  assured ;  and  if  the  assured, 
in  a  written  or  verbal  application,  makes  any  erroneous  representation, 
or  omits  to  make  known  any  fact  material  to  the  risk,  *  *  *  then, 
and  in  any  such  case,  this  policy  shall  be  void.  *  *  *  Any  fraud 
or  attempt  at  fraud,  or  any  false  swearing  on  the  part  of  the  assured, 
shall  cause  a  forfeiture  of  all  claim  under  this  policy." 

Mr.  Justice  Harlan  delivered  the  opinion  of  the  court : 

On  behalf  of  the  company,  it  is  contended  that,  under  any  proper 

21  A  similar  case,  brouglit  on  a  similar  policy  Issued  by  another  company 
upon  the  same  property,  and  involvin,2:  exactly  the  same  questions  of  law 
arising  under  the  same  facts,  was  decided  in  the  same  way  by  the  Supreme 
Court  of  Errors  of  Connecticut.  See  (^lendale  Woolen  Co.  v.  Protection  Ins. 
Co.,  21  Conn.  19,  54  Am.  Dec.  309  (1S50). 


Sec.  2)  FIRE   INSURANCE  403 

construction  of  the  contract,  the  assured  warranted,  absolutely  and 
without  limitation,  the  truth  of  the  several  statements  in  the  applica- 
tion, including  the  statement  as  to  the  value  of  the  property.  If  this 
view  be  sound,  the  judgment  of  the  Circuit  Court  must  be  affirmed; 
otherwise,  it  must  be  reversed. 

Our  conclusion  is  that  the  plaintiff  in  error,  who  is  the  beneficiary 
of  the  policy,  is  entitled  to  a  judgment,  notwithstanding  the  overvalua- 
tion of  the  property  by  the  assured. 

The  entire  application  having  been  made,  by  express  words,  a  part 
of  the  policy,  it  is  entitled  to  the  same  consideration  as  if  it  had  been 
inserted  at  large  in  that  instrument.  The  policy  and  application  to- 
gether, therefore,  constitute  the  written  agreement  of  insurance;  and, 
in  ascertaining  the  intention  of  the  parties,  full  effect  must  be  given 
to  the  conditions,  clauses,  and  stipulations  contained  in  both  instru- 
ments. 

Looking  first  into  the  application,  we  find  no  language  which,  by  fair 
construction,  was  notice  to  the  assured  that,  in  answering  questions, 
he  was  assuming,  or  was  expected  to  assume,  the  strict  obligations 
which  the  law  attaches  to  a  warranty.  There  is  no  intimation  any- 
where in  that  instrument  that  the  exact  truth  of  the  answers  was  a 
condition  precedent,  either  to  the  consideration  of  the  application  or 
to  the  issuing  of  a  policy.  On  the  contrary,  the  application  contains 
the  covenant  of  the  assured  that  he  had  in  that  instrument  made  a 
just,  full,  and  true  exposition  of  all  material  facts  and  circumstances 
in  regard  to  the  condition,  situation,  value,  and  risk  of  the  property, 
so  far  as  known  to  him.  The  taking  of  that  covenant,  at  the  threshold 
of  the  negotiations,  was,  in  effect,  an  assurance  that  a  frank  state- 
ment of  all  such  material  facts  as  were  within  the  knowledge  of  the 
applicant  would  meet  the  requirements  of  the  company.  It  was  a 
covenant  of  good  faith  on  the  part  of  the  assured, — nothing  more ; 
and,  so  far  as  it  related  to  the  value  of  the  property,  was  not  broken, 
unless  the  estimates  by  the  assured  were  intentionally  excessive.  If 
the  case  turned  wholly  upon  the  construction  to  be  given  to  the  appli- 
cation, it  IS  quite  clear  that  the  overvaluation  of  the  property  would 
not  defeat  a  recovery  upon  the  written  agreement,  since  the  assured, 
by  the  special  finding,  is  acquitted  of  any  purpose  to  defraud  the  com- 
pany. That  is  equivalent  to  saying  that  the  assured  did  not  withhold 
any  material  fact  within  his  knowledge  concerning  the  condition,  sit- 
uation, value,  or  risk  of  the  property. 

But  the  difficulty  in  the  case  arises  from  the  peculiar  wording  of 
the  policy,  considering  the  application  as  a  part  thereof.  While  the 
assured  in  one  part  of  the  written  agreement  is  made  to  stipulate  for 
a  warranty,  and  in  another  the  policy  is  declared  to  be  void  if  the 
assured  "makes  any  erroneous  representation,  or  omits  to  make  known 
any  fact  material  to  the  risk,"  in  still  another  part  of  the  same  agree- 
ment— the  application — he  covenants  that,  as  to  all  material  facts 
within  his  knowledge,  respecting  the  condition,  situation,  value,  and 


404  WARRANTIES  (Ch.  6 

risk  of  the  property,  he  has  made  a  full,  just,  and  true  exposition.  If 
the  purpose  of  the  company  was  to  secure  a  warranty  of  the  correct- 
ness of  each  statement  in  the  application,  and  if  the  court  should  adopt 
that  construction  of  the  contract,  there  could  be  no  recovery  on  the 
policy,  if  any  one  of  these  statements  were  proven  to  be  untrue ;  and 
this,  although  such  statement  may  have  been  wholly  immaterial  to 
the  risk,  and  was  made  without  any  intent  to  mislead  or  defraud. 

Such  a  construction,  according  to  established  doctrine,  might  de- 
feat the  recovery,  even  if  the  overvaluation  had  been  so  slight  as  not 
to  have  influenced  the  company  in  accepting  the  risk.  But  if  such  was 
the  purpose  of  the  company,  why  did  it  not  stop  with  the  express 
declaration  of  a  warranty?  Why  did  it  go  further,  and  incorporate 
into  the  policy  a  provision  for  its  annulment  in  the  event  the  assured 
should  make  an  "erroneous  representation,  or  omit  to  make  known 
any  fact  material  to  the  risk"? — language  inconsistent  with  the  law 
of  warranty.  Still  farther,  why  did  the  company  make  the  applica- 
tion a  part  of  the  policy,  and  thereby  import  into  the  contract  the  cov- 
enant of  the  assured  not  that  he  had  stated  every  fact  material  to  the 
risk,  or  that  his  statements  were  literally  true,  but  only  that  he  had 
made  a  just,  true,  and  full  exposition  of  all  material  facts,  so  far  as 
known  to  him. 

It  is  the  duty  of  the  court  to  reconcile  these  clauses  of  the  written 
agreement,  if  it  be  possible  to  do  so  consistently  with  the  intention 
of  the  parties,  to  be  collected  from  the  terms  used. 

It  will  be  observed,  from  an  examination  of  the  questions  pro- 
pounded to  the  assured,  that,  among  other  things,  he  was  asked 
whether  the  building  was  of  stone,  brick,  or  wood ;  how  the  premises 
were  warmed ;  what  materials  were  used  for  lighting  them ;  whether 
a  watchman  was  kept  during  the  night ;  what  amount  of  insurance 
was  already  on  the  property;  whether  it  was  mortgaged,  &c.  These 
and  similar  questions  refer  to  matters  of  which  the  assured  had  actual 
knowledge,  or  about  which  he  might,  with  propriety,  be  required  to 
speak  with  perfect  accuracy.  They  are  matters  capable  of  precise 
ascertainment,  and  in  no  sense  depending  upon  estimate,  opinion,  or 
mere  probability.  But  his  situation  and  duty  were  wholly  different 
when  required  to  state  the  cash  value  of  his  property.  He  was  re- 
quired to  give  its  "estimated  value."  His  answers  concerning  such 
value  were,  in  one  sense,  and,  perhaps,  in  every  just  sense,  only  the 
expression  of  an  opinion. 

The  ordinary  test  of  the  value  of  property  is  the  price  it  will  com- 
mand in  the  market  if  offered  for  sale.  But  that  test  cannot,  in  the 
very  nature  of  the  case,  be  applied  at  the  time  application  is  made 
for  insurance.  Men  may  honestly  differ  about  the  value  of  property, 
or  as  to  what  it  will  bring  in  the  market ;  and  such  differences  are 
often  very  marked  among  those  whose  special  business  it  is  to  buy  and 
sell  property  of  all  kinds.  The  assured  could  do  no  more  than  esti- 
mate such  value;   and  that,  it  seems,  was  all  that  he  was  required  to 


Sec.  2)  FIRE    INSURANCE  405 

do  in  this  case.  His  duty  was  to  deal  fairly  with  the  company  in 
making  such  estimate.  The  special  finding  shows  that  he  discharged 
that  duty  and  observed  good  faith. 

We  shall  not  presume  that  the  company,  after  requiring  the  assured 
in  his  application  to  give  the  "estimated  value,"  and  then  to  covenant 
that  he  had  stated  all  material  facts  in  regard  to  such  value,  so  far  as 
known  to  him,  and  after  carrying  that  covenant,  by  express  words,  into 
the  written  contract,  intended  to  abandon  the  theory  upon  which  it 
sought  the  contract,  and  make  the  absolute  correctness  of  such  esti- 
mated value  a  condition  precedent  to  any  insurance  whatever.  The 
application,  with  its  covenant  and  stipulations,  having  been  made  a 
part  of  the  policy,  that  presumption  cannot  be  indulged  without  im- 
puting to  the  company  a  purpose,  by  studied  intricacy  or  an  ingenious 
framing  of  the  policy,  to  entrap  the  assured  into  incurring  obligations 
which,  perhaps,  he  had  no  thought  of  assuming. 

Two  constructions  of  the  contract  may  be  suggested.  One  is  to 
regard  the  warranty  expressed  in  the  policy  as  limited  or  qualified 
by  the  terms  of  the  application.  In  that  view,  the  assured  would  be 
held  as  only  warranting  that  he  had  stated  all  material  facts  in  regard 
to  the  condition,  situation,  value,  and  risk  of  the  property,  so  far  as 
they  were  known  to  him.  This  is  perhaps,  the  construction  most  con- 
sistent with  the  literal  import  of  the  terms  used  in  the  application  and 
the  policy.  The  other  construction  is  to  regard  the  warranty  as  relat- 
ing only  to  matters  of  which  the  assured  had,  or  should  be  presumed 
to  have  had,  distinct,  definite  knowledge,  and  not  to  such  matters  as 
values,  which  depend  upon  mere  opinion  or  probabilities. 

But,  without  adopting  either  of  these  constructions,  we  rest  the  con- 
clusion already  indicated  upon  the  broad  ground  that  when  a  policy 
of  insurance  contains  contradictory  provisions,  or  has  been  so  framed 
as  to  leave  room  for  construction,  rendering  it  doubtful  whether  the 
parties  intended  the  exact  truth  of  the  applicant's  statements  to  be  a 
condition  precedent  to  any  binding  contract,  the  court  should  lean 
against  that  construction  which  imposes  upon  the  assured  the  obliga- 
tions of  a  warranty.  The  company  cannot  justly  complain  of  such  a 
rule.  Its  attorneys,  officers,  or  agents  prepared  the  policy  for  the  pur- 
pose, we  shall  assume,  both  of  protecting  the  company  against  fraud, 
and  of  securing  the  just  rights  of  the  assured  under  a  valid  contract 
of  insurance.  It  is  its  language  which  the  court  is  invited  to  interpret, 
and  it  is  both  reasonable  and  just  that  its  own  words  should  be  con- 
strued most  strongly  against  itself. 

Wherefore,  as  it  does  not  clearly  appear  that  the  parties  intended 
that  the  validity  of  the  contract  of  insurance  should  depend  upon  the 
absolute  correctness  of  the  estimates  of  value,  and  as  it  does  appear 
that  such  estimates  were  made  by  the  assured  without  any  intention 
to  defraud,  our  opinion  is  that  the  facts  found  do  not  support  the 
judgment. 


406  WARRANTIES  (Ch.  6 

The  judgment  will,  therefore,  be  reversed,  and  the  cause  remanded 
with  directions  to  enter  a  judgment  upon  the  special  finding  for  the 
plaintiff  in  error;   and  it  is  so  ordered. 


VIRGINIA  FIRE  &  MARINE  INS.  CO.  v.   MORGAN. 
(Supreme  Court  of  Appeals  of  Virginia,  1S93.     90  Va.  290,  IS  S.  E.  191.) 

Error  to  judgment  of  circuit  court  of  Tazewell  county,  rendered  at 
the  August  term,  1892,  in  an  action  on  a  policy  of  fire  insurance, 
wherein  Samuel  Morgan  was  plaintiff  and  the  Virginia  Fire  and  Ma- 
rine Insurance  Company  was  defendant.  The  policy  was  for  $1,500 
on  a  stock  of  goods.  The  jury  found  a  verdict  for  the  plaintiff  for 
$1,090.90,  and  there  was  judgment  accordingly,  to  which  judgment 
the  defendant  obtained  a  writ  of  error  and  supersedeas.  Opinion 
states  the  case. 

Lewis,  P.,  delivered  the  opinion  of  the  court: 

This  was  an  action  on  a  policy  of  fire  insurance  issued  by  the  de- 
fendant company  on  the  plaintiff's  stock  of  goods  in  his  storehouse 
at  Cedar  Bluff,  in  Tazewell  county.  The  policy  recites  that  it  is  based 
upon  the  written  application,  signed  by  the  assured,  and  that  "the 
said  application  shall  be  treated  as  a  part  of,  and  be  incorporated  in, 
the  policy,  and  that  the  statements  thereof  shall  be  treated  as  war- 
ranties by  the  assured  that  the  facts  therein  stated  are  true." 

In  the  application  the  assured  was  asked  the  following,  among  other 
questions,  viz.:  "State  what  books  of  account  you  keep;  will  you 
keep  them  in  an  iron  safe  or  secure  in  another  building?"  To  which 
the  answer  was:     "Day-book  and  ledger;    yes." 

The  goods  having  been  destroyed  by  fire,  the  company  refused 
payment,  on  the  ground  that  the  assured  had  not  kept  his  books  in  an 
iron  safe  or  secure  in  another  building,  but  had  kept  them  in  a  wooden 
desk  in  the  storehouse,  where  they  were  destroyed  in  the  fire.  This 
defence  was  also  set  up  in  bar  of  the  action  under  the  plea  of  non  as- 
sumpsit; and  at  the  trial  the  court  was  asked  in  effect  to  instruct  the 
jury  that  the  answer  in  the  application  in  regard  to  the  place  of  keep- 
ing the  books  amounted  to  a  continuing  warranty,  which,  if  broken, 
avoided  the  policy.  But  the  court  refused  to  so  charge,  and,  on  mo- 
tion of  the  plaintiff,  told  the  jury  in  effect  that  before  they  could  con- 
sider the  agreement  in  regard  to  the  books  they  must  believe  it  was 
material,  and  further,  that  the  company  was  injured  by  its  non-observ- 
ance. 

This  ruling  was,  seemingly,  based  on  the  idea  that  the  agreement 
was  not  a  warranty,  but  a  representation,  which  is  a  mistaken  view. 
The  stipulation  is  undoubtedly  a  warranty,  made  so  by  the  express 
contract  of  the  parties,  and  the  jury  ought  to  have  been  instructed 


Sec.  2)  FIRE   INSURANCE  407 

that  a  literal  compliance  with  it  was  essential  to  a  recovery  by  the 
plaintiff. 

"An  express  warranty,"  says  May,  "is  a  stipulation  inserted  in 
writing  on  the  face  of  the  policy,  on  the  literal  truth  or  fulfillment 
of  which  the  validity  of  the  entire  contract  depends.  By  a  warranty 
the  insured  stipulates  for  the  absolute  truth  of  the  statement  made, 
and  the  strict  compliance  with  some  promised  line  of  conduct,  upon 
penalty  of  forfeiture  of  his  right  to  recover  in  case  of  loss  should 
the  statement  prove  untrue,  or  the  course  of  conduct  promised  be 
unfulfilled.  A  warranty  is  an  agreement  in  the  nature  of  a  condition 
precedent,  and,  like  that,  must  be  strictly  complied  with."  May, 
Ins.  §  156. 

This  is  the  language  of  the  decided  cases,  and  of  this  court  in 
Lynchburg  Fire  Ins.  Co.  v.  West,  76  Va.  575,  44  Am.  Rep.  177. 

And  the  author  correctly  adds,  that  whether  the  fact  stated  or  the 
act  stipulated  for  be  material  to  the  risk  or  not,  is  of  no  consequence, 
the  contract  being  that  the  matter  is  as  represented  or  shall  be  as 
promised;  and  unless  it  prove  so,  whether  from  fraud,  mistake,  neg- 
ligence, or  other  cause,  not  proceeding  from  the  insurer,  or  the  inter- 
vention of  the  law  or  the  act  of  God,  the  insured  can  have  no  claim. 
"One  of  the  very  objects  of  the  warranty,"  he  continues,  "is  to  pre- 
clude all  controversy  about  the  materiality  or  immateriality  of  the 
statement.  The  only  question  is,  has  the  warranty  been  kept?  There 
is  no  room  for  construction,  no  latitude,  no  equity.  If  the  warranty 
be  a  statement  of  facts,  it  must  be  literally  true ;  if  a  stipulation  that 
a  certain  act  shall  or  shall  not  be  done,  it  must  be  literally  performed." 

Whether  a  statement  is  a  warranty  or  not  depends  upon  the  inten- 
tion of  the  parties,  as  does  the  nature  and  efifect  of  the  warranty,  when 
there  is  one,  which  is  to  be  gathered  from  the  language  used  and  the 
subject  matter  to  which  it  relates.  Parties  have  a  right  to  make  their 
own  contracts,  and  when  the  meaning  of  the  contract  is  ascertained, 
effect  must  be  given  to  it.  It  is  not  for  the  court  to  add  to  or  detract 
from  it,  but  the  contract  must  be  enforced  without  regard  to  any 
hardship,  real  or  supposed,  to  either  party,  or  whether  it  is  wise  or 
unwise,  pro^'ident  or  improvident.  22     *     *     * 

According  to  the  authorities,  warranties  are  of  two  kinds,  viz.:  (1) 
Affirmative,  or  warranties  in  presenti,  as  they  are  sometimes  called, 
which  affirm  the  existence  of  certain  facts  pertaining  to  the  risk  at 
the  time  of  the  insurance;  and  (2)  Continuing  or  promissory.  An 
instance  of  the  first  class  is  Virginia  Fire  &  IMarine  Ins.  Co.  v.  Buck 
&  Newson,  88  Va.  517,  13  S.  E.  973.  There  the  insured,  in  answer  to 
a  question  in  the  application,  stated  that  a  watchman  slept  on  the 
premises  at  night.    On  the  night  of  the  fire  the  watchman  was  absent, 

22  Here  is  given  a  quotation  from  Jeffries  v.  Life  Ins.  Co.,  22  Wall.  (U.  S.) 
47,  22  L.  Ed.  833  (1874),  post,  p.  418,  and  Imperial  Fire  Ins.  Co.  v.  Coos 
County,  151  U.  S.  452,  14  Sup.  Ct.  379,  38  L.  Ed.  231  (1894),  is  cited. 


408  WARRANTIES  (Cll.  6 

but  it  was  held  that  the  policy  was  not  thereby  avoided,  because  the 
answer  related  to  the  present,  and  not  to  the  future — in  other  words, 
that  the  statement  was  manifestly  intended  merely  as  affirmative  of  the 
usual  and  existing  state  of  things,  and  had  nothing  promissory  as  to 
the  future.  ^^  But,  as  was  said  in  the  same  case,  a  promissory  war- 
ranty— i.  e.,  one  which  requires  something  to  be  done  or  omitted  after 
the  insurance  takes  effect,  and  during  its  continuance — avoids  the  con- 
tract, if  not  complied  with  according  to  its  terms. 

The  present  case  falls  within  the  latter  category,  certainly  as  regards 
the  promise  to  keep  the  books  in  an  iron  safe  or  secure  in  another 
building.  It  is  quite  probable,  in  the  nature  of  the  case,  that  this 
stipulation  was  regarded  as  material ;  but  whether  it  was  or  not — for 
with  that  we  have  nothing  to  do — the  contract  is  express  that  the  books 
would  be  thus  safely  kept;  and  if,  as  is  admitted,  the  promise  has  not 
been  fulfilled,  there  can  be  no  recovery. 

A  warranty  may  be  in  part  affirmative,  and  in  part  promissory. 
Thus,  in  an  Iowa  case  the  building  was  described  as  "occupied  for 
stores  below,  the  upper  portion  to  remain  unoccupied  during  the  con- 
tinuance of  this  policy."  In  an  action  on  the  policy  it  was  held  that 
so  much  of  the  statement  as  related  to  the  lower  portion  of  the  build- 
ing was  an  affirmative  warranty  merely,  but  that  what  related  to  the 
upper  portion  was  a  promissory  warranty,  which  w'as  broken,  if,  at 
any  time  during  the  life  of  the  policy,  that  portion  of  the  building 
was  so  occupied.  Stout  v.  City  Fire  Ins.  Co.,  12  Iowa,  371,  79  Am. 
Dec.  539. 

The  main  ground  upon  which  the  plaintiff  relies,  in  support  of  the 
judgment,  is  a  provision  in  the  policy  that  the  same  "shall  be  void 
if  the  assured  has  concealed  or  misrepresented,  in  writing  or  other- 
wise, any  material  fact  or  circumstance  concerning  this  insurance  or 
the  subject  thereof;"  and  further  that  "this  policy  is  made  and  ac- 
cepted subject  to  the  foregoing  stipulations  and  conditions." 

This  language,  it  is  contended,  is  inconsistent  with  the  idea  of  a  war- 

23  See,  in  accord,  Hosford  v.  Germania  Fire  Ins.  Co.,  127  U.  S.  399,  8  Sup. 
Ct.  1199,  32  L.  Ed.  196  (1S8S),  from  which  a  part  of  the  opinion  by  Gray,  J., 
may  be  quoted :  "As  to  smoking,  the  only  question  put  in  the  application,  and 
answered  in  the  negative,  is  whether  smoking  is  'allowed  on  the  premises' — 
which  looks  only  to  the  rule  established  upon  the  subject  at  the  time  of  the 
application,  and  not  to  the  question  whether  that  rule  may  be  kept  or  broken 
in  the  future.  This  appears  by  the  language  of  the  question,  as  well  as  by 
the  circumstance  that  it  is  not,  as  other  interrogatories  as  to  existing  precau- 
tions against  fire  are  followed  up  by  compelling  the  assured  to  agree  that 
they  will  continue  to  observe  the  same  precautions.  The  jury  having  found 
that  the  assured  forbade  smoking  in  the  mill,  the  mere  fact  that  other  per- 
sons, or  even  one  of  the  assured,  did  afterwards  smoke  there,  was  not  suffi- 
cient to  avoid  the  policy.  The  two  cases  cited  by  the  defendants  from  the 
Illinois  Reports  contain  no  adjudication  to  the  contrary.  The  point  decided 
in  each  was  that  smoking  by  workmen  in  the  mill  did  not  avoid  the  policy, 
and  the  remark  of  the  judge  delivering  the  opinion,  that  in  such  a  case  the 
assured  undertakes  that  he  will  not  himself  do  the  act,  was  obiter  dictum. 
Insurance  Co.  v.  McDowell,  50  111.  120,  131,  99  Am.  Dec.  497  (1809)  ;  Insur- 
ance Co.  V.  Eddy,  55  111.  213,  219  (1870)." 


Sec.  2)  FIRE    INSURANCE  400 

ranty,  and  shows  that  the  answers  in  the  application  were  intended  as 
representations,  none  of  which  would  avoid  the  policy,  unless  false 
and  material  to  the  risk. 

The  answer  to  this  is  that  just  as  a  policy  may  contain  both  affirma- 
tive and  promissory  warranties,  so  it  may  contain  both  warranties  and 
representations ;  and  the  present  is  a  case  of  that  sort.  In  the  applica- 
tion, wherein  the  applicant  affirms  and  warrants  his  answers  to  be 
true,  and  agrees  that  the  same  shall  constitute  the  basis  of  the  insur- 
ance, he  was  asked  as  to  the  dimensions  of  the  storehouse,  when  it 
was  built,  etc.  Now,  as  to  the  answers  to  these  questions  and  the  like, 
it  would  be  absurd  to  say  that  they  are  anything  more  than  represen- 
tations, because  they  are  merely  descriptive,  and  were  evidently  so  in- 
tended by  the  parties.  Wood,  Fire  Ins.  §  138.  On  the  other  hand, 
looking,  as  we  must,  to  the  whole  contract,  it  is  equally  clear  that 
the  answer  in  regard  to  safely  keeping  the  books  was  intended  as  a 
warranty.  It  is  not  descriptive  of  anything,  and  related,  not  to  matters 
depending  upon  opinion  or  judgment,  as  in  Lynchburg  Fire  Ins.  Co. 
V.  West,  76  Va.  575,  44  Am.  Rep.  177,  and  National  Bank  v.  Insurance 
Co.,  95  U.  S.  673,  24  L.  Ed.  563,  in  which  cases  the  assured  was  asked 
as  to  the  value  of  the  property,  but  it  constituted  an  undertaking  to 
do  a  certain  thing  in  the  future,  and  is,  therefore,  not  within  the  oper- 
ation of  the  provision  in  the  policy  just  quoted.  To  call  such  a  stipula- 
tion a  representation,  or  anything  less  than  a  warranty,  is  a  misuse 
of  terms. 

This  being  so,  the  only  remaining  question  necessary  to  be  con- 
sidered arises  on  a  bill  of  exceptions  taken  by  the  plaintiff,  defendant 
in  error  here.  At  the  trial  the  plaintit?  offered,  but  was  not  allowed, 
to  testify  that  the  application,  which  he  admits  he  signed,  was  filled 
up  by  the  agents  of  the  company ;  that  he  was  not  questioned  as  to  his 
books,  and  did  not  tell  the  agent  he  would  keep  them  in  an  iron  safe 
or  secure  in  another  building;  that,  being  a  foreigner,  he  could  not 
read  the  English  language ;  and  that  the  questions  and  answers  were 
not  read  to  him. 

We  are  of  opinion  that  in  this  particular  the  circuit  court  ruled 
rightly.  There  is  no  pretense  of  fraud,  and  to  have  admitted  the  evi- 
dence would  have  been  an  infringement  of  the  rule  which  excludes 
parol  contemporaneous  evidence  to  contradict  or  vary  the  terms  of  a 
valid  written  contract.  This,  according  to  Southern  Mut.  Ins.  Co.  v. 
Yates,  28  Grat.  585,  is  so  clear  that  we  need  only  refer  to  that  case. 
There  the  insured,  in  answer  to  a  question,  stated  that  the  premises 
were  unincumbered,  whereas  they  were  in  fact  subject  to  a  deed  of 
trust.  He  was  allowed,  however,  to  testify  at  the  trial  that  he  had 
never  read  the  application,  and  was  not  interrogated  by  the  agent  of 
the  company  as  to  incumbrances.  But  on  appeal,  this  court,  in  an  able 
opinion  by  Judge  Staples,  in  which  the  authorities  were  reviewed, 
held  the  evidence  inadmissible.    The  plaintiff,  it  was  said,  was  bound 


410  WARRANTIES  (Ch.  6 

not  only  to  answer  the  questions  put  to  him  correctly,  but  to  use  due 
diligence  to  see  that  the  answers  were  correctly  written,  and  that  if 
he  signed  the  application  without  reading  it,  or  having  it  read  to  him, 
that  of  itself  was  inexcusable  negligence.  It  was  also  said  that  if  the 
evidence  were  admissible,  it  would  be  difficult  to  imagine  a  case  in 
which  the  legal  import  of  a  deed  might  not  be  varied  by  parol  testi- 
mony. 

The  only  difference  between  that  case  and  this  is,  that  here  the 
plaintiff  offered  to  prove  his  inability  to  read  the  language  in  which 
the  application  was  filled  up.  But  that  is  immaterial,  for  he  could 
have  easily  ascertained  the  contents  of  the  paper,  and  the  law  pre- 
sumes, under  the  circumstances  of  the  present  case,  that  when  he 
signed  the  paper  he  understood  and  assented  to  all  it  contained.  If 
the  rule  were  otherwise,  there  would  be  no  certainty  or  safety  in 
written  contracts.  ^* 

For  the  errors,  however,  in  regard  to  the  instructions  the  judgment 
must  be  reversed,  and  the  case  remanded  for  a  new  trial  in  conformity 
with  this  opinion. 

Judgment  reversed. 


WESTERN  ASSUR.  CO.  v.  REDDING. 

(Circuit  Court  of  Appeals  of  the  United  States,  Fiftli  Circuit,  1895.     68  Fed. 

708,   15  C.  C.  A.  619.) 

Action  by  Joseph  H.  Redding  against  the  Western  Assurance  Com- 
pany on  a  policy  of  insurance.  Judgment  was  rendered  for  the  plain- 
tiff in  the  circuit  court.  Defendant  brings  error.  The  principal  assign- 
ments of  error  were  the  trial  court's  refusal  to  charge  the  jury  that 
under  the  evidence  in  the  case  there  had  been  a  breach  of  the  "iron-safe 
clause,"  quoted  in  the  opinion,  and  the  contract  thus  avoided,  and 
charging,  in  effect,  that  only  substantial  compliance  with  such  clause 
was  required.    Affirmed. 

McCoRMicK,  Circuit  Judge.^^  Joseph  H.  Redding,  the  defendant 
in  error,  "kept  store"  in  a  country  station  town  in  Florida.  He  com- 
menced the  business  January  2,  1893.  He  testifies  that  he  took  an 
inventory  of  his  stock  in  February,  1893,  but  that  inventory  was  de- 
stroyed when  the  store  was  burned.  On  the  10th  day  of  February, 
1893,  he  insured  with  the  plaintiff  in  error,  the  Western  Assurance 
Company,  organized  under  the  laws  of  Toronto,  Canada,  his  stock  of 

24  In  tlie  case  of  Silves  v.  Life  Ins.  Co.,  144  N.  C.  626,  57  S.  E.  391  (1907), 
an  illiterate  plaintiff  was  allowed  to  introduce  evidence  that  he  had  been  mis- 
led by  the  representations  of  the  agent  as  to  the  nature  and  terms  of  the 
policy,  and  so  recovered  for  premiums  paid.  In  Cathcart  v.  Lrife  Ins.  Co.,  144 
N.  C.  623,  57  S.  E.  390  (1907),  the  plaintiffs,  being  perfectly  able  to  read  the 
policies  for  themselves,  were  not  justified  in  relying  on  alleged  misrepresen- 
tations of  the  agent,  and  there  was  no  recovery. 

2  5  Part  of  the  opinion  is  omitted. 


Sec.  2)  FIRE    INSURANCE  411 

goods  and  other  property,  taking  $1,000  on  the  stock  of  goods.  On 
the  morning  of  the  1st  of  October,  1893,  a  fire  occurred,  which  con- 
sumed his  store  and  the  stock  of  goods  insured. 

His  policy  contained  the  clause  which  is  known  as  the  "iron-safe 
clause,"  and  is  in  these  words :  "It  is  a  part  of  the  conditions  of  this 
policy  that  the  insured  shall  keep  a  set  of  books  showing  a  complete 
record  of  business  transacted,  including  all  purchases  and  sales,  both 
for  cash  and  credit,  and  take  an  itemized  inventory  of  stock  on  hand 
at  least  once  every  year ;  and  it  is  further  agreed  that  insured  will  keep 
such  books  and  inventory  securely  locked  in  a  fireproof  safe  at  night, 
and  at  all  times  when  the  store  mentioned  in  this  policy  is  not  actually 
open  for  business,  or  in  some  secure  place,  not  exposed  to  fire  which 
would  destroy  the  house  where  said  business  is  carried  on.  It  is  fur- 
ther agreed  that,  in  event  of  loss,  insured  will  produce  said  books  and 
inventory.  Failure  to  comply  with  these  conditions  shall  render  this 
policy  null  and  void,  and  no  suit  or  action  at  law  shall  be  maintained 
thereunder  for  any  loss."  -^ 

Payment  of  the  loss  was  refused  and  recovery  resisted  on  the  ground 
that  the  insured  had  not  kept  the  set  of  books  contemplated  by  that 
clause,  and  that  one  of  the  books  he  claims  to  have  kept  was  left 
out  of  the  safe,  and  was  consumed  by  the  fire.-^     *     *     * 

Viewed  as  "a  set  of  books,"  from  the  standpoint  of  an  expert  in 
that  scientific  system  of  bookkeeping  which  obtains  in  the  business  of 
an  insurance  company  which  has  pushed  its  business  at  least  from  the 

26  Ikon-Safe  Clause. — It  is  generally  held  that  this  clause  is  a  reasonable 
condition,  inserted  in  order  that  the  extent  of  loss  may  be  ascertained  ac- 
curately. Georgia  Home  Insurance  Co.  v.  Allen,  128  Ala.  451,  oO  South.  537 
(1901)  ;  Niagara  Fire  Ins.  Co.  v.  Forehand,  169  111.  626,  48  N.  E.  830  (1897)  ; 
Sowers  v.  Mutual  Fire  Ins.  Co.,  113  Iowa,  551,  85  N.  W.  763  (1901).  The 
weight  of  authority  is  that  the  "iron-safe  clause"  is  a  promissory  warranty. 
Southern  Ins.  Co.  v.  Parker,  61  Ark.  207,  32  S.  W.  507  (1895)  ;' Hanover  Fire 
Ins.  Co.  V,  Dole,  20  Ind.  App.  333,  50  N.  E.  772  (1898)  ;  Connecticut  Fire  Ins. 
Co.  V.  Jeary,  60  Neb.  338,  83  N.  W.  78,  51  L.  R.  A.  69S  (1900)  ;  JEtna  Ins.  Co. 
V.  Fitze,  34  Tex.  Civ.  App.  214,  78  S.  W.  370  (1904).  The  Kentucky  courts 
have,  however,  declined  to  consider  the  clause  a  warranty.  Phaniix  Ins.  Co. 
V.  Angel,  38  S.  W.  10G7,  18  Ky.  Law  Kep.  1034  (1897).  The  court  says: 
"But  we  are  of  the  opinion  that  a  failure  to  comply  with  such  a  provision,  al- 
though in  the  policy,  would  not  work  a  forfeiture  thereof.  It  is  without 
consideration.  It  does  not  decrease  the  risk,  and  at  most  would  only  tend  to 
the  better  preservation  of  the  evidence  to  show  the  amount  of  the  loss  sus- 
tained in  case  of  fire.  It  does  not  seem  to  us  that  it  is  competent  to  con- 
tract with  the  assured  for  the  preservation  of  testimony  in  behalf  of  either 
party." 

For  a  collection  of  cases  upon  this  much-litigated  clause,  see  2  Cooley, 
Briefs  on  Insurance,  1813. 

27  The  court  here  summarizes  the  evidence,  which  showed  that  the  store 
was  burned  on  the  1st  of  October,  1893 ;  that  an  inventory  had  been  com- 
pleted September  16th,  showing  stock  of  the  value  of  $4,906 ;  that  the  books 
of_  the  store  consisted  of  a  series  of  six,  which  were  produced,  and  a  daily 
cash-sales  book  containing  the  entry  of  the  daily  cash  sales  from  the  time 
of  the  inventory  to  that  of  the  fire.  This  had  inadvertently  not  been  placed 
in  the  safe  and  was  destroyed  by  the  fire.  The  previous  cash  books  showed 
that  the  cash  sales  were  inconsiderable  in  amount,  averaging  less  than  $1  a 
day. 


412  WARRANTIES  (Ch.  & 

chief  city  of  Canada  to  the  obscure  hamlet  of  Greenville,  Fla.,  these 
books  in  evidence  are  primitive  to  a  degree  that  may  test  his  temper,  if 
not  his  skill;  but  to  impartial  jurors,  patiently  searching  for  proof  to 
support  a  recovery  on  a  contract  of  indemnity  for  a  loss  insured 
against,  and  incurred  without  fraud  or  fault  on  the  part  of  the  in- 
sured, these  books  tell  a  plainer  story  than  the  expert  unconsciously 
or  strenuously  looking  to  them  for  ground  of  forfeiture  was  able  to 
read  in  them.  He  could  make  nothing  out  of  their  entries  to  show 
that  the  insured  had  on  hand  in  his  store,  at  the  time  of  the  fire, 
goods  to  such  an  amount  in  value  that  three-fourths  thereof  exceeded 
the  amount  of  insurance  written  thereon,  or  to  show  that  the  insured 
had  any  goods  in  the  store  at  the  time  of  the  fire.  To  our  view, 
the  very  imperfections  of  these  books  vovich  their  good  faith. 

It  is  insisted  that  the  accounts  of  goods  purchased  should  have  set 
out  the  specific  articles,  and  the  value  of  each,  and  that  the  account  of 
cash  sales  should  have  been  equally  particular  as  to  articles  sold, 
and  the  price ;  for,  it  is  argued,  the  insured  may  have  sold  goods  at 
one-tenth  of  their  cost  price,  for  aught  that  appears  in  these  entries 
of  cash  sales.  If  these  accounts  were  to  have  been  thus  kept,  thus 
itemized,  why  not  have  said  so?  There  was  time  and  space  in  the 
clause  in  question  to  provide  expressly  that  the  inventory  of  stock 
to  be  taken  at  least  once  every  year  "should  be  itemized."  If  the 
accounts  of  purchases  and  sales  were  to  be  so  itemized,  why  take 
stock  at  all?  The  credit  sales  are  itemized,  as  is  not  only  customary, 
but  necessary.  Now,  when  the  articles  purchased,  the  goods  sold  on 
credit,  and  those  sold  for  ca^h,  are  all  itemized,  posted,  footed  up, 
and  balanced,  barring  moths,  rust,  and  thieves,  the  difference  would 
show  the  goods  remaining;  and  the  time  spent,  and  shop  wear  of  the 
stock,  would  either  be  wholly  unnecessary,  or,  in  the  average  country 
store,  an  expensive  and  worthless  check  on  unscientific  bookkeeping. 
When  the  circumstances  of  these  respective  parties  are  impartially  con- 
sidered, it  is  highly  improbable  that  such  a  degree  of  extravagance  or 
of  proficiency  in  bookkeeping  on  the  part  of  the  insured  was  in  the 
contemplation  of  either  of  them,  and  certainly  was  beyond  the  concep- 
tion of  the  insured,  and  cannot  be  considered  to  have  been  in  the  mind 
of  the  agent  of  the  insurer,  without  a  high  impeachment  of  his  in- 
tegrity, for  he  must  have  known  that  such  a  set  of  books  as  the  con- 
tention now  made  by  his  company  requires  would  not  be  kept. 

It  is  well  known  that  our  law  of  insurance  had  its  beginnings  in 
marine  risks.  Parties  willing  and  offering  to  indemnify  against  such 
risks  for  a  consideration  did  not,  and  perhaps  yet  do  not,  by  their 
agents,  compass  sea  and  land  to  find  a  subject;  but  those  with  ships 
or  goods  at  hazard,  either  in  person  or  by  a  broker,  who  is  in  fact 
the  agent  of  the  applicant,  seek  the  protection  they  need  by  bring- 
ing their  subjects  to  the  attention  of  those  whose  business  it  is  to 
furnish  such  insurance.  These  applicants  gave  what  are  called  in- 
structions for  writing  the  policy,  which,  besides  naming  the  ship,  her 


Sec.  2)  FIRE    INSURANCE  413 

burden,  cargo,  and  voyage,  embraced  such  other  matters  as  were  sup- 
posed to  constitute  inducements  to  the  contract,  or  to  affect  the  rate 
of  premium.  These  instructions  were  either  oral  or  written,  or  partly 
oral  and  partly  written.  But  in  the  earlier  years  of  Lord  Mans- 
field's service  on  the  bench  it  was  not  the  usage  to  consider  the  in- 
structions as  a  part  of  the  policy.  Parol  instructions  were  not  en- 
tered in  a  book,  nor  written  instructions  kept,  till,  on  the  occasion 
of  actions  brought  before  him  where  brokers  had  made  false  repre- 
sentations in  many  matters  material  to  the  risk,  that  judge  advised 
the  insured  to  bring  actions  against  the  brokers,  which  some  did,  and 
recovered ;  and  the  brokers  thereafter,  on  his  lordship's  caution  and 
recommendation,  began  the  practice  of  entering  all  representations 
made  by  them  in  a  book. 

Even  at  that  early  day  there  was  no  distinction  better  known  than 
that  which  exists  between  a  warranty  or  condition  which  makes  part 
of  a  written  policy,  and  a  representation  of  the  state  of  the  case.  Where 
it  is  a  part  of  the  policy  it  must  be  performed,  is  the  doctrine  of  all  the 
cases.  Good  faith  is  a  necessary  element  of  all  binding  contracts. 
And  where  insurance  is  effected  as  marine  insurance  formerly  was, 
and  generally  is  still  written,  the  situation  of  the  parties  requires  the 
exercise  of  the  utmost  good  faith.  In  enforcing  this  requirement 
against  unfaithful  parties,  rules  were  announced  and  followed  which 
conditions  then  existing  demanded,  but,  by  reason  of  the  gradual  and 
great  development  of  a  change  in  the  relations  of  parties  to  these  con- 
tracts, these  rules,  though  once  wholesome  and  necessary,  have  become 
severe,  and,  with  the  well-known  tendency  towards  the  growing  weight 
of  precedents,  have  often  been  applied  to  cases  and  in  a  manner  not 
within  Lord  Mansfield's  reasonings.  He  says,  with  his  peculiar  force. 
"a  warranty  in  a  policy  of  insurance  is  a  condition  or  a  contingency, 
and  unless  that  be  performed  there  is  no  contract."  De  Hahn  v.  Hart- 
ley, 1  Term  R.  343.  In  the  case  just  cited  there  was  written  on  the 
margin  of  the  policy,  "Sailed  from  Liverpool  with  14  six  pounders, 
swivels,  small  arms,  and  fifty  hands  or  upwards."  The  ship  sailed 
from  Liverpool  13th  October,  1778,  with  only  46  hands,  but  six  hours 
after  sailing  she  touched  at  Beaumaris,  and  took  on  6  more  hands, 
continuing  her  voyage  with  a  force  of  52  men,  which  she  kept  and 
had  till  her  capture,  14th  March,  1779,  six  months  after  sailing  from 
Liverpool.  The  insurer,  in  ignorance  of  the  facts,  had  paid  the  loss, 
but  recovered  it  back,  because  there  was  no  contract.  Now  if,  in- 
stead of  sailing  from  Liverpool  with  only  46  hands,  the  Juno  had  sailed 
with  52  hands,  and  on  the  13th  of  March,  1779,  the  day  before  her 
capture,  6  of  her  men  had  seized  one  of  her  life  boats  and  deserted, 
so  that  when  she  was  attacked  by  the  pubHc  enemy  she  had  only  46 
hands  with  which  to  repel  force  by  force,  does  any  one  suppose  that 
Lord  Mansfield,  or  any  other  sane  judge,  would  have  held  that  by 
reason  of  that  fact  alone  there  was  no  contract  at  the  time  when  the 
capture  and  loss  occurred? 


414  WARRANTIES  (Ch.  6 

Out  of  the  business  of  marine  insurance,  or  superinduced  thereby, 
the  business  of  fire  and  life  insurance  has  sprung,  and  grown  till  it 
fills  all  the  land,  and  its  cases  overflow  the  courts  and  their  reports. 
The  relations  of  the  parties  are  reversed.  The  policies  in  current  use 
are  travesties  on  the  common-sense  form  in  use  in  marine  insurance. 
And  while  the  distinctions  and  construction  announced  in  Pawson  v. 
Watson,  Cowp.  785,  and  in  De  Hahn  v.  Hartley,  supra,  are  too  well 
settled  to  be  disturbed  by  judicial  action,  there  has  long  been  a  marked 
and  growing  judicial  sense  that  the  application  of  these,  and  later 
cases  in  line  with  them,  should  not  be  carried  beyond  the  boundaries  of 
controlling  precedents ;  that  common  honesty  and  common  sense  are 
safe  guides  in  the  construction  of  even  these  wonderfully  devised 
contracts.  While,  therefore,  it  is  certainly  the  law  that  a  precedent 
condition  warranted  to  exist  must  in  fact  exist,  exactly  as  stated,  or 
there  will  be  no  contract,  because  the  minds  meet  only  on  all  the 
stipulated  conditions,  a  promissory  warranty  is  often,  if  not  always, 
necessarily  a  condition  subsequent,  and  courts  should  and  do  and  will 
apply  to  these  the  doctrines  that  obtain  in  adjudging  forfeitures.^^ 

2  8  Temporary  Breach  of  Continuing  Warranty. — The  reluctance  of  the 
American  courts  to  enforce  the  strict  doctrine  of  forfeiture  for  breach  of 
warranty  is  illustrated  by  those  cases,  which  hold  that,  where  there  has  been 
a  temporary  breach  of  a  continuing  warranty,  not  acted  upon  by  the  insurer, 
and  in  no  wise  contributing  to  the  loss,  the  policy  is  merely  suspended  during 
the  period  of  the  violation,  and  automatically  revived  upon  the  discontinu- 
ance thereof.  See  Sumter  Tobacco  Warehouse  Co.  v.  Phcenix  Ins.  Co.  (1907) 
76  S.  C.  76,  56  S.  E.  654,  10  L.  R.  A.  (N.  S.)  736,  121  Am.  St.  Rep.  911,  11 
Ann.  Cas.  7S0  (temporary  increase  of  hazard  not  contributing  to  loss)  ; 
Schmidt  v.  Peoria  Marine  &  Fire  Ins.  Co.  (1866)  41  111.  295  (same)  ;  Traders' 
Ins.  Co.  V.  Catlin  (1S96)  163  111.  256,  45  N.  E.  235,  35  L.  R.  A.  595  (temporary 
change  in  use  of  building)  ;  Born  v.  Home  Ins.  Co.  (1900)  110  Iowa,  379,  81 
N.  W.  676,  80  Am.  St.  Rep.  300  (mortgage  of  premises  made  in  violation  of 
policy  but  paid  before  occurrence  of  loss)  ;  Hinckley  v.  Germania  Fire  Ins. 
Co.  (1885)  140  Mass.  38,  1  N.  E.  737,  54  Am.  Rep.  445  (temporary  illegal 
use)  ;  McClure  v.  Mutual  Fire  Ins.  Co.  (1913)  242  Pa.  59,  88  Atl.  921,  48  L. 
R.  A.  (N.  S.)  1221  (temporary  presence  on  premises  of  prohibited  articles). 

The  weight  of  authority,  however,  seems  to  be  that  by  the  violation  of  the 
warranty  the  policy  is  ipso  facto  annulled,  and  not  merely  suspended.  See 
Imperial  Fire  Ins.  Co.  v.  Coos  County,  151  U.  S.  452,  14  Sup.  Ct.  379,  38  L. 
Ed.  231  (1894)  ;  Georgia  Home  Ins.  Co.  v.  Rosentield,  95  Fed.  358,  37  C.  C. 
A.  96  (1899)  ;  Kyte  v.  Assurance  Co.,  149  Mass.  116,  21  N.  E.  361,  3  L.  R.  A. 
508  (1889)  ;  Jones  &  Pickett  v.  Michigan  Marine  &  Fire  Co.,  132  La.  847,  61 
South.  846   (1913). 

In  Port  Blakely  Mill  Co.  v.  Springfield  lire  &  Marine  Ins.  Co.,  59  Wash. 
501,  110  Pac.  36,  140  Am.  St.  Rep.  863  (1910),  the  policy  in  suit  contained  the 
following  provision :  "Warranted  by  the  assured  that  due  diligence  be  used 
that  the  automatic  sprinkler  system  shall  at  all  times  be  maintained  in  good 
working  order."  The  defendant  contended  that  the  fact  that  the  sprinkler 
system  was  for  a  considerable  period  out  of  order  constituted  a  breach  of 
warranty  that  absolutely  avoided  tlie  policy,  even  though  it  was  again  in 
good  working  order  at  the  time  of  the  tire.  The  court  held  that  in  the  tirst 
place  the  provision  quoted  above  was  not  a  warranty  at  all,  since  there  was 
no  express  stipulation  for  forfeiture  in  case  of  breach,  and,  secondly,  that, 
even  if  it  were  a  warranty,  a  mere  temporary  breach,  not  in  any  wise  con- 
tributing to  the  loss,  merely  suspended  the  operation  of  the  policy,  and  did 
not  absolutely  avoid  it.  Dunbar,  J.,  who  wrote  the  opinion  for  the  majority 
of  the  court,  thus  expresses  his  feeling  about  the  strict  rule  as  to  warran- 


Sec.  2)  FIRE    INSURANCE  415 

It  would  too  greatly  extend  this  opinion  to  review  the  cases.  Many 
of  them  are  cited  and  epitomized  in  the  third  edition  of  May  on  In- 
surance, in  the  chapters  on  Warranties,  Representations,  and  Excep- 
tions. We  think  the  application  to  the  case  at  bar  of  what  we  have 
here  advanced  is  apparent.  The  judgment  of  the  circuit  court  is 
affirmed."" 

ties:  "It  is  unquestionably  true,  however,  tliat  there  are  cases,  though  not 
by  any  means  a  majority  of  the  hundreds  of  cases  tliat  have  been  decided 
upon  this  question,  that  hold  to  the  strict  rule  contended  for ;  but  in  grateful 
contrast  to  those  courts  which  adopt  the  rule  of  strict  construction  by,  it 
seems  to  us,  making  a  fetich  of  words,  expressions,  and  definitions,  and  at- 
tributing potent  magic  to  the  word  'warranty,'  or  words  of  similar  import, 
comes  like  a  refreshing  breeze  from  the  sea  of  judicial  enlightenment,  the 
voice  of  the  Supreme  Court  of  Kentucky,  in  Germania  Ins.  Co.  of  New  York 
V.  Rudwig.  SO  Ky.  223  (1SS2)  where  the  rule  is  condemned.  In  the  course  of 
the  opinion  it  was  said :  'There  is  no  doubt  that  an  insurance  company  relies 
upon  the  truth  of  the  representations  made  in  either  case,  and  equally  cer- 
tain that,  if  untrue  and  material  to  the  risk,  no  inquiry  will  be  directed  for 
the  purpose  of  determining  whether  the  statement  was  fraudulently  or  inno- 
cently made.  The  injury  to  the  insurer  is  the  same,  but  when  no  injury  can 
possibly  result  to  the  company,  where  is  the  breach  and  what  is  the  penalty? 
It  would  certainly  be  no  breach  of  warranty  in  a  chattel  if  the  quality  was 
better  than  that  warranted,  unless  the  inferior  article  alone  would  conform 
to  the  wants  of  the  purchaser;  and  if  a  breach,  the  damages  would  be  mere- 
ly nominal ;  but  in  regard  to  insurance  contracts,  that  it  neither  increased 
nor  diminished  the  risk,  and  it  could  not  have  influenced  the  action  of  either 
party  in  making  the  contract,  is  seized  upon  as  a  ground  for  forfeiting  the 
entire  policy  and  depriving  the  assured  not  only  of  the  benefits  of  the  con- 
tract, but  permits  the  insurer  to  retain  all  the  premiums  paid.  *  *  * 
Such  contracts  are  to  be  interpreted  like  other  agreements,  and  must  be  gov- 
erned by  the  same  rules,  good  faith  being  especially  required,  as  one  of  the 
parties  is  necessarily  less  acquainted  with  the  details  of  the  subject  than  the 
other.'  " 

In  a  similar  action  on  an  identical  policy  issued  by  another  insiirance  com- 
pany brought  in  the  Circuit  Court  of  the  United  States  for  the  Northern 
Division  of  the  Western  District  of  Washington,  the  court,  at  the  close  of 
the  plaintiff's  evidence,  directed  a  verdict  for  the  defendants.  This  judgment 
was  reversed,  on  appeal  to  the  Circuit  Court  of  Appeals,  Ninth  Circuit,  on 
the  ground  that  the  question  whether  there  had  been  a  breich  of  warranty 
should  have  been  submitted  to  the  jury.  Port  Blakely  Milling  Co.  v.  Royal 
Ins.  Co.,  186  Fed.  716,  108  C.  C.  A.  586   (1911), 

29  The  vigorous  dissenting  opinion  of  Pardee,  Circuit  Judge,  is  omitted.  In 
his  dissent  he  relied  principally  upon  Dwight  v.  Insurance  Co.,  103  N.  Y.  341, 
8  N.  E.  654,  57  Am.  Rep.  729  (1886)  ;  Imperial  Fire  Ins.  Co.  v.  Coos  County, 
150  U.  S.  452,  14  Sup.  Ct.  379,  38  L.  Ed.  231  (1893)  ;  Pawson  v.  Watson, 
2  Cowp.  785  (1778),  ante,  p.  318 ;  De  Hahn  v.  Hartley,  1  T.  R.  343  (1786),  ante, 
p.  383,  and  May,  Ins.  (3d  Ed.)  §  156.  From  Imperial  Fire  Ins.  Co.  v.  Coos 
County,  supra,  he  quotes  the  following  part  of  Justice  Jackson's  opinion: 
"Contracts  of  insurance  are  contracts  of  indemnity  upon  the  terms  and  con- 
ditions spiecified  in  the  policy  or  policies  embodying  the  agreement  of  the  par- 
ties. For  a  comparatively  small  consideration  the  insurer  undertakes  to 
guaranty  the  insured  against  loss  or  damage,  upon  the  tei'ms  and  conditions 
agreed  upon,  and  upon  no  other ;  and  when  called  upon  to  pay,  in  case  of 
loss,  the  insurer,  thex'efore,  may  justly  insist  upon  the  fulfillment  of  these 
terms.  If  the  insured  cannot  bring  himself  within  the  conditions  of  the 
policy,  he  is  not  entitled  to  recover  for  the  loss.  The  terms  of  the  policy  con- 
stitute the  measure  of  the  insurer's  liability,  and  in  order  to  recover  the  as- 
sured must  show  himself  within  those  terms;  and  if  it  appears  that  the  con- 
tract has  been  terminated  by  the  violation,  on  the  part  of  the  assured,  of  its 
conditions,  then  there  can  be  no  right  of  recovery.     The  compliance  of  the 


416  WARRANTIES  (Cll.  6 


SECTION  3.— LIFE  INSURANCE 


ROSS  V.  BRADSHAW. 

(Nisi  Prius,  1761.     Park,  Ins.   [.3d  Ed.]  438.) 

In  an  action  on  a  policy  made  on  the  life  of  Sir  James  Ross  for  one 
year  from  October,  1759,  to  October,  1760,  warranted  in  good  health 
at  the  time  of  making  the  policy,  the  fact  was,  that  Sir  James  had 
received  a  wound  at  the  battle  of  La  Feldt  in  the  year  1747,  in  his 
loins,  which  had  occasioned  a  partial  relaxation  or  palsy,  so  that  he 
could  not  retain  his  urine  or  feces,  and  which  was  not  mentioned  to 
the  insurer.  Sir  James  died  of  a  malignant  fever  within  the  time  of 
the  insurance.  All  the  physicians  and  surgeons,  who  were  examined 
for  the  plaintiff,  swore,  that  the  wound  had  no  sort  of  connection  with 
the  fever ;  that  the  want  of  retention  was  not  a  disorder  which  short- 
ened life,  but  he  might,  notwithstanding  that,  have  lived  to  the  com- 
mon age  of  man :  and  the  surgeons  who  opened  him,  said,  that  his  in- 
testines were  all  sound.  There  was  one  physician  examined  for  the 
defendant,  who  said,  the  want  of  retention  was  paralytic ;  but  being 
asked  to  explain,  he  said,  it  was  only  a  local  palsy,  arising  from  the 
wound,  but  did  not  affect  life :  but,  on  the  whole,  he  did  not  look  upon 
h'im  as  a  good  life. 

Lord  MansfiDld.  The  question  of  fraud  cannot  exist  in  this  case. 
When  a  man  makes  insurance  upon  a  life  generally,  without  any  rep- 
v'esentation  of  the  state  of  the  life  insured,  the  insurers  take  all  the 
risk,  unless  there  was  some  fraud  in  the  person  insuring,  either  by  his 
suppressing  some  circumstances  which  he  knew,  or  by  alleging  what 
was  false.  But  if  the  person  insuring  knew  no  more  than  the  insurer, 
the  latter  takes  the  risk.  In  this  case  there  is  a  warranty,  and  wher- 
ever that  is  the  case,  it  must,  at  all  events,  be  proved,  that  the  party 
was  a  good  life,  which  makes  the  question  on  a  warranty  much  larger 
than  that  on  fraud.  Here  it  is  proved  that  there  was  no  representa- 
tion at  all  as  to  the  state  of  life,  nor  any  question  asked  about  it ;  nor 
was  it  necessary.  Where  an  insurance  is  upon  a  representation,  every 
material  circumstance  should  be  mentioned,  such  as  age,  way  of  life, 

assured  with  the  terms  of  the  contract  is  a  condition  precedent  to  the  riglit 
of  recovery.  If  the  assured  has  violated,  or  failed  to  perform,  the  conditions 
of  the  contract,  and  such  violation  or  want  of  performance  has  not  been 
waived  by  the  insurer,  then  the  assured  cannot  recover.  It  is  immaterial  to 
consider  the  reasons  for  the  conditions  or  provisions  on  which  the  contract 
is  made  to  terminate,  or  any  other  provision  of  the  policy  which  has  been 
accepted  and  agreed  upon.  It  is  enough  that  the  parties  have  made  certain 
terms  conditions  on  which  their  contract  shall  continue  or  terminate.  The 
courts  may  not  make  a  contract  for  the  parties.  Their  function  and  duty 
consist  simply  in  enforcing  and  carrying  out  the  one  actually  made." 


Sec.  3)  LIFE    INSURANCE  417 

&c.  But  where  there  is  a  warranty,  then  nothing  need  be  told ;  but 
it  must  in  general  be  proved,  if  litigated,  that  the  life  was,  in  fact, 
a  good  one,  and  so  it  may  be,  though  he  have  a  particular  infirmity. 
Tlie  only  question  is,  whether  he  was  in  a  reasonable  good  state  of 
health,  and  such  a  life  as  ought  to  be  insured  on  common  terms.  The 
jury,  upon  this  direction,  without  going  out  of  court,  found  a  ver- 
dict for  the  plaintiff. ^° 


WILLIS  v.  POOLE. 

(Nisi  Prills,  1780.     Park,  Ins.  [3cl  Ed.]  433.) 

It  was  an  action  on  a  policy  on  the  life  of  Sir  Simeon  Stuart,  Bart., 
from  the  1st  of  April,  1779,  to  the  1st  of  April,  1780,  and  during  the 
life  of  Eliza  Edgley  Ewer.  This  policy  contained  a  warranty  that 
Sir  Simeon  was  about  57  years  of  age,  and  in  good  health  on  the  11th 
of  May,  1779,  and  that  Mrs.  Ewer  was  about  78  years  of  age.  The 
defendant,  at  the  trial,  admitted  that  Sir  Simeon  and  Mrs.  Ewer  were 
of  the  respective  ages  mentioned  in  the  warranty :  that  he  died  before 
the  1st  of  April,  1780,  and  that  she  was  living. 

Two  questions  were  intended  to  have  been  made:  (1)  As  to  the 
plaintiff's  interest :  (2)  on  the  warranty  of  health.  The  former  was 
disposed  of,  by  the  plaintiff  having  proved  a  judgment  debt.  As  to 
the  latter,  it  appeared  in  evidence,  that,  although  Sir  Simeon  was 
troubled  with  spasms  and  cramps  from  violent  fits  of  the  gout,  he 
was  in  as  good  health,  when  the  policy  was  underwritten,  as  he  had 
been  for  a  long  time  before.  It  was  also  proved  by  the  broker,  who 
effected  the  policy,  that  the  underwriters  were  told,  that  Sir  Simeon 
was  subject  to  the  gout.  Dr.  Heberden,  and  other  gentlemen  of  the 
faculty,  were  examined,  who  proved  that  spasms  and  convulsions  were 
symptoms  incident  to  the  gout. 

Lord  Mansfield.  The  imperfection  of  language  is  such,  that  we 
have  not  words  for  every  different  idea ;  and  the  real  intention  of 
parties  must  be  found  out  by  the  subject-matter.  By  the  present 
policy,  the  life  is  warranted  to  some  of  the  underwriters,  in  health,  to 
others  in  good  health ;  and  yet  there  was  no  difference  intended  in 
point  of  fact.  Such  a  warranty  can  never  mean  that  a  man  has  not 
the  seeds  of  a  disorder.  We  are  all  born  with  the  seeds  of  mortality 
in  us.  A  man,  subject  to  the  gout,  is  a  life  capable  of  being  insured, 
if  he  has  no  sickness  at  the  time  to  make  it  an  unequal  contract. 

There  was  a  verdict  for  the  plaintiff. 

3  0  As  to  the  effect  of  a  stipulation  in  a  life  insurance  policy  that  it  shall 
not  become  binding  unless  delivered  to  the  insured  while  in  good  health,  see 
extensive  note  in  17  L.   K.  A.  (X.  S.)  appended  to  the  report  of  Roe  v.  Na- 
tional Life  Ins.  Co.,  137  Iowa,  696,  115  N.  W.  500  (1008). 
Vance  Ins. — 27 


418  WARRANTIES  (Ch.  6 

JEFFRIES  V.  LIFE  INS.  CO. 

(Supreme  Court  of  the  United   States,   1874.     22  Wall.  47,  22  L.  Ed.  8:'>3.) 

Error  to  the  Circuit  Court  for  the  Eastern  District  of  Missouri. 

Jeffries,  administrator  of  Kennedy,  sued  the  Economical  Life  In- 
surance Company,  of  Providence,  Rhode  Island,  in  the  court  below, 
alleging  that  on  the  19th  of  October,  1870,  the  said  company  issued  a 
policy  of  insurance  upon  the  life  of  the  deceased  for  $5000;  that  Ken- 
nedy died  in  August,  1871,  and  that  notice  had  been  given  to  the  com- 
pany of  his  death,  payment  of  the  amount  of  insurance  demanded  and 
refused. 

The  policy,  which  the  declaration  set  out  at  length,  contained  the 
clauses  following,  viz. : 

"This  policy  is  issued  by  the  company,  and  accepted  by  the  insured 
and  the  holder  thereof,  on  the  following  express  conditions  and  agree- 
ments, which  are  part  of  this  contract  of  insurance : 

"1st.  That  the  statements  and  declarations  made  in  the  application 
for  this  policy,  and  on  the  faith  of  which  it  is  issued,  are  in  all  respects 
true,  and  without  the  suppression  of  any  fact  relating  to  the  health  or 
circumstances  of  the  insured,  affecting  the  interests  of  said  company. 

"6th.  That  in  case  of  the  violation  of  the  foregoing  conditions,  or  any 
of  them,     -t     *     *     this  policy  shall  become  null  and  void." 

The  defendant's  plea,  setting  up  in  defense  of  the  action  certain 
false  statements,  did  not  aver  that  these  false  statements  were  material 
to  the  risk.  A  demurrer  to  this  plea  was  overruled,  and  judgment  en- 
tered for  the  defendant. ^^ 

Mr.  Justice  Hunt  delivered  the  opinion  of  the  court: 

The  contention  in  opposition  to  the  judgment  is  this :  that  the  plea 
does  not  aver  that  the  false  statements  made  by  the  assured  were  ma- 
terial to  the  risk  assumed.  Is  that  averment  necessary  to  make  the 
plea  a  good  one? 

It  is  contended,  also,  that  the  false  answers  in  the  present  case  were 
not  to  the  injury  of  the  company,  that  they  presented  the  applicant's 
case  in  a  less  favorable  light  to  himself  than  if  he  had  answered  truly. 
Thus,  to  the  inquiry  are  you  married  or  single,  when  he  falsely  an- 
swered that  he  was  single,  he  made  himself  a  less  eligible  candidate 
for  insurances  than  if  he  had  truly  stated  that  he  was  a  married  man  ; 
that  although  he  deceived  the  company,  and  caused  it  to  enter  into  a 
contract  that  it  did  not  intend  to  make,  it  was  deceived  to  its  advantage, 
and  made  a  more  favorable  bargain  than  was  supposed. 

This  is  bad  morality  and  bad  law.  No  one  may  do  evil  that  good 
may  come.  No  man  is  justified  in  the  utterance  of  a  falsehood.  It 
is  an  equal  offence  in  morals,  whether  committed  for  his  own  benefit 
or  that  of  another.    The  fallacy  of  this  position  as  a  legal  proposition, 

31  The  statement  of  facts  is  abbreviated. 


Sec.  3)  LIFE    INSURANCE  419 

will  appear  in  what  we  shall  presently  say  of  the  contract  made  between 
the  parties. 

We  are  to  observe,  first,  the  averment  of  the  plea :  That  Kennedy,  in 
and  by  his  application  for  the  policy  of  insurance,  in  answer  to  a  ques- 
tion asked  of  him  by  the  company,  whether  he  was  "married  or  sin- 
gle?" made  the  false  statement  that  he  was  "single,"  knowing  it  to  be 
untrue ;  that  in  reply  to  a  further  question  therein  asked  of  him  by  the 
company,  whether  "any  application  had  been  made  to  any  other  com- 
pany? If  so,  when?"  answered  "No;"  whereas,  in  fact,  at  the  time  of 
making  such  false  statement,  he  well  knew  that  he  had  previously  made 
application  for  such  insurance,  and  been  insured  in  the  sum  of  $10,000 
by  another  company. 

We  are  to  observe,  secondly,  the  averment  that  the  statements  and 
declarations  made  in  the  application  for  said  policy,  and  on  the  faith 
of  which  it  is  issued,  are  in  all  respects  true,  and  without  the  suppres- 
sion of  any  fact  relating  to  the  health  or  circumstances  of  the  insured 
affecting  the  interests  of  the  company. 

We  are  to  observe,  also,  that  other  clause  of  the  policy,  in  which 
it  is  declared  that  this  policy  is  made  by  the  company  and  accepted 
by  the  insured,  upon  the  express  condition  and  agreement  that  such 
statements  and  declarations  are  in  all  respects  true.  This  applies  to 
all  and  to  each  one  of  such  statements.  In  other  words,  if  the  state- 
ments are  not  true,  it  is  agreed  that  no  policy  is  made  by  the  com- 
pany, and  no  policy  is  accepted  by  the  insured. 

The  proposition  at  the  foundation  of  this  point  is  this,  that  the 
statements  and  declarations  made  in  the  policy  shall  be  true. 

This  stipulation  is  not  expressed  to  be  made  as  to  important  or  ma- 
terial statements  only,  or  to  those  supposed  to  be  material,  but  as  to 
all  statements.  The  statements  need  not  come  up  to  the  degree  of 
warranties.  They  need  not  be  representations  even,  if  this  term  con- 
veys an  idea  of  an  affirmation  having  any  technical  character.  State- 
inents  and  declarations  is  the  expression;  what  the  applicant  states 
and  what  the  applicant  declares.  Nothing  can  be  more  simple.  If 
he  makes  any  statement  in  the  application  it  must  be  true.  If  he 
makes  any  declaration  in  the  application  it  must  be  true.  A  faithful 
performance  of  this  agreement  is  made  an  express  condition  to  the 
existence  of  a  liability  on  the  part  of  the  company. 

There  is  no  place  for  the  argument  either  that  the  false  statement 
was  not  material  to  the  risk,  or  that  it  was  a  positive  advantage  to 
the  company  to  be  deceived  by  it. 

It  is  the  distinct  agreement  of  the  parties,  that  the  company  shall 
not  be  deceived  to  its  injury  or  to  its  benefit.  The  right  of  an  indi- 
vidual or  a  corporation  to  make  an  unwise  bargain  is  as  complete  as 
that  to  make  a  wise  bargain.  The  right  to  make  contracts  carries  with 
it  the  right  to  determine  what  is  prudent  and  wise,  what  is  unwise 
and  imprudent,  and  upon  that  point  the  judgment  of  the  individual  is 
subject  to  that  of  no  other  tribunal. 


420  •  WAnRANTiKS  (Ch.  6 

The  case  in  hand  affords  a  good  ilkistraticn  of  this  principle.  The 
company  deems  it  wise  and  prudent  that  the  appHcant  should  inform 
them  truly  whether  he  has  made  any  other  application  to  have  his 
life  insured.  So  material  does  it  deem  this  information,  that  it  stipu- 
lates that  its  liability  shall  depend  upon  the  truth  of  the  answer.  The 
same  is  true  of  its  incjuiry  whether  the  party  is  married  or  single. 
The  company  fixes  this  estimate  of  its  importance.  The  applicant 
agrees  that  it  is  thus  important  by  accepting  this  test.  It  would  be  a 
violation  of  the  legal  rights  of  the  company  to  take  from  it  its  ac- 
knowledged power,  thus  to  make  its  opinion  the  standard  of  what  is 
material,  and  to  leave  that  point  to  the  determination  of  a  jury. 

The  jury  may  say,  as  the  counsel  here  argues,  that  it  is  immaterial 
whether  the  applicant  answers  truly  if  he  answers  one  way,  viz.,  that 
he  is  single,  or  that  he  has  not  made  an  application  for  insurance. 
Whether  a  question  is  material  depends  upon  the  question  itself.  The 
information  received  may  be  immaterial.  But  if  under  any  circum- 
stances it  can  produce  a  reply  which  will  influence  the  action  of  the 
company,  the  question  cannot  be  deemed  immaterial.  Insurance  com- 
panies sometimes  insist  that  individuals  largely  insured  upon  tb.eir 
lives,  who  are  embarrassed  in  their  affairs,  resort  to  self-destruction, 
being  willing  to  end  a  wretched  existence  if  they  can  thereby  bestow 
comfort  upon  their  families.  The  juror  would  be  likely  to  repudiate 
such  a  theory,  on  the  ground  that  nothing  can  compensate  a  man  for 
the  loss  of  his  life.  The  juror  may  be  right  and  the  company  may  be 
wrong.  But  the  company  has  expressly  provided  that  their  judgment, 
and  not  the  judgment  of  the  juror  shall  govern.  Their  right  thus  to 
contract,  and  the  duty  of  the  court  to  give  effect  to  such  contracts, 
cannot  be  denied. 

Of  the  authorities  in  support  of  these  views,  a  few  only  will  be 
mentioned.  In  Anderson  v.  Fitzgerald  [4  House  of  Lords  Cases,  483, 
487],  Fitzgerald  applied  to  an  insurance  ofiBce  to  effect  a  policy  on 
his  life.  He  received  a  form  of  proposal  containing  questions  re- 
quired to  be  answered.  Among  them  were  the  following:  "Did  any 
of  the  party's  near  relatives  die  of  consumption  or  any  other  pulmo- 
nary complaint?"  and  "Has  the  party's  life  been  accepted  or  refused 
at  any  office?"  To  each  of  these  questions  the  applicant  answered 
"No."  The  answers  were  false.  F.  signed  the  proposal  and  a  decla- 
ration accompanying,  by  which  he  agreed  "that  the  particulars  above 
mentioned  should  form  the  basis  of  the  contract."  The  policy  men- 
tioned several  things,  which  were  warranted  by  F.,  among  which  these 
two  answers  were  not  included.  The  policy  also  contained  this  pro- 
viso :  that  "if  anything  so  warranted  shall  not  be  true,  or  if  any  cir- 
cumstance material  to  this  insurance  shall  not  have  been  truly  stated, 
or  shall  have  been  misrepresented  or  concealed,  or  any  false  state- 
ment made  to  the  company  in  or  about  the  obtaining  or  effecting  of 
this  insurance,"  the  policy  should  be  void. 

On  the  trial  before  Mr.  Justice  Ball,  he  charged  the  jury  "that  they 


bee.  3)  LIFE    INSURANCE  421 

must  not  only  be  satisfied  that  the  various  false  statements  were  false 
in  fact,  and  were  made  in  and  about  effecting  the  policy,  but  also  that 
such  false  statements  were  material  to  the  insurance."  A  bill  of  ex- 
ceptions was  tendered,  on  the  ground  that  the  jury  should  have  been 
directed  "that  if  the  statements  were  made  in  and  about  effecting  the 
insurance  and  such  statements  were  false  in  fact,  the  defendants  were 
entitled  to  a  verdict,  whether  such  statements  were  or  were  not  mate- 
rial." The  exceptions  were  argued  in  the  Court  of  Exchcfiuer,  where 
judgment  was  ordered  for  the  plaintiff  on  the  verdict.  A  writ  of  error 
was  brought  in  the  Court  of  Exchequer  Chamber,  where  the  judgment 
was  affirmed  by  a  majority  of  seven  to  three.  The  writ  of  error  to  the 
House  of  Lords  was  then  brought.  Mr.  Baron  Parke,  Mr.  Baron 
Alderson,  Mr.  Justice  Coleridge,  Mr.  Justice  Wightman,  Mr.  Justice 
Erie,  Mr.  Justice  Creswell,  Mr.  Baron  Piatt,  Mr.  Justice  Talfourd, 
Mr.  Justice  Williams,  Mr.  Baron  Martin,  and  Mr.  Justice  Crompton 
attended. 

Opinions  were  delivered  by  Mr.  Baron  Parke,  the  Lord  Chancellor, 
Lord  Brougham,  and  Lord  St.  Leonards,  all  concurring  in  reversing 
the  judgment,  on  the  ground  that  the  question  of  the  materiality  of 
the  statements  should  not  have  been  submitted  to  the  jury.  This  case 
was  decided  upon  facts  almost  identical  with  the  one  before  us,  and 
presented  the  precise  question  we  are  considering.  The  counsel  for 
the  defendants  asked  for  a  ruling,  that  if  the  statements  were  untrue, 
the  defendants  were  entitled  to  a  verdict,  whether  they  were  or  were 
not  material.  This  was  refused,  and  the  judge  charged  that  to  entitle 
the  defendants  to  a  verdict,  the  statements  must  not  only  be  false, 
bu  material  to  the  insurance.  This  was  held  to  be  error,  and  the  judg- 
ment was  reversed. 

Cazenove  v.  British  Equitable  Assurance  Company  [6  C.  B.  N.  S. 
437,  141  Eng.  Reprint,  527  (1859)]  is  a  familiar  case,  and  was  decided 
in  the  same  way.  This  case  was  affirmed  in  the  Exchequer  Chamber, 
in  1860  [29  L.  J.  C.  P.  160]. 

Many  cases  may  be  found  which  hold,  that  where  false  answers 
are  made  to  inquiries  which  do  not  relate  to  the  risk,  the  policy  is  not 
necessarily  avoided  unless  they  influenced  the  mind  of  the  company, 
and  that  whether  they  are  material  is  for  the  determination  of  the 
jury.  But  we  know  of  no  respectable  authority  which  so  holds,  where 
it  is  expressly  covenanted  as  a  condition  of  liability  that  the  state- 
ments and  declarations  made  in  the  application  are  true,  and  when  the 
truth  of  such  statements  forms  the  basis  of  the  contract. 

The  counsel  for  the  insured  insists  that  policies  of  insurance  are 
hedged  about  with  so  many  qualifications  and  conditions  that  ques- 
tions are  propounded  with  so  much  ingenuity  and  in  such  detail,  that 
they  operate  as  a  snare,  and  that  justice  is  sacrificed  to  forms.  We  are 
not  called  upon  to  deny  this  statement.  The  present,  however,  is  not 
such  a  case.  The  want  of  honesty  was  on  the  part  of  the  applicant. 
The  attempt  was  to  deceive  the  company.     It  is  a  case,  so  far  as  we 


422  WARRANTIES  (Cll.  C 

can  discover,  in  which  law  and  justice  point  to  the  same  result,  to  wit, 
the  exemption  of  the  company. 

Judgment  affirmed.^ ^  • 

Justices  Clifford  and  ]\Iii.IvE;r  dissenting.^' 

32  See,  also,  Price  v.  Plwnix  Ins.  Co.,  17  Minn.  407  (Gil.  473),  10  Am.  Rep. 
1G6  (1871),  and  Kaiisas  City  Life  Ins.  Co.  v.  Klackstone  (Tex.  Civ.  AvV-)  143 
8.  W.  702  (19112).  In  the  latter  case,  in  reply  to  a  (luestion  of  the  api)lica- 
tion,  the  insured  stated  both  his  place  of  birth  and  his  place  of  residence  to 
be  Bis  Sandy,  T^pshur  county,  Tex.  The  exact  fact  was  that  he  was  born 
and  resided  at  a  point  in  Upshur  county  about  seven  miles  north  of  P>iK 
Sandy.  In  reply  to  another  question  he  stated  that  he  was  not  then  and  had 
never  been  "engaged  in  or  connected  with  the  manufacture  or  sale  of  malt 
or  spirituous  liquors."  The  fact  was  that,  six  or  eight  years  previously, 
when  he  was  a  boy  15  or  16  years  of  age,  the  applicant  had  worked  as  a  hand 
about  a  still  situated  on  his  father's  place,  owned  by  his  father  and  uncles, 
which  during  about  10  years  had  been  operated  by  them  in  the  manufacture 
of  spirituous  liquors.  One  of  the  questions  propounded  in  part  2  of  the 
application  called  upon  the  decedent  to  give  his  "full  family  history  as  ac- 
curately as  possible."  In  reply  to  the  question  the  insured  stated  that  he 
then  had  three  brothers  and  two  sisters  living,  and  a  brother,  but  no  sister, 
dead.  The  fact  was  that  his  father  had  been  married  three  times,  and  thai 
the  decedent  then  had  two  brothers  of  the  whole  and  five  brothers  of  the 
half  blood  living,  and  a  brother  of  the  whole  blood  dead,  and  that  he  had 
two  sisters  of  the  whole  blood  living  and  one  sister  of  the  half  blood  dead. 
The  Court  of  Civil  Appeals,  reversing  the  judgment  for  the  plaintiff  in  the 
lower  court,  held  that  each  answer  above  mentioned  was  such  a  breach  of 
warranty  as  to  avoid  the  policy,  following  Insurance  Co.  v.  Pinson,  94  Tex. 
554,  63  S.  W.  531  (1901),  and  Hutchinson  v.  Insurance  Co.  (Tex.  Civ.  App.) 
39  S.  W.  325  (1897).  On  motion  for  rehearing,  the  court  commented  as  fol- 
lows :  "The  conclusion  reached  by  this  court  that  the  testimony  showed  a 
breach  by  the  insured  of  the  warranties  set  up  by  the  plaintiff  in  error  as  a 
reason  why  a  recovery  on  the  policies  should  be  denied  is  assailed  as  unrea- 
sonable. We  do  not  think  so.  It  was  reached  in  deference  to  the  rule  we 
understand  to  be  established  in  this  state  that,  without  reference  to  their 
materiality,  such  warranties  in  such  a  contract,  if  not  literally,  must  be  sub- 
stantially, true,  otherwise  the  contract  cannot  be  enforced  by  the  party  in- 
tended to  be  indemnified  by  it.  We  agree  that  the  rule  is  unreasonable  when 
applied  to  the  facts  of  such  cases  as  the  Hutchinson  and  Pinson  Cases,  cited 
in  the  opinion,  and  when  applied  to  the  facts  of  this  case.  If  we  were  au- 
thorized to  do  so,  we  would  not  hesitate  to  so  change  it  as  to  require  in  cases 
like  those  and  this  one,  conclusions  radically  different  from  those  reached. 
But,  so  long  as  the  rule  remains  unchanged,  we  cannot  do  otherwise  than  en- 
force it." 

3  3  The  decision  in  this  case  caused  the  enactment  in  1874  of  a  statute 
abolishing  the  strict  rule  as  to  warranties  in  life  insurance.  See  Rev.  St. 
Mo.  1899,  §  7890. 


Sec.  3)  LIFE   INSURANCE  423 

^TNA  LIFE  INS.  CO.  v.  FRANCE. 

(Supreme  Court  of  the  United  States,  1S7G.     94  U.  S.  561,  24  L.  Ed.  287.) 

Mr.  Justice  Bradley,  *  *  *  s*  Second.  The  other  exceptions 
relate  to  alleg-ed  misrepresentations  by  Chew  in  the  proposal  for  in- 
surance. The  policy  makes  the  proposal  and  the  answers  to  the 
questions  therein  a  part  of  the  contract,  and  declares  that  if  they 
shall  be  found  in  any  respect  false  or  fraudulent,  the  policy  itself 
shall  be  void.  Among  the  questions  are  the  following,  with  the 
answers  given  to  each  respectively: 

"  '4.  Place  and  date  of  birth  of  the  party  whose  life  is  to  be  in- 
sured?'    Ans.  'Born  in  New  Jersey,  in  1835.' 

'"5.  Age  and  next  birthday?'  Ans.  'Thirty  years,  Oct.  28,  as 
near  as  I  can  recollect.' 

'"11.  Has  the  party  ever  had  any  of  the  following  diseases;  if 
so,  how  long,  and  to  what  extent:  palsy,  spitting  of  blood,  con- 
sumption, asthma,  bronchitis,  diseases  of  the  lungs,  *  *  *  rup- 
ture, convulsions,  etc.?'    Ans.  'None.' 

'"12.  Is  the  party  subject  to  habitual  cough,  dyspepsia,  etc.?' 
Ans.  'No.' 

"  '13.  Has  the  party  had,  during  the  last  seven  years,  any  severe 
disease?  If  so,  state  the  particulars,  and  the  name  of  the  attending 
physician.'     Ans.  'No.'  " 

The  answers  were  followed  by  this  qualification :  "The  above 
is  as  near  correct  as  I  remember." 

The  defendant  offered  evidence  tending  to  show  that  Chew,  at 
the  time  of  the  application,  would  have  been  thirty-five  or  thirty- 
seven  years  old  at  his  next  birthday,  instead  of  thirty,  and  that  he 
was  born  Oct.  28,  1828 ;  and  that  he  had  been  ruptured  from  in- 
fancy, and  so  continued  up  to  the  date  of  the  application,  and  wore 
a  truss ;  and  that  he  had  had  consumption,  or  some  disease  of  the 
lungs;  and  that  he  was  subject  to  habitual  cough  and  dyspepsia; 
and  had  been  attended  by  physicians  for  severe  disease  within  seven 
years;  and  that  he  knew  all  of  these  matters  at  the  time  of  the 
application.  Counter  evidence  was  given  on  the  part  of  the  plain- 
tiffs. 

Among  the  proofs  of  death  was  an  affidavit  of  the  widow  of 
Chew,  stating  that  he  was  born  Oct.  28,  1828,  which  defendant  re- 
lied on  as  to  the  point  of  age.  Mrs.  France  denied  all  knowledge  of 
the  papers  received  by  defendant  as  proof  of  loss,  except  her  own 
affidavit;  and  as  to  the  alleged  rupture,  called,  amongst  others, 
Dr.  Lewis,  as  an  expert,  and  proposed  to  him  the  question,  whether 
the  existence  of  a  reducible  rupture  in  a  subject  of  life  assurance 
in  his  opinion  appreciably  increased  the  risk  of  the  underwriters? 
The  question  was  objected  to,  but  allowed. 

3*  A  portion  of  the  opinion,  dealing  with  a  question  of  insurable  interest, 
is  omitted. 


424  WAKUA.NTIKS  (Cll.  6 

The  defendant  asked  the  court  to  charge,  that  if  any  of  the  an- 
swers were  untrue,  in  whole  or  in  part,  the  verdict  must  be  for  the 
defendant.  The  court  charged  that  the  truth  or  falsehood  of  the 
answers  materially  affected  the  risk;  but  added:  "But  the  answers 
here  are  qualified  by  the  words  appended  at  the  foot  of  the  applica- 
tion, 'the  above  is  as  near  correct  as  I  remember,'  which  are  applica- 
ble to  all  the  statements  made  by  the  assured.  He  must  be  under- 
stood, therefore,  as  stipulating  only  for  the  integrity  and  approxi- 
mate accuracy  of  his  answers,  and  not  for  their  absolute  verity. 
Without  this  qualification,  substantial  error  in  any  of  his  answers 
would  avoid  the  policy,  irrespective  of  his  motive,  because  he  war- 
ranted their  truth;  with  it,  the  plaintiffs'  right  to  recover  will  not 
be  defeated,  unless  it  appears  that  some  one  of  the  answers  was 
consciously  incorrect.  To  avoid  the  policy,  then,  the  jury  must  be 
satisfied  that  the  answers,  or  some  of  them,  were  untrue  in  any 
respect  materially  affecting  the  risk,  and  that  the  assured  knew  of 
their  incorrectness." 

And,  in  particular,  as  to  Chew's  representation  of  his  age,  the 
court  charged,  "that  if  he  knew,  or  had  reason  to  believe,  that  the 
year  of  his  birth,  as  stated  in  the  answer,  did  not  correctly  indicate 
his  age,  the  policy  is  void,  and  the  plaintiffs  are  not  entitled  to  re- 
cover." 

We  think  the  qualification  made  by  the  court  was  entirely  justi- 
fied by  the  form  in  which  the  answers  were  given.  If  the  company 
was  not  satisfied  with  the  qualified  answer  of  the  applicant,  they 
should  have  rejected  his  application.  Having  accepted  it,  they  were 
bound  by  it. 

As  to  the  diseases  inquired  about,  the  court  charged  substantially 
to  the  same  effect ;  namely,  that  the  answers  called  for  were  ma- 
terial, and  if  untrue,  and  Chew  knew  or  had  reason  to  believe  them 
so,  the  policy  was  void.  As  to  the  alleged  rupture,  in  particular, 
the  court  said:  "If,  however,  it  appears  that  the  rupture  had  been 
completely  reduced,  so  that  its  effects  had  entirely  passed  away, 
and  it  had  ceased  to  affect  his  health  or  impair  his  capacity  to  take 
fatiguing  and  prolonged  exercise,  the  jury  will  determine  whether 
the  answer  is  untrue  as  nearly  as  he  could  remember.  On  the  other 
hand,  if  the  rupture  had  not  been  cured,  it  is  hardly  presumable  that 
he  could  have  forgotten  it  at  the  time  of  the  application ;  and  if 
the  jury  so  find,  it  was  his  duty  to  disclose  the  fact  that  he  had 
been  afflicted  with  this  disease,  and  his  negative  answer  will  avoid 
the  policy." 

And  so  of  the  rest.  We  think  the  charge  was  a  fair  one,  and 
gave  the  defendant  the  full  benefit  of  any  falsity  contained  in  the 
answers  given  by  the  applicant.  Under  the  charge  as  given,  we 
do  not  see  how  the  evidence  of  the  physician,  even  if  irrelevant, 
could  injure  the  defendant. 


Sec.  3)  LIFE   INSURANCE  425 

Other  points  were  raised,  but  it  is  unnecessary  to  discuss  them. 
PVom  a  careful  examination  of  the  whole  case,  as  presented,  we 
are  satisfied  that  there  is  no  error  in  the  record. 

Judgment  affirmed.'*^ 


MOULOR  V.  AMERICAN  LIFE  INS.  CO. 

(Supreme  Court  of  the  United  States,  1884.     Ill  U.  S.  335,  4  Sup.  Ct.  466,  28 

L.  Ed.  447.) 

In  Error  to  the  Circuit  Court  of  the  United  States  for  the  Eastern 
District  of  Pennsylvania. 

This  is  an  action  upon  a  policy  of  insurance  issued  by  the  American 
Life  Insurance  Company  of  Philadelphia.  By  its  terms  the  amount 
insured — $10,000 — is  payable  to  Emilie  Moulor,  the  plaintiff  in  error, 
her  executors,  administrators,  and  assigns,  within  60  days  after  due 
notice  and  satisfactory  proof  of  interest  and  of  the  death  of  her  hus- 
band, the  insured,  certain  indebtedness  to  the  company  being  first  de- 
ducted. Upon  the  first  trial  there  was  a  verdict  for  the  plaintiff,  which 
was  set  aside  and  a  new  trial  awarded.  At  the  next  trial  the  jury  were 
peremptorily  instructed  to  find  for  the  company,  and  judgment  was 
accordingly  entered  in  its  behalf.  Upon  writ  of  error  to  this  court 
that  judgment  was  reversed  upon  the  ground  that,  as  to  certain  issues 
arising  out  of  the  evidence,  the  case  should  have  been  submitted  to 
the  jury.  Moulor  v.  Ins.  Co.,  101  U.  S.  708,  25  L.  Ed.  1077.  At  the 
last  trial  there  was  a  verdict  and  judgment  for  the  defendant.  This 
writ  of  error  is  sued  out  to  review  the  proceedings  and  judgment  at 
that  trial.  The  alleged  errors  and  the  facts  relating  to  them  fully  ap- 
pear in  the  opinion  of  the  court. 

Mr.  Justice  Harlan  delivered  the  opinion  of  the  court:  36     *     *     * 

The  seventh  question  in  the  application  for  insurance  required  the 
insured  to  answer  yes  or  no,  as  to  whether  he  had  ever  been  afflicted 
with  any  of  the  following  diseases :  Insanity,  gout,  rheumatism,  palsy, 
scrofula,  convulsions,  dropsy,  small-pox,  yellow-fever,  fistula,  rupture, 
asthma,  spitting  of  blood,  consumption,  and  diseases  of  the  lungs, 
throat,  heart,  and  urinary  organs.  As  to  each  the  answer  of  the  in- 
sured was,  no. 

The  tenth  question  was :  "Has  the  party's  father,  mother,  brothers, 
or  sisters  been  afflicted  with  consumption  or  any  other  serious  family 

3  5  In  a  former  appeal  of  this  same  case,  reported  in  91  U.  S.  510,  23  L.  Ed. 
401  (1875),  the  qualification  placed  by  the  insured  upon  his  answers  seems  to 
have  been  wholly  overlooked.  Upon  that  appeal  the  judgment  of  the  lower 
court  in  favor  of  the  plaintiff  was  reversed,  on  the  ground  that  the  state- 
ments alleged  to  be  false  were  warranties,  and  their  materiality,  erroneously 
left  to  the  jury. 

As  to  the  effect  of  qualified  warranties,  see  notes,  53  L.  R.  A.  201;  43  L. 
R.  A.  (N.  S.)   431. 

36  A  part  of  the  opinion  determining  certain  questions  of  practice  is  omit- 
ted. 


426  WARRANTIES  (Ch.  6 

disease,  such  as  scrofula,  insanity,  etc.  ?"  The  answer  was,  "No,  not 
since  childhood." 

The  fourteenth  question  was :  "Is  there  any  circumstance  which 
renders  an  insurance  on  his  life  more  than  usually  hazardous,  such  as 
place  of  residence,  occupation,  physical  condition,  family  history, 
hereditary  predispositions,  constitutional  infirmity,  or  other  known 
cause,  or  any  other  circumstance  or  information  with  which  the  com- 
pany ought  to  be  made  acquainted  ?"    The  answer  was,  no. 

To  the  sixteenth  question,  "Has  the  applicant  reviewed  the  answers 
to  the  foregoing  questions,  and  is  it  clearly  understood  and  agreed  that 
any  untrue  or  fraudulent  answers,  or  any  suppression  of  facts  in  re- 
gard to  health,  habits,  or  circumstances,  or  neglect  to  pay  the  premium 
on  or  before  the  time  it  becomes  due,  will,  according  to  the  terms  of 
the  policy,  vitiate  the  same  and  forfeit  all  payments  made  thereon?" 
the  answer  was,  yes. 

At  the  close  of  the  series  of  questions,  19  in  number,  propounded 
to  and  answered  by  the  applicant,  are  the  following  paragraphs: 

"It  is  hereby  declared  and  warranted  that  the  above  are  fair  and 
true  answers  to  the  foregoing  questions ;  and  it  is  acknowledged  and 
agreed  by  the  undersigned  that  this  application  shall  form  a  part  of 
the  contract  of  insurance,  and  that  if  there  be,  in  any  of  the  answers 
herein  made,  any  untrue  or  evasive  statements,  or  any  misrepresenta- 
tion or  concealment  of  facts,  then  any  policy  granted  upon  this  applica- 
tion shall  be  null  and  void,  and  all  payments  made  thereon  shall  be 
forfeited  to  the  company. 

"And  it  is  further  agreed  that  if  at  any  time  hereafter  the  com- 
pany shall  discover  that  any  of  said  answers  or  statements  are  untrue 
or  evasive,  or  that  there  has  been  any  concealment  of  facts,  then,  and 
in  every  such  case,  the  company  may  refuse  to  receive  further  pre- 
miums on  any  policy  so  granted  upon  this  application,  and  said  policy 
shall  be  null  and  void,  and  payments  forfeited  as  aforesaid." 

The  policy  recites  that  the  agreement  of  the  company  to  pay  the  sum 
specified  is  "in  consideration  of  the  representations  made  to  them  in 
the  application,"  and  of  the  payment  of  the  premium  at  the  time 
specified ;  further,  "it  is  hereby  declared  and  agreed  that  if  the  repre- 
sentations and  answers  made  to  this  company,  on  the  application  for 
this  policy,  upon  the  full  faith  of  which  it  is  issued,  shall  be  found  to 
be  untrue  in  any  respect,  or  that  there  has  been  any  concealment  of 
facts,  then  and  in  every  such  case  the  policy  shall  be  null  and  void." 

The  main  defense  was  that  the  insured  had  been  afflicted  with 
scrofula,  asthma,  and  consumption  prior  to  the  making  of  his  applica- 
tion, and  that,  in  view  of  his  statement  that  he  had  never  been  so 
afflicted,  the  policy  was,  by  its  terms,  null  and  void.  There  was,  un- 
doubtedly, evidence  tending  to  show  that  the  insured  had  been  afflicted 
with  those  diseases,  or  some  of  them,  prior  to  his  application ;  but  there 
was  also  evidence  tending  to  show  not  only  that  he  was  then  in  sound 
health,  but  that,  at  the  time  of  his  application,  he  did  not  know  or 


Sec.  3)  LIFE    INSURANCE  427 

believe  that  he  had  ever  been  afflicted  with  any  of  them  in  a  sensible, 
appreciable  form. 

Referring  to  the  seventh  question  in  the  application,  the  court — after 
observing  that  the  answer  thereto  was  untrue,  and  the  policy  avoided, 
if  the  insured  had  been,  at  any  time,  afflicted  with  either  of  the  diseases 
last  referred  to — instructed  the  jury:  "It  is  of  no  consequence,  in 
such  case  whether  he  knew  it  to  be  untrue  or  not;  he  bound  himself 
for  its  correctness,  and  agreed  that  the  validity  of  his  policy  should 
depend  upon  its  being  so."  Again :  "That  he,  the  insured,  did  not  know- 
he  was  then  afflicted,  is  of  no  importance  whatever,  except  as  it  may 
bear  upon  the  question,  was  he  afflicted?  If  he  was,  his  answer  (for  the 
truth  of  which  he  bound  himself)  was  untrue,  and  his  knowledge,  or  ab- 
sence of  knowledge,  on  the  subject,  is  of  no  consequence."  Further: 
"You  [the  jury]  must  determine  whether  the  insured  was  at  any  time 
afflicted  with  either  of  the  diseases  named.  If  he  was,  his  answer,  in 
this  respect,  was  untrue,  and,  notwithstanding  he  may  have  ignorantly 
and  honestly  made  it,  the  policy  is  void,  and  no  recovery  can  be  had 
upon  it."  To  so  much  of  the  charge  as  we  have  quoted  the  plaintiff 
excepted. 

Assuming — as  in  view  of  the  finding  of  the  jury  we  must  assume — 
that  the  insured  was,  at  the  date  of  his  application,  or  had  been  prior 
thereto,  afflicted  with  the  disease  of  scrofula,  asthma,  or  consumption, 
the  question  arises  whether  the  beneficiary  may  not  recover,  unless  it 
appears  that  he  had  knowledge,  or  some  reason  to  believe,  when  he 
applied  for  insurance,  that  he  was  or  had  been  afflicted  with  either 
of  those  diseases.  The  circuit  court  plainly  proceeded  upon  the  ground 
that  his  knowledge  or  belief  as  to  having  been  afflicted  with  the  diseas- 
es specified,  or  of  some  one  of  them,  was  not  an  essential  element  in 
the  contract ;  in  other  words,  if  the  assured  ever  had,  in  fact,  any  one 
of  the  diseases  mentioned  in  his  answer  to  the  seventh  question,  there 
could  be  no  recovery,  although  the  jury  should  find  from  the  evidence 
that  he  acted  in  perfect  good  faith,  and  had  no  reason  to  suspect,  much 
less  to  believe  or  know,  that  he  had  ever  been  so  afflicted.  If,  upon  a 
reasonable  interpretation,  such  was  the  contract,  the  duty  of  the  court 
is  to  enforce  it  according  to  its  terms ;  for  the  law  does  not  forbid 
parties  to  a  contract  for  life  insurance  to  stipulate  that  its  validity  shall 
depend  upon  conditions  or  contingencies  such  as  the  court  below  de- 
cided were  embodied  in  the  policy  in  suit.^^ 

3  7  Warranties  of  Good  Health. — By  the  great  weight  of  authority,  if  a 
statement  of  the  insured  as  to  his  health  is  warranted  to  be  true  in  every 
respect,  its  incorrectness  in  fact  will  wholly  avoid  the  policy,  even  though 
the  insured  acted  in  perfect  good  faith  and  had  no  means  of  knowing  that 
he  was  diseased.  See  National  Annuity  Ass'n  v.  McCall.  103  xVrk.  1*01,  146 
S.  W.  125,  48  L.  R.  A.  (N.  S.)  418  (1912)  ;  Woehrle  v.  Metropolitan  Life  Ins. 
Co.,  21  Misc.  Rep.  88,  46  N.  Y.  Supp.  862  (1897)  ;  Campbell  v.  Insurance  Co., 
98  Mass.  381  (1867)  ;  Supreme  Lodge,  K.  &  L.  of  H.,  v.  Payne,  101  Tex.  449. 
108  S.  W.  1160,  15  L.  R.  A.  (N.  S.)  1277  (1908)  ;  McClain  v.  Provident  Sav- 
ings &  Life  Assur.  Soc.  (C.  C.)  105  Fed.  834  (1901)  ;  Swick  v.  Insurance  Co., 
2  Dill.  160,  Fed.  Cas.  No.  13,692  (1873).    In  Knights  of  Maccabees  v.  Shields, 


428  WARUANTIES  (Ch.  6 

The  contracts  involved  in  Jeffries  v.  Life  Ins.  Co.,  22  Wall.  47,  22 
L.  Ed.  833,  and  ^tna  Life  Ins.  Co.  v.  France,  etc.,  91  U.  S.  510,  23 
L.  Ed.  401,  were  held  to  be  of  that  kind.  But,  unless  clearly  demanded 
by  the  establislied  rules  governing  the  construction  of  written  agree- 
ments, such  an  interpretation  ought  to  be  avoided.  In  the  absence  of 
explicit,  unequivocal  stipulations  re(|uiring  such  an  interpretation,  it 
should  not  be  inferred  that  a  person  took  a  life  policy  with  the  dis- 
tinct understanding  that  it  should  be  void,  and  all  premiums  paid 
thereon  forfeited,  if  at  any  time  in  the  past,  however  remote,  he 
was,  whether  conscious  of  the  fact  or  not,  afllicted  with  some  one  of 
the  diseases  mentioned  in  the  question  to  which  he  was  required  to 
make  a  categorical  answer.  If  those  who  organize  and  control  life 
insurance  companies  wish  to  exact  from  the  applicant,  as  a  condition 
precedent  to  a  valid  contract,  a  guaranty  against  the  existence  of 
diseases,  of  the  presence  of  which  in  his  system  he  has  and  can  have 
no  knowledge,  and  which  even  skillful  physicians  are  often   unable, 

157  Ky.  35,  1G2  S.  W.  778,  49  L.  R.  A.  (N.  S.)  854  (1914),  the  court  went  so 
far  as  to  hold  that  an  innocent  misstatement  tliat  the  insured  liad  never 
Iiad  diabetes  avoided  the  policy,  in  spite  of  the  statute  (Ky.  St.  §  639),  which 
provided  that  statements  and  descriptions  in  applications  and  policies  should 
be  considered   representations  and  not  warranties. 

A  few  courts  take  the  view  that  the  insured  warrants  only  his  good  faith 
in  making  the  representation  as  to  his  health.  See  Grattan  v.  Insurance  Co., 
92  N.  Y.  274,  44  Am.  Kep.  372  (1883)  ;  Ames  v.  Insurance  Co.,  40  App.  Div. 
465,  58  N.  Y.  Supp.  244  (1899)  ;  Schwarzbach  v.  Protective  Union,  25  W.  Va. 
622,  52  Am.  Rep.  227  (1885).  This  view  is  vigorously  expressed  in  the  opin- 
ion of  Ailshie,  J.,  in  Rasicot  v.  Royal  Neighbors  of  America,  18  Idaho,  95, 
108  Pac.  1048,  29  L.  R.  A.  (N.  S.)  433,  138  Am.  St.  Rep.  180  (1910),  as  fol- 
lows : 

"At  the  outset  it  must  be  conceded  that,  under  the  terms  of  this  contract, 
the  answers  given  by  the  applicant  for  insurance  are  viewed  by  the  law  in 
the  nature  of  wai'ranties  rather  than  as  mere  representations.  *  *  *  j^ 
has  been  found  as  a  fact  that  the  insured  was  pregnant  at  the  time  she  made 
application  for  insurance,  and  at  the  time  the  benetit  certificate  was  issued 
to  her.  It  is  also  established  that  she  did  not  know  of  her  pregnancy  at  the 
time,  and  that  her  answer  was  in  good  faith  and  lionestly  made.  Viewing 
these  facts  alone,  if  we  should  follow  the  inflexible  technical  rule  of  war- 
ranties which  has  been  adopted  by  many  courts,  the  inquiry  would  end  here, 
and  we  would  hold  that  the  breach  itself  avoided  the  contract,  and  that  the 
subsequent  conduct  of  the  society  could  not  be  considered.  Joyce  on  Insur- 
ance, §  1970 ;  McDermott  v.  Modem  Woodmen  of  America,  97  Mo.  App.  030, 
71  S.  W.  833  (1903)  ;  Hoover  v.  Royal  Neighbors  of  America,  65  Kan.  616, 
70  Pac.  595  (1902)  ;  Beard  v.  Royal  Neighbors  of  America,  53  Or.  102,  99  Pac. 
83,  19  L.  R.  A.    (N.  S.)   798,  17  Ann.  Cas.  1199    (1909).     *     *     * 

'•The  state  is  vitally  interested  in  the  thrift  and  frugality  of  its  citizens, 
and  in  encouraging  the  citizen  in  providing  for  his  family  and  looking  to 
their  protection  and  comfort  in  the  event  of  his  demise.  To  allow  him  wheu 
acting  honestly  and  from  the  most  laudable  motive  to  be  led  on  under  the 
belief  that  he  is  devoting  his  savings  to  the  purchase  of  a  legacy  for  his  de- 
pendent ones,  and  then,  when  the  beneticiary  comes  to  make  demand  for  that 
paltry  recompense,  to  tell  him  that  the  courts,  the  final  arbiters  of  )iis  rights, 
will  not  listen  to  the  equity  of  the  case,  would  be  doing  \iolence  to  the  princi- 
ples of  fair  dealing,  and  would  be  likewise  contrary  to  the  best  interests  of 
the  public  at  large,  which  we  term  'public  policy.'  Had  the  insured  been  in 
any  manner  advised  that  her  policy  was  not  in  force,  she  would  perhaps  have 
procured  one  that  would  have  been  valid,  and  this  would  have  been  to  the 
benefit  of  her  family  and  in  the  interest  of  society  as  well,  and  the  state  it- 


Sec.  3)  LIFE    INSURANCE  429 

after  the  most  careful  examination,  to  detect,  the  terms  of  the  con- 
tract to  that  effect  must  be  so  clear  as  to  exclude  any  other  conclu- 
sion.^^    *     *     * 

We  have  seen  that  the  application  contains  a  stipulation  that  it  shall 
form  a  part  of  the  contract  of  insurance ;  also,  that  the  policy  purports 
to  have  been  issued  upon  the  faith  of  the  representations  and  answers 
in  that  application.  Both  instruments,  therefore,  may  be  examined  to 
ascertain  whether  the  contract  furnishes  a  uniform,  fixed  rule  of  inter- 
pretation, and  what  was  the  intention  of  the  parties.  Taken  together, 
it  cannot  be  said  that  they  have  been  so  framed  as  to  leave  no  room  for 
construction.  The  mind  does  not  rest  firmly  in  the  conviction  that 
the  parties  stipulated  for  the  literal  truth  of  every  statement  made  by 
the  insured. 

self  must  feel  an  interest  in  having  her  take  such  precautions,  and  in  that 
sense  the  construction  of  such  contracts  becomes  a  matter  of  public  policy. 
The  insurer  cannot  suffer  half  so  much  from  such  a  policy  and  such  a  con- 
struction as  the  individuals  interested,  and  society  at  large  nmst  in  the  end 
of  necessity  suffer  from  the  cold-blooded,  technical  rule  that  seems  to  pre- 
vail in  so  many  jurisdictions.  This  ought  to  be  the  rule  in  order  to  prevent 
organizations  soliciting  membership,  receiving  insurance  applications,  and 
accepting  dues  and  assessments  for  years,  and  then,  after  the  applicant  is 
perhaps  too  old  to  procure  insurance  elsewhere,  tell  the  insured  that  he 
made  a  false  answer  in  some  one  of  the  numerous  questions  propounded  by 
the  society,  and  that  consequently  his  policy  has  never  been  in  force.  Such 
a  contract  is  clearly  violative  of  the  interests  of  society  at  large  and  of  the 
welfare  of  its  citizens,  and  ought  to  be  discouraged.  The  more  than  200 
questions  contained  in  one  application  blank  run  the  gamut  of  the  appli- 
cant's ancestry  from  his  grand  ancestors  down  to  date,  and  ask  him  about 
every  disease  and  pathological  condition  for  which  the  medical  world  has 
been  able  to  invent  a  name,  and  then,  if  forsooth  he  misses  a  guess  on  any 
one  of  them,  he  is  chargeable  with  expert  knowledge  and  warranting  the  cor- 
rectness of  his  answers,  and  must  lose  his  protection  on  the  venture  of  a 
guess.  In  such  a  game  the  insured  has  only  a  chance  in  hundreds,  and  the 
result  must  follow  that  he  only  thinks  he  is  insured.  It  amounts  to  mental 
insurance  and  nothing  more.  The  insurance  society  in  such  case  could  exist, 
for  the  sole  and  only  purpose  of  collecting  dues  and  assessments  with  no  in- 
surance liability. 

"Some  courts  have  held,  and  we  think  the  rule  sound,  that,  notwithstand- 
ing the  stipulation  of  warranty  in 'such  contracts,  answers  which  merely  ex- 
press the  opinion  or  judgment  of  the  applicant  cannot  be  classed  among  the 
facts,  the  truth  of  which  is  insured  by  the  applicant — that  he  only  warrants 
his  honestv  and  good  faith  as  to  such  answers.  Rupert  v.  Supreme  Court 
IT.  O.  F.,  94  Minn.  293,  102  N.  W.  715  (1905)  ;  Ranta  v.  Supreme  Tent  of 
Maccabees,  97  Minn.  454,  107  N.  W.  15G  (1906)  ;  Royal  Nei£:hbors  of  Ameri- 
ca V.  Wallace,  73  Neb.  409,  102  N.  W.  1020  (1905)  ;  Royal  Neighbors  of  Amer- 
ica V.  Wallace,  5  Neb.  (Unof.)  519,  99  N.  W.  256  (1904).  *  *  *  This  rule 
seems  to  us  more  in  consonance  with  reason  and  justice  than  the  rule  of 
strict  literal  warranty  contended  for  by  appellant." 

It  is  everywhere  held  that  a  statement  as  to  bodily  health,  warranted  to 
be  true  to  the  best  of  the  insured's  knowledge  and  belief,  warrants  only  his 
good  faith.  See  Lakka  v.  Modern  Brotherhood  (Iowa)  143  N.  W\  513,  49  L. 
R.  A.  (N.  S.)  902  (1913)  ;  ^tna  Life  Ins.  Co.  v.  France,  94  U.  S.  561,  24  I.. 
Ed.  287  (1876),  ante,  p.  423 ;  Smith  v.  Prudential  Ins.  Co.,  83  N.  J.  Law,  719, 
85  Atl.  190,  43  L.  R.  A.   (N.  S.)  431   (1912). 

3  8  Here  the  court  comments  upon  Nat.  Bank  v.  In.surance  Co.,  95  U.  S. 
673,  24  L.  Ed.  563,  ante,  p.  402  (1S77).  and  Grace  v.  American  Ins.  Co.,  109 
U.  S.  282,  3  Sup.  Ct.  207,  27  L.  Ed.  932  (1883),  and  quotes  from  the  opinion 
in  the  former  case. 


430  WARUANTIRS  (Cll.  6 

There  is,  to  say  the  least,  ground  for  serious  doubt  as  to  whether 
the  company  intended  to  require,  and  the  insured  intended  to  promise, 
an  exact,  hteral  fulfilhnent  of  all  the  declarations  eml)odied  in  the 
application.  It  is  true  that  the  word  "warranted"  is  in  the  applica- 
tion ;  and,  although  a  contract  might  be  so  framed  as  to  impose  upon 
the  insured  the  obligations  of  a  strict  warranty,  without  introducing 
into  it  that  particular  word,  yet  it  is  a  fact,  not  without  some  sig- 
nificance, that  that  word  was  not  carried  forward  into  the  policy,  the 
the  terms  of  which  control,  when  there  is  a  conflict  between  its  provi- 
sions and  those  of  the  application.  The  policy  upon  its  face  charac- 
terizes the  statements  of  the  insured  as  representations.  Thus,  we 
have  one  part  of  the  contract  apparently  stipulating  for  a  warranty, 
while  another  part  describes  the  statements  of  the  assured  as  repre- 
sentations. The  doubt,  as  to  the  intention  of  the  parties,  must,  ac- 
cording to  the  settled  doctrines  of  the  law  of  insurance,  recognized  in 
all  the  adjudged  cases,  be  resolved  against  the  party  whose  language 
it  becomes  necessary  to  interpret.  The  construction  must,  therefore, 
prevail  which  protects  the  insured  against  the  obligations  arising  from 
a  strict  warranty. 

But  it  is  contended  that  if  the  answers  of  the  assured  are  to  be  deem- 
ed representations  only,  the  policy  was,  nevertheless,  forfeited,  if  those 
representations  were  untrue  in  respect  of  any  matters  material  to  the 
risk.  The  argument  is  that  if  the  insured  was,  at  the  time  of  his  ap- 
plication, or  had  been  at  any  former  period  of  his  life,  seriously  or  in 
an  appreciable  sense,  afflicted  with  scrofula,  asthma,  or  consumption, 
his  answer,  without  qualification,  that  he  had  never  been  so  afflicted, 
being  untrue,  avoided  the  policy,  without  reference  to  any  knowledge 
or  belief  he  had  upon  the  subject.  The  soundness  of  this  proposition 
could  not  be  disputed  if,  as  assumed,  the  knowledge  or  good  faith  of 
the  insured,  as  to  the  existence  of  such  diseases,  was,  under  the  terms 
of  the  contract  in  suit,  of  no  consequence  whatever  in  determining  the 
liability  of  the  company.  But  is  that  assumption  authorized  by  a 
proper  interpretation  of  the  two  instruments  constituting  the  contract? 
We  think  not. 

Looking  into  the  application,  upon  the  faith  of  which  the  policy  was 
issued  and  accepted,  we  find  much  justifying  the  conclusion  that  the 
company  did  not  require  the  insured  to  do  more,  when  applying  for 
insurance,  than  observe  the  utmost  good  faith,  and  deal  fairly  and 
honestly  with  it,  in  respect  of  all  material  facts  about  which  inquiry  is 
made,  and  as  to  which  he  has  or  should  be  presumed  to  have  knowl- 
edge or  information.  The  applicant  was  required  to  answer  yes  or 
no  as  to  whether  he  had  been  afflicted  with  certain  diseases.  In 
respect  of  some  of  those  diseases,  particularly  consumption,  and  dis- 
eases of  the  lungs,  heart,  and  other  internal  organs,  common  experience 
informs  us  that  an  individual  may  have  them  in  active  form,  without, 
at  the  time,  being  conscious  of  the  fact,  and  beyond  the  power  of  any 
one,  however  learned  or  skillful,  to  discover.    Did  the  company  expect, 


Sec.  3)  LIFE    INSURANCE  431 

when  requiring  categorical  answers  as  to  the  existence  of  diseases  of 
that  character,  that  the  appHcant  should  answer  with  absolute  certain- 
ty about  matters  of  which  certainty  could  not  possibly  be  predicated? 
Did  it  intend  to  put  upon  him  the  responsibility  of  knowing  that  which, 
perhaps,  no  one,  however  thoroughly  trained  in  the  study  of  human 
diseases,  could  possibly  ascertain?  We  shall  be  aided  in  the  solution 
of  these  inquiries  by  an  examination  of  other  questions  propounded 
to  the  applicant.  In  that  way  we  may  ascertain  what  was  in  the  minds 
of  the  parties. 

Beyond  doubt  the  phrase  "other  known  cause,"  in  the  fourteenth 
question,  serves  the  double  purpose  of  interpreting  and  qualifying  all 
that  precedes  it  in  the  same  clause  or  sentence.  For  instance,  the 
applicant  was  not  required  to  state  all  the  circumstances  within  his 
recollection  of  his  family  history,  but  those  only  which  rendered  the 
proposed  insurance  more  than  usually  hazardous,  and  of  which  he 
had  personal  knowledge  or  of  which  he  had  information  fairly  justify- 
ing a  belief  of  their  existence.  If  he  omitted  to  state  circumstances 
in  his  "family  history"  of  which  he  had  no  knowledge,  nor  any  in- 
formation deserving  attention,  that  omission  would  not  avoid  the 
policy,  although  it  subsequently  appeared  that  those  circumstances, 
if  known  to  the  company,  would  have  shown  that  the  proposed  insur- 
ance was  more  than  usually  hazardous. 

Apart  from  other  questions  or  clauses  in  the  application,  the  tenth 
question  would  indicate  that  an  incorrect  or  untrue  answer  as  to  wheth- 
er the  applicant's  "father,  mother,  brothers,  or  sisters  had  been  affect- 
ed with  consumption,  or  any  other  serious  family  disease,  such  as 
scrofula,  insanity,  etc.,"  would  absolve  the  company  from  all  liability. 
Yet,  in  the  fourteenth  question,  the  insured,  being  asked  as  to  his 
family  history  and  as  to  "hereditary  predispositions," — an  inquiry  sub- 
stantially covering  some  of  the  specific  matters  referred  to  in  the 
tenth  question, — was,  as  we  have  seen,  only  required  to  state  such 
circumstances  as  were  known  to  him,  or  of  which  he  had  information, 
and  which  rendered  an  insurance  upon  his  life  more  than  usually 
hazardous. 

So,  in  reference  to  that  part  of  the  fourteenth  question  relating  to 
the  then  physical  condition  of  the  applicant.  Suppose  at  the  time 
of  his  application  he  had  a  disease  of  the  lungs  or  heart,  but  was  en- 
tirely unaware  that  he  was  so  affected.  In  such  a  case  he  would  have 
met  all  the  requirements  of  that  particular  question,  and  acted  in  the 
utmost  good  faith,  by  answering  no,  thereby  implying  that  he  was 
aware  of  no  circumstance  in  his  then  physical  condition  whicln"endered 
an  insurance  upon  his  life  more  than  usually  hazardous.  And  yet, 
according  to  the  contention  of  the  company,  if  he  had,  at  any  former 
period  of  his  life,  been  afflicted  with  a  disease  of  the  heart  or  lungs, 
his  positive  answer  to  the  seventh  question,  that  he  had  not  been  so 
afflicted,  was  fatal  to  the  contract ;   this,  although  the  applicant  had  no 


432  WARRANTIES  (Ch.  6 

knowledge  or  information  of  the  existence  at  any  time  of  such  a  dis- 
ease in  his  system. 

So,  also,  in  reference  to  the  in(|uiry  in  tlic  fourteenth  question  as  to 
any  "constitutional  infirmity"  of  the  insured.  If,  in  answerinj,^  that 
(juestion,  he  was  required  to  disclose  only  such  constitutional  infirmi- 
ties as  were  then  known  to  him,  or  which  he  had  reason  to  helieve 
then  existed,  it  would  be  unreasonable  to  infer  that  he  was  expected- 
in  answer  to  a  prior  question,  in  the  same  policy,  to  guaranty  absolute- 
ly, and  as  a  condition  precedent  to  any  binding  contract,  that  he  had 
never,  at  any  time,  been  afilicted  with  diseases  of  which,  perhaps,  he 
never  had  and  could  not  have  any  knowledge  whatever. 

The  entire  argument  in  behalf  of  the  company  proceeds  upon  a  too 
literal  interpretation  of  those  clauses  in  the  policy  and  application 
which  declare  the  contract  null  and  void  if  the  answers  of  the  insured 
to  the  questions  propounded  to  him  were,  in  any  respect,  untrue. 
What  was  meant  by  "true"  and  "untrue"  answers  ?  In  one  sense,  that 
only  is  true  which  is  conformable  to  the  actual  state  of  things.  In 
that  sense,  a  statement  is  untrue  which  does  not  express  things  exactly 
as  they  are.  But  in  another  and  broader  sense  the  word  "true"  is 
often  used  as  a  synonym  of  honest,  sincere,  not  fraudulent.  Looking 
at  all  the  clauses  of  the  application,  in  connection  with  the  policy,  it 
is  reasonably  clear — certainly  the  contrary  cannot  be  confidently  as- 
serted— that  what  the  company  required  of  the  applicant,  as  a  condi- 
tion precedent  to  any  binding  contract,  was,  that  he  would  observe 
the  utmost  good  faith  towards  it,  and  make  full,  direct,  and  honest  an- 
swers to  all  questions,  without  evasion  or  fraud,  and  without  suppres- 
sion, misrepresentation,  or  concealment  of  facts  with  which  the  com- 
pany ought  to  be  made  acquainted ;  and  that  by  so  doing,  and  only  by 
so  doing,  would  he  be  deemed  to  have  made  "fair  and  true  answers." 
If  it  be  said  that  an  individual  could  not  be  afflicted  wuth  the  dis- 
eases specified  in  the  application,  without  being  cognizant  of  the  fact, 
the  answer  is  that  the  jury  would,  in  that  case,  have  no  serious  diffi- 
culty in  finding  that  he  had  failed  to  communicate  to  the  company 
what  he  knew  or  should  have  known  was  material  to  the  risk,  and 
that,  consequently,  for  the  want  of  "fair  and  true  answers,"  the  policy 
was,  by  its  terms,  null  and  void.  But,  whether  a  disease  is  of  such 
a  character  that  its  existence  must  have  been  known  to  the  individual 
afflicted  with  it,  and  therefore  whether  an  answer  denying  its  existence 
was  or  not  a  fair  and  true  answer,  is  a  matter  which  should  have 
been  submitted  to  the  jury.  It  was  an  erroneous  construction  of  the 
contract  to  hold,  as  the  court  below  did,  that  the  company  was  relieved 
from  liability  if  it  appeared  that  the  insured  was,  in  fact,  afflicted  with 
the  diseases,  or  any  of  them,  mentioned  in  the  charge  of  the  court. 
The  jury  should  have  been  instructed,  so  far  as  the  matters  here  under 
examination  are  concerned,  that  the  plaintifif  was  not  precluded  from 
recovering  on  the  policy,  unless  it  appeared  from  all  the  circumstances, 
includino^  the  nature  of  the  diseases  with  which  the  insured  was  al- 


Sec.  3)  LIFE    INSURANCE  433 

leged  to  have  been  afflicted,  that  he  knew,  or  had  reason  to  beHeve,  at 
the  time  of  his  apphcation,  that  he  was  or  had  been  so  afflicted. 

It  results  from  what  has  been  said  that  the-  judgment  must  be  re- 
versed with  directions  to  set  aside  the  verdict,  and  for  further  proceed- 
ings consistent  with  this  opinion.     It  is  so  ordered. ^^ 

3  9  The  tendency  in  the  more  recent  cases  is  to  give  very  little  effect  to  the 
term  "warrant"  or  "warranty"  in  determining  the  real  character  of  state- 
ments inducing  the  issue  of  policies.  See  note  in  11  L.  R.  A.  (N.  S.)  981, 
attached  to  the  report  of  Reppond  v.  National  Life  Ins.  Co.,  100  Tex.  519, 
101  S.  W.  7S6,  11  L.  R.  A.  (N.  S.)  981,  15  Ann.  Cas.  618  (1907).  The  same 
tendency  is  noticeable  in  the  English  cases. 

"Insurers  are  thus  in  the  highly  favorable  position  that  they  are  entitled 
not  only  to  bona  fides  on  the  part  of  the  applicant,  but  also  to  full  disclosure 
of  all  knowledge  possessed  by  the  applicant  that  is  material  to  the  risk. 
And  in  my  opinion  they  would  have  been  wise  if  they  had  contented  them- 
selves with  this.  Unfortunately  the  desire  to  make  themselves  doubly  se- 
cure has  made  them  depart  widely  from  this  position  by  requiring  the  as- 
sured to  agree  that  the  accuracy,  as  well  as  the  bona  fides,  of  his  answers 
to  various  questions  put  to  him  by  them  or  on  their  behalf  shall  be  a  condi- 
tion of  the  validity  of  the  policy.  This  might  be  reasonable  in  some  mat- 
ters, such  as  the  age  and  parentage  of  the  applicant,  or  information  as  to 
his  family  history,  which  he  must  know  as  facts.  Or  it  might  be  justifiable 
to  stipulate  that  these  conditions  should  obtain  for  a  reasonable  time — say 
during  two  years — during  which  period  the  company  might  verify  the  ac- 
curacy of  the  statements  which  by  hypothesis  have  been  made  bona  fide  by 
the  applicant.  But  insurance  companies  have  pushed  the  practice  far  be- 
yond these  limits,  and  have  made  the  correctness  of  statements  of  matters 
wholly  beyond  his  knowledge,  and  which  can  at  best  be  only  statements  of 
opinion  or  belief,  conditions  of  the  validity  of  the  policy.  For  instance,  one 
of  the  commonest  of  such  questions  is,  'Have  you  any  disease?'  Not  even  the 
most  skilled  doctor,  after  the  most  prolonged  scientific  examination,  could 
answer  such  a  question  with  certainty,  and  a  layman  can  only  give  his  hon- 
est opinion  on  it.  But  the  policies  issued  by  many  companies  are  framed  so 
as  to  be  invalid  unless  this  and  many  other  like  questions  are  correctly — 
not  merely  truthfully — answered,  though  the  insurers  are  well  aware  that  it 
is  impossible  for  any  one  to  arrive  at  anything  more  certain  than  an  opinion 
about  them.  I  wish  I  could  adequately  warn  the  public  against  such  prac- 
tices on  the  part  of  insurance  otfices.  I  am  satisfied  that  few  of  those  who 
insure  have  any  idea  how  completely  tliey  leave  themselves  in  the  hands  of 
the  insurers,  should  the  latter  wish  to  dispute  the  policy  when  it  falls  in. 
In  the  case  of  the  question  to  which  I  liave  referred,'  if  it  can  be  shown,  even 
by  the  aid  of  the  contemporaneous  examination  of  the  medical  referee  of  the 
office  itself,  that  the  insured  had  at  the  time  some  disease,  the  policy  is  void. 
The  di.sease  may  have  been  unknown,  and  even  undiscoverable;  it  may  have 
been  transient,  and  have  had  no  effect  on  his  future  life,  or  on  the  cause 
of  his  death.  These  things  are  immaterial.  If  the  company  choose  to  dis- 
pute the  policy,  and  establish  a  single  inaccuracy  in  these  statements,  which 
are  thus  made  conditions,  the  policy  is  void,  and  usually  all  that  has  been 
paid  thereon  is  forfeit.  *  *  *  Under  these  circumstances  it  is  plainly  the 
duty  of  the  court  to  require  the  insurers  to  establish  clearly  that  the  insured 
consented  to  the  accuracy,  and  not  the  truthfulness,  of  his  statements  being 
made  a  condition  of  the  validity  of  the  policy.  No  ambiguous  language  suf- 
fices for  this  purpose.  The  applicant  can  be  and  is  called  on  to  answer  all 
questions  relevant  to  the  matter  in  hand.  But  this  is  merely  the  fulfillment 
of  a  duty — it  is  not  contracttial.  To  make  the  accuracy  of  these  answers  a 
condition  of  the  contract  is  a  contractual  act,  and,  if  there  is  the  slightest 
doubt  that  the  insurers  have  failed  to  malve  clear  to  the  man  on  whom  they 
have  exercised  their  right  of  requiring  full  information  that  he  is  consenting 
thus  to  contract,  we  ouciht  to  refuse  to  regard  the  correctness  of  the  answers 
given  as  being  a  condition  of  the  validity  of  the  policy.  In  other  words,  the 
Vance  Ins. — 28 


434  WARRANTIES  (Cll.  6 


SECTION  4.— WARRANTY  AS  AFFECTED  BY  STATUTE 


FIDELITY  MUT.  LIFE  ASS'N  OF  PHILADELPHIA  v. 
FICKLIN  et  al. 

(Court  of  Appeals  of  Maryland,  1891.     74  Md.  172,  21  Atl.  GSO,  2.'}  Atl.  l')7.) 

Action  on  a  policy  of  insurance  issued  May  13,  1887,  in  tlie  city  of 
Baltimore  upon  the  life  of  Thos.  D.  Ficklin,  by  the  defendant  associa- 
tion, incorporated  under  the  laws  of  Pennsylvania.  The  provisions  of 
the  policy  made  all  the  statements  in  the  application  unequivocally 
warranties.  Ficklin  died  March  2,  1888.  The  statute  of  Pennsyl- 
vania referred  to  in  the  opinion  of  the  court  was  pleaded  and  proved. 

Among  other  grounds  of  defense,  the  defendant  claimed  that  the 
policy  was  avoided  in  accordance  with  its  terms  by  the  falseness  of 
certain  statements  made  in  the  application.  The  court  left  it  to  the 
jury  to  decide  on  all  the  evidence  whether  the  answers  alleged  to  be 
false  were  made  in  good  faith,  and  whether  they  were  material  to  the 
risk.  The  verdict  was  for  the  plaintiff,  and  from  judgment  entered 
thereon  defendant  appealed. '*'' 

Bryan,  j_  *  *  *  According  to  the  terms  of  the  policy,  the  assured 
warrants  every  answer  contained  in  his  application  "to  be  full,  com- 
plete, and  true."  By  the  ordinary  principles  governing  policies  of 
insurance,  this  warranty  would  impose  on  the  plaintiffs  the  onus  of 
proving  the  literal  truth  of  these  answers.  Insurance  Co.  v.  Wise,  34 
Aid.  597.  But  the  statute  of  Pennsylvania  which  was  offered  in  evi- 
dence enacts  that  in  such  case  no  misrepresentation  or  untrue  state- 
ment in  the  application,  made  in  good  faith  by  the  applicant,  shall  effect 
a  forfeiture  or  be  a  ground  of  defense,  unless  it  relate  to  some  matter 
material  to  the  risk.  It  is  beyond  question  that  the  powers  and  capac- 
ities of  a  Pennsylvania  corporation  are  conferred  and  regulated  by  the 
law  of  that  state.  Without  its  authority  it  could  not  exist  at  all.  Ev- 
ery contract  it  makes,  every  act  it  performs,  every  right  it  acquires, 
and  every  obligation  it  assumes  must  be  by  virtue  of  the  same  author- 
ity. It  may  make  contracts,  transact  business,  sue  and  be  sued,  beyond 
the  limits  of  the  state  of  its  origin.  But  all  these  transactions  are  by 
the  permission  of  the  state  where  they  occur,  and  not  by  virtue  of 
any  right  belonging  to  the  corporation.     Everywhere,  within  and  with- 

insurers  must  prove  by  clear  and  express  language  the  animus  contrahendi 
on  the  part  of  the  applicant ;  it  will  not  be  inferred  from  the  fact  that  ques- 
tions were  answered,  and  that  the  party  interrogated  declared  that  his  an- 
swers were  true.  This  is  only  what  a  witness  does  when  he  declares  he  has 
given  true  evidence.  He  is  stating  his  belief,  and  not  making  a  contract." — ■ 
Fletcher  Moulton,  L.  J.,  in  Joel  v.  Law  Union  Ins.  Co.  [C.  A.,  190S]  2  K,  B. 
863,  S85. 

40  The  statement  of  facts  is  much  abbreviated,  and  a  part  of  the  opinion, 
not  relating  to  warranties,  is  omitted. 


Sec.  4)  WARKANTY    AS    AFFECTED    BY    STATUTE  435 

out  the  state  which  created  it,  its  contracts  are  Hmited,  construed,  and 
sustained  according  to  its  character  and  the  laws  which  affect  its  op- 
eration. In  McKim  v.  Glenn,  66  Md.  484,  8  Atl.  130,  this  court  said : 
"It  is  a  famihar  principle  that  a  corporation,  and  all  who  deal  with 
it,  are  bound  by  the  law  of  its  creation,  and  all  such  laws  as  may  be 
legitimately  prescribed  for  its  government  by  the  sovereign  authority 
from  which  it  derives  its  corporate  existence." 

It  appears  to  us,  therefore,  that  the  inquiry  in  reference  to  the  an- 
swers in  the  application  for  insurance  ought  to  be  not  only  whether 
they  were  true,  but  also  whether  they  were  made  in  good  faith,  and 
whether  they  related  to  some  matter  material  to  the  risk.  The  war- 
ranty made  every  statement  in  the  application  so  vitally  material  to 
the  validity  of  the  contract  that  it  imposed  on  the  assured  the  necessity 
of  proving  that  they  were  atl  literally  true.  The  statute  made  a  great 
change  in  this  respect.  It  introduced  two  new  questions  for  determi- 
nation before  the  contract  could  be  declared  invalid,  viz.,  the  good 
faith  of  the  applicant  in  making  his  statements,  and  the  materiality 
to  the  risk  of  the  matters  involved  in  them.  Before  the  statute  there 
could  be  no  inquiry  with  reference  to  the  risk ;  every  statement  was 
material,  and  if  untrue  in  any  respect,  however,  irrelevant  to  the  risk, 
the  policy  was  invalidated. 

[The  court  here  gives  a  summary  of  the  evidence  relating  to  the 
alleged  misstatements  concluding  as  follows :] 

Upon  the  whole  evidence  on  this  point,  it  would  have  been  compe- 
tent for  the  jury  to  decide  whether  the  answers  in  the  application  were 
made  in  good  faith,  and  whether  they  were  material  to  the  risk. 

Some  of  the  prayers  offered  in  behalf  of  the  defendant  maintained 
that  the  suit  could  not  be  brought  in  this  state,  some  that  certain  an- 
swers made  in  the  application  were  untrue,  and  that  therefore  the 
plaintiffs  could  not  recover;  but  they  did  not  submit  to  the  jury  the 
questions  of  good  faith  and  materiality  to  the  risk.  Some  sought  to 
leave  to  the  jury  questions  of  fact  arising  on  the  "proofs  of  death;" 
some  maintained  that  the  proof  of  death  was  not  sufficient,  because 
it  did  not  show  a  just  claim;  others  sought  to  withdraw  from  the  jury 
the  question  of  materiality  to  the  risk,  insisting  that,  as  matter  of  law. 
certain  answers  in  the  application  were  material  to  the  risk;  others 
maintained  that  the  Pennsylvania  statute  had  no  application  to  the 
case ;  and  one  sought  to  exclude  from  the  jury  that  portion  of  the 
evidence  of  Dr.  Atkinson  which  tended  to  show  that  Ficklin  did  not 
read  or  know  of  the  contents  of  some  portion  of  the  application.  All 
of  these  prayers  were  rejected  by  the  court.  What  we  have  said  will 
show  that  we  approve  of  this  ruling.  The  prayers  granted  in  behalf 
of  the  plaintiffs  are  in  accordance  with  the  views  which  we  have  ex- 
pressed.    Judgment  affirmed. 

[On  motion  for  rehearing  May  5,  1891.] 

Bryan,  J.  The  learned  counsel  for  the  appellant  have  moved  for 
a  reargument  in  this  case.     They  base  their  motion  on  the  supposition 


4.'{()  WARRANTIES  (Cll.  6 

that  the  court  overlooked  or  disregarded  certain  clauses  in  the  appli- 
cation for  insurance.  These  clauses  were  quoted  word  for  word  in 
the  statement  prepared  by  the  court,  which  preceded  the  opinion,  and 
which  set  forth  the  facts  on  which  it  was  founded.  The  Pennsylvania 
statute  enacted  that,  "whenever  the  api)Hcation  for  a  policy  of  life 
insurance  contains  a  clause  of  warranty  of  the  truth  of  the  answers 
therein  contained,  no  misrepresentation  or  untrue  statement  in  5uch 
api)lication  made  in  good  faith  by  the  applicant  shall  effect  a  forfei- 
ture, *  *  *  unless  such  misrepresentation  or  untrue  statement 
relate  to  some  matter  material  to  the  risk."  This  is  a  most  clear  dec- 
laration that  under  the  circumstances  mentioned  the  policy  shall  not 
be  forfeited ;  in  other  words,  that  it  shall  be  a  valid  and  binding  con- 
tract. It  is  part  of  the  nature  and  essence  of  the  warranty  that  it 
should  have  the  effect  stated.  It  is  a  condition  on  which  it  is  per- 
mitted to  have  existence  and  operation;  as  much  so  as  if  it  had  been 
written  in  express  words  on  the  face  of  the  policy.  The  contract  of 
insurance  must  be  made  in  subordination  to  the  statute,  and  must 
have  the  legal  effect  which  the  statute  attributes  to  it,  and  none  other. 
Whatever  form  of  words  may  be  used,  the  legal  effect  of  the  warranty 
must  be  such  as  the  statute  impresses  upon  it.  It  was  the  intention  of 
the  legislature  to  prevent  insurance  companies  from  forfeiting  pol- 
icies by  means  of  warranties,  as  they  had  been  previously  construed, 
and  to  enforce  the  new  construction  set  forth  in  the  statute.  These 
corporations,  manifestly,  have  not  the  legal  capacity  to  make  a  contract 
which  should  give  a  construction  to  a  warranty  in  opposition  to  that 
which  the  law  has  established ;  and,  of  course,  they  cannot,  by  virtue 
of  any  agreement,  acquire  the  competency  to  do  what  the  law  forbids. 
It  is  stated  in  the  policy  that  the  application  for  insurance  is  made 
a  part  of  the  contract,  and  that  the  assured  agrees  that  every  state- 
ment and  answer  contained  therein  is  material,  and  warrants  them  "to 
be  full,  complete,  and  true."  And  in  the  application  the  applicant  de- 
clares and  agrees  that  every  statement  and  answer  are  material  to 
the  risk,  and  he  warrants  them  all.  He  also  states  as  follows :  'T 
also  agree  that  if  any  of  the  answers  or  statements  made  and  contained 
herein,  *  *  *  whether  made  in  good  faith  or  otherwise,  are  in 
any  respect  untrue,  then  said  policy  and  this  contract  shall  be  null  and 
void,  notwithstanding  any  statute  or  law  to  the  contrary."  In  other 
words,  the  statute  is  to  be  entirely  overthrown  and  set  aside,  and  the 
insurance  company  under  the  guise  of  an  agreement,  is  to  acquire  the 
power  to  accomplish  the  very  result  which  the  statute  intended  to  pre- 
vent. Statutes  would  be  very  ineffective  if  they  could  be  defeated  in 
this  way.  If  an  untrue  statement  material  to  the  risk  is  warranted, 
the  policy  is  void ;  but  the  invalidity  of  the  policy  depends  upon  the 
fact  whether  the  statement  is  material  to  the  risk.  The  materiality 
of  the  statement  is  the  indispensable  condition  on  which  the  invalidity 
of  the  policy  depends,  and  it  must  be  established  by  proof.  It  is  not* 
competent  to  substitute  for  this  proof  an  agreement  of  the  parties 


Sec.  4)  WARUAXTY    AS    AFFECTED    BY    STATUTE  487 

that  it  should  be  considered  material.  Neither  can  an  agreement  be 
valid  which  gives  an  effect  to  a  warranty,  which  is  in  defiance  of  the 
statute.  The  legislature  enacted  a  rule  for  the  regulation  of  the  con- 
tracts of  insurance  companies,  which  is  a  matter  of  public  interest 
and  concern.^ ^  The  operation  of  this  rule  does  not  depend  on  the 
agreement  of  these  corporations  to  adopt  it  as  a  basis  of  their  con- 
tracts ;  on  the  contrary,  the  rule  prescribes  the  scope  and  effect  of 
policies  of  insurance,  and  authoritatively  determines  the  duties  and 
obligations  which  arise  from  them. 

We  have  discovered  no  reason  for  another  argument  in  this  case. 
Motion  overruled. 


WHITE  V.  PROVIDENT  SAV.  LIFE  ASSUR.  SOC.  OF 

NEW  YORK. 

(Supreme  Judicial  Court  of  Massachusetts,  1895.     163  Mass.  108,  39  N.   E. 

771,  27  L.  R.  A.  398.) 

Action  by  Bridget  L.  White  against  the  Provident  Savings  Life 
Assurance  Society  of  New  York  on  a  policy  of  insurance.  There 
was  a  verdict  for  defendant,  and  plaintiff  excepts.  Verdict  set  aside, 
and  a  new  trial  ordered. 

Barker,  J.  The  most  important  question  raised  by  the  report  is 
as  to  the  effect  of  St.  1887,  c.  214,  §  21,  now,  by  the  Massachusetts 
insurance  act  of  1894,  re-enacted  as  St.  1894,  c.  522,  §  21.  The 
question  is,  in  substance,  whether  the  provisions  of  that  section 
include  in  the  word  "misrepresentation"  statements  which  in  in- 
surance law  are  classed  as  "warranties,"  because  expressly  said 
to  be  warranties  by  the  language  of  the  parties,  or  whether  the 
section  deals  only  with  statements  which  are  representations,  and 
not  with  technical  warranties.  The  ruling  of  the  trial  court  went 
upon  the  theory  that  the  section  did  not  affect  statements  which 
were  said  in  the  policy  and  the  application  to  be  warranties,  but 
only  misrepresentations  as  to  matters  which  were  the  subject  of 
representations  as  distinguished  from  warranties.  The  section,  as 
it  stood  in  St.  1887,  c.  214,  §  21,  was  in  these  words:  "No  oral  or 
written  misrepresentation  made  in  the  negotiation  of  a  contract 
or  policy  of  insurance  by  the  assured  or  in  his  behalf,  shall  be 
deemed  material  or  defeat  or  avoid  the  policy,  or  prevent  its  attach- 
ing, unless  such  misrepresentation  is  made  wath  actual  intent  to 
deceive,  or  unless  the  matter  misrepresented  increased  the  risk  of 
loss;"   and  the  language  of  St.  1894,  c.  522,  §  21,  is  the  same. 

This  language  is  broader  than  that  of  Pub.  St.  c.  119,  §  181,  which 
applied  only  to  misrepresentations  made  in  obtaining  or  securing 

*i  That  such  statutes  are  constitutional,  see  Hancock  Mut.  Life  Ins.  Co. 
V.  Warren,  181  U.  S.  73,  21  Sup.  Ct.  535,  45  L.  Ed.  755  (1901);  Scottish 
Union  &  Nat.  Ins.  Co.  v.  Wade  (Tex,  Civ.  App.)  127  S.  W.  1186   (1910). 


438  WARRANTIES  (Ch.  6 

policies  of  fire  insurance  and  of  life  insurance,  and  which  was  in 
these  words:  "No  oral  or  written  misrepresentation  made  in  ob- 
taining- or  securing  a  policy  of  fire  or  life  insurance  shall  be  deemed 
material,  or  defeat  or  avoid  the  policy,  or  prevent  its  attaching  un- 
less such  misrepresentation  is  made  with  actual  intent  to  deceive 
or  unless  the  matter  misrepresented  increases  the  risk  of  loss." 
The  broader  language  of  the  section,  as  it  is  found  in  the  general 
insurance  act  of  1887,  was  clearly  designed  to  extend  the  rule, 
which  up  to  that  time  dealt  only  with  misrepresentations  affecting 
policies  of  fire  insurance  and  of  life  insurance,  and  to  apply  it  to 
misrepresentations  made  in  the  negotiation  of  any  contract  or  policy 
of  insurance  of  whatever  kind.  Pub.  St.  c.  119,  §  181,  is  merely 
a  re-enactment  identical  in  language  with  St.  1878,  c.  157,  §  1,  which 
as  to  life  insurance  was  a  wholly  new  provision.'*-     *     *     * 

It  is  easy  to  see  how  an  insurer  by  multiplying  immaterial  state- 
ments to  be  made  by  the  insured,  and  giving  to  them,  by  the 
wording  of  the  policy,  the  technical  character  of  warranties,  can, 
in  the  absence  of  any  statute  provision  upon  the  subject,  place  the 
assured  in  a  position  in  which  it  will  be  difficult,  if  not  impossible, 
for  him,  although  he  has  acted  in  good  faith,  to  recover  upon  his 
contract,  because  of  some  inaccurate  statement  on  his  part.  If  he 
is  held  to  have  warranted  the  truth  of  a  statement,  its  exact  and 
literal  truth  is  a  necessary  condition  of  his  right  to  recover,  how-, 
ever  immaterial  the  statement  may  be,  and  however  honest  may 
have  been  his  conduct.  In  the  opinion  of  a  majority  of  the  court, 
it  was  the  intention  of  the  legislature  by  St.  1878,  c.  157,  to  change 
this  rule  to  some  extent,  and  to  enact  in  place  of  it  one  which  should 
hold  the  contract  valid  unless  the  misstatement,  if  made  in  the  ne- 
gotiation of  the  contract,  was  made  with  an  actual  intent  to  de- 
ceive, or  unless  the  misstatement  was  of  a  matter  which  actually 
increased  the  risk  of  loss;  and  this  with  reference  to  statements 
which  may  be  said  by  the  parties  to  be  warranties  as  well  as  those 
which  were  only  representations.  Such  was  already  the  law  as  to 
statements  not  technical  warranties.  As  to  mere  representations, 
the  statute  may  well  be  held  to  be  only  declaratory,  but  as  to  war- 
ranties it  made  a  new  rule.  In  the  opinion  of  a  majority  of  the 
court,  it  speaks  in  terms  neither  of  warranties  nor  of  representa- 
tions, technically  so  called,  but  deals  with  all  misrepresentations 
made  in  negotiating  the  contract  or  policy.  Misstatements  of  fact, 
whether  the  statement  is  said  to  be  by  the  parties  a  warranty  or  a 
representation,  are  equally  misrepresentations,  and  are  placed  in 
each  case  upon  the  same  footing  by  the  statute  which  applies  to 
them   if  the    statements    are   called    "warranties"   by   the   parties    no 

42  A  careful  review  of  the  earlier  legislation  relating  to  wari-anties  and 
representations  is  here  omitted,  as  well  as  a  statement  of  the  common  law 
rule  as  to  the  same  subjects.  Brief  comment  on  the  evidence  at  the  close 
of  the  opinion  is  also  omitted. 


Sec.  4)  WARRANTY    AS    AFFECTED    BY    STATUTE  439 

less  than  if  they  are  mere  "representations."  And  the  same  con- 
struction must,  in  the  opinion  of  a  majority  of  the  court,  be  given 
to  Pub.  St.  c.  119,  §  181,  and  to  St.  1887,  c.  214,  §  21,  which  was  in 
force  when  the  policy  sued  on  was  written. 

It  is  not  necessary  at  present  to  consider  whether  the  statute 
would  have  any  effect  if  an  immaterial  statement  declared  by  the 
application  to  be  a  warranty,  instead  of,  as  in  the  present  case, 
being-  referred  to  in  the  policy,  and  thus  brought  into  it  by  such 
reference  only,  were  independently  written  out  at  length  in  the 
policy  itself,  and  thus  there  declared  to  be  a  warranty  upon  the 
exact  truth  of  which  the  policy  was  conditioned  and  founded.  The 
statements  upon  the  falsity  of  which  the  defendant  relies  in  this 
case  are  not  incorporated  into  the  policy  except  by  reference  to  the 
application.  The  declaration  of  the  applicant  warranting  the 
answers  to  be  true  was  in  his  application  made  in  the  negotiation 
of  his  policy,  and  was  within  the  operation  of  the  statute.  In  the 
opinion  of  a  majority  of  the  court,  it  was  not  taken  out  of  the  oper- 
ation of  the  statute  by  the  reference  to  the  application  in  the  policy, 
that  it  was  "in  consideration  of  the  stipulations  and  agreements 
in  the  application  herefor,  and  upon  the  next  page  of  this  policy, 
all  of  which  are  a  part  of  this  contract."  In  the  trial  of  the  present 
case  a  different  view  of  the  effect  of  the  statute  was  held  by  the 
presiding  judge,  who  ruled  that,  because  the  statements  of  the 
assured  were  warranties,  the  provisions  of  St.  1887,  c.  214,  §  21, 
did  not  apply.  The  plaintiff's  exception  to  this  ruling  was  well 
taken,  and  because  the  ruling  was  wrong  the  verdict  for  the  defend- 
ant must  be  set  aside,  and  a  new  trial  ordered.     *     *     * 

So  ordered.'*^ 

4  3  It  was  held  in  the  case  of  Victoria  S.  S.  Co.  v.  Western  Assur.  Co. 
(Cal.)  139  I'ac.  807  (1914),  that  under  sections  2608,  2610,  2611,  of  the 
California  Civil  Code  a  breach  of  even  an  express  warranty,  would  not  avoid 
the  policy  unless  it  was  material.  The  effect  of  most  of  these  statutes  is  to 
render  all  statements  upon  which  a  contract  of  insurance  is  based  subject 
to  the  common-law  rule  as  to  representations.  This  is  well  stated  in  Her- 
many  v.  Association,  151  Pa.  17,  24  Atl.  1064  (1892),  as  follows:  "This  act 
has  effected  a  change  in  life  insurance  contracts,  and  a  very  wise  and  whole- 
some change  it  is.  It  provides  against  the  effect  which  formerly  attached 
to  warranties  as  to  many  frivolous  and  unimportant  matters  contained  in 
the  questions  and  answers  set  forth  in  the  applications,  which  often  were 
of  no  consequence  as  ,to  the  risk  involved,  but  which  the  courts  were  obliged 
to  uphold  simply  because  they  were  warranties.  This  class  of  merely  tech- 
nical objections  to  recovery  is  now  swept  away.  Ordinarily  questions  of 
good  faith  and  materiality  are  for  the  jury,  and.  where  the  materiality  of 
a  statement  to  the  risk  involved  is  itself  of  a  doubtful  character,  its  determi- 
nation should  be  submitted  to  the  jury.  But  it  was  never  intended  by" 
this  act,  nor  does  it  "assume  to  change  the  law  in  cases  where  the  matter 
stated  was  palpal)ly  and  manifestly  material  to  the  risk,  or  where  it  was 
absolutelv  and  visildv  false  in  fact."  See,  also,  Price  v.  Standard  Life  Ins. 
Co.,  90  Minn.  264,  95  N.  W.  1118  (190.3). 

But  many  of  these  statutory  provisions  go  far  beyond  transforming  war- 
ranties into  representations,  as  is  apparent  from  the  following  extract  taken 
from  the  opinion  of  Weaver,  J.,  in  Ley  v.  Metropolitan  Life  Ins.  Co.,  120 
Iowa,  203,  210,  94  N.  W.  568  (1903):     "We  have  in  this  state  a  statute  which 


440  .  WAUKANTIKS  (Cll.  G 

JOHNSON  V.  NATIONAL  TJFE  TNS.  CO. 

(Supreme  Court  of  Minnesota,  1913.     123  Minn.  453,  144  N.  W.  218.) 

Action  by  Mary  Johnson  ag-ainst  the  National  Life  Insurance 
Company.  Verdict  for  plaintiff.  From  denial  of  an  alternative 
motion  for  jud^^ment  or  new  trial,  defendant  appeals.     Reversed. 

DiBELL,  C.  This  action  is  brought  to  recover  upon  a  policy  of 
life  insurance  issued  to  the  plaintiff's  son.  The  plaintiff  is  the  ben- 
eficiary and  the  verdict  was  in  her  favor.  The  defendant  appeals 
from  an  order  denying-  its  alternative  motion  for  judgment  or  for 
a  new  trial. 

The  defendant  claims  that  the  policy  was  avoided,  as  a  matter  of 
law,  by  a  misrepresentation  to  the  effect  that  the  deceased  had 
never  consulted  a  physician ;  that  the  court  erred  in  leaving  to  the 
jury  the  question  whether  certain  misrepresentations  were  material 
and  whether  they  increased  the  risk  of  loss  and  whether  they  were 
made  with  intent  to  deceive  and  defraud ;  and  that  it  erred  in  leav- 
ing to  the  jury  the  question  whether  the  deceased  made  a  certain 
misrepresentation. 

L  Section  5,  c.  220,  Laws  1907,  par.  4,  found  in  R.  L.  Supp.  1909, 
§  1695,  subd.  6,  par.  4,  requires  the  standard  life  policy  to  contain, 
among  other  provisions,  the  following:  "A  provision  that  all  state- 
ments made  by  the  insured  shall,  in  the  absence  of  fraud,  be  deemed 
representations  and  not  warranties,  and  that  no  such  statement  shall 
avoid  the  policy  unless  it  is  contained  in  a  written  application  and  a 

provides  that  the  issuance  of  a  certificate  of  healtli  by  the  medical  examiner 
estops  the  company  from  alleging  or  proving  that  the  insured  person  was 
not  in  the  condition  of  health  required  by  the  policy  at  the  time  the  in- 
surance was  effected,  unless  the  same  was  procured  by  or  through  the 
fraud  or  deceit  of  the  assured.  Code,  §  1812.  This  serves  to  exclude  the 
technical  defenses  which  were  formerly  available,  based  on  the  doctrine  of 
warranties  as  to  the  health  and  history  of  the  insured  person.  To  escape 
liability  because  of  the  uninsurable  condition  of  the  applicant's  health  or 
medical  history,  the  insurer  is  required  to  show  that  the  policy  or  health 
certificate  was  procured  by  fraud."  See,  also.  Empire  Life  Ins.  Co.  v.  Gee, 
171  Ala.  435,  55  South.  166  (1911) ;  Mut.  Life  Ins.  Co.  v.  Allen,  174  Ala.  511, 
56  South.  5GS  (1911). 

The  Supreme  Court  of  Georgia  has  determined  that  under  the  provisions 
of  the  Code  of  that  state  (Civ.  Code  1910,  §§  2479-2483),  the  falsity  of  im- 
material statements,  though  incorporated  in  the  application  and  made  a  part 
of  the  policy,  and  therein  declared  to  be  warranties,  does  not  avoid  the 
policy.  A  misrepresentation  is  not  to  be  considered  material  unless  it  af- 
fects "the  nature,  or  extent,  or  character  of  the  risk."  Furthermore,  this 
is  so  imperatively  the  law  of  the  state  that  the  parties  cannot  by  contract 
make  material  matters  that  are  really  immaterial.  Supreme  Conclave  v. 
Wood,  120  Ga.  328,  47  S.  E.  940  (1904);  German-American  Life  Ass'n  v.  Far- 
ley, 102  Ga.  720,  29  S.  E.  615  (1897).  See  the  discussion  of  these  cases  mi 
.^tua  Life  Ins.  Co.  v.  Moore,  231  U.  S.  543,  554,  34  Sup.  Ct.  186,  58  L.  Ed. 
(1913). 

For  a  collection  of  statutory  provisions  relating  to  the  avoidance  of  in- 
surance policies  by  breach  of  warranty  or  through  misrepresentations,  and 
of  the  cases  construing  them,  see  2  Cooley,  Briefs  on  Insurance,  1189-1195. 


Sec.  4)  WARRANTY    AS    AFFECTED    BY    STATUTE  441 

copy  of  such  application  shall  be  indorsed  upon  or  attached  to  the 
policy  when  issued." 

Section  20,  c.  175,  Laws  1895,  now  section  1623,  R.  L.  1905,  is 
as  follows:  "No  oral  or  written  misrepresentation  made  by  the 
assured,  or  in  his  behalf,  in  the  negotiation  of  insurance,  shall  be 
deemed  material,  or  defeat  or  avoid  the  policy,  or  prevent  its  at- 
taching, unless  made  with  intent  to  deceive  and  defraud,  or  unless 
the  matter  misrepresented  increases  the  risk  of  loss."  Before  the 
revision  section  1623  read  "with  actual  intent  to  deceive  and  de- 
fraud." 

The  policy  in  suit  is  a  standard  life  policy,  of  the  statutory  form, 
contains  the  provision  required  by  the  Laws  of  1907,  and  a  copy 
of  the  application  is  attached  to  the  policy.  The  effect  of  the  stat- 
utes cited  is  for  determination. 

A  representation  is  a  statement  proffered  as  a  basis  for  an  insur- 
ance contract.  A  warranty  is  a  statement  or  covenant  of  the  con- 
tract. Representations  must  be  substantially  true.  Warranties 
must  be  strictly  or  literally  fulfilled. 

Our  statutes,  and  statutes  like  them,  were  intended  to  put  war- 
ranties upon  substantially  the  basis  of  representations,  and  to  do 
away  with  defenses,  made  by  incorporating  conditions  and  terms 
in  policies,  making  them  by  agreement  material  representations  or 
warranties,  and  controlling  on  the  right  of  recovery.  As  we  con- 
strue the  statute  a  material  misrepresentation,  made  with  intent 
to  deceive  and  defraud,  avoids  the  policy.  A  material  misrepresen- 
tation, not  made  with  intent  to  deceive  or  defraud,  does  not  avoid 
the  policy  unless  by  the  misrepresentation  the  risk  of  loss  is  increas- 
ed. If  a  material  misrepresentation  increases  the  risk  of  loss,  the 
policy  is  avoided,  regardless  of  the  intent  with  which  it  was  made. 
An  immaterial  representation,  though  made  with  intent  to  deceive 
and  defraud,  does  not  avoid  the  policy.'** 

Several  of  the  states  have  statutes  of  like  purpose,  and  some  are 
couched  in  language  substantially  identical.  The  cases  constru- 
ing such  statutes  uniformly  hold  that  the  last  "or"  in  section  1623 
is  used  in  the  alternative.  We  bow  to  the  authority  of  the  cases 
and  adopt  their  construction.  The  following  cases  indicate  the 
general  purpose  of  such  statutes  and  they  are  in  general  harmony 
with  the  construction  which  we  adopt :  Levie  v.  Met.  Life  Ins. 
Co.,  163  Mass.  117,  39  N.  E.  792;  White  v.  Provident,  etc.,  Soc, 
163  Mass.  108,  39  N.  E.  771,  27  L.  R.  A.  398;  Rainger  v.  Boston 
Mut.  Life  Ass'n,  167  Mass.  109,  44  N.  E.  1088;  Dolan  v.  Mutual 
Reserve,  etc.,  Ass'n,  173  Mass.  197,  53  N.  E.  398;  Empire  Life 
Ins.  Co.  v.  Gee,  171  Ala.  435,  55  South.  166;  Id.  (Ala.  Sup.)  60 
South.  90;   Mutual  Life  Ins.  Co.  v.  Allen,  174  Ala.  511,  56  South. 

**  See,  in  accord,  Queen  Ins.  Co.  v.  Leslie,  47  Ohio  St.  409,  24  N.  E.  1072, 
9  L.  R.  A.  45  (1890). 


442  WAUKANTIKS  (Cll.  G 

568;  Hartford  Life  Ins.  Co.  v.  Stallings,  110  Tenn.  1,72  S.  W. 
960;  Light  v.  Insurance  Co.,  105  Tenn.  480,  58  S.  W.  851;  Her- 
many  v.  Fidelity  Mut.  Life  Ass'n,  151  Pa.  17,  24  Atl.  1064;  Lutz  v. 
Metropolitan  Life  Ins.  Co.,  186  Pa.  527,  40  Atl.  1104;  Penn.  Mut. 
Life  Ins.  Co.  v.  Mechanics'  Sav.  Bank,  72  Fed.  413,  19  C.  C.  A.  286, 
38  L.  R.  A.  33,  70;  Id.,  73  Fed.  653,  19  C.  C.  A.  316,  38  L.  R.  A.  33, 
70;  Warren  Deposit  Bank  v.  Fidelity  &  Deposit  Co.,  116  Ky.  38, 
74  S.  W.  1111,  25  Ky.  Law  Rep.  289;  Provident  Sav.  Soc.  v. 
WHiavne's  Adm'r,  131  Ky.  84,  93  S.  W.  1049.  29  Ky.  Law  Rep.  160; 
March  v.  Met.  Life  Ins.  Co.,  186  Pa.  629,  40  Atl.  1100,  65  Am.  St. 
Rep.  887;  Fidehty  Mut.  Life  Ass'n  v.  Miller,  92  Fed.  63,  34  C.  C. 
A.  211  ;  Mut.  Life  Ins.  Co.  v.  Robinson,  115  Md.  408,  80  Atl.  1085. 
The  case  of  Price  v.  Standard  Life  &  Ace.  Co.,  90  Minn.  264,  95  N. 
W.  1118,  seems  to  be  in  accord. 

Some  of  the  cases  cited  seem  to  hold  that  a  misrepresentation 
made  with  intent  to  deceive  and  defraud,  though  the  matter  mis- 
represented is  immaterial  in  character,  avoids  the  policy.  We  do 
not  stop  to  inquire  how  many,  if  any,  directly  and  necessarily  so 
hold.  We  cannot  adopt  such  a  doctrine.  Long  prior  to  the  stat- 
ute this  court  held  that  a  fraudulent  misrepresentation  of  an  imma- 
terial matter  did  not  avoid  the  policy ;  and  the  1895  law  was  not 
intended  to  make  the  insurer's  liability  less. 

2.  Whether  a  misrepresentation  is  material,  and  whether  the  mis- 
representation increases  the  risk  of  loss,  and  whether  a  misrepre- 
sentation is  made  with  intent  to  deceive  and  defraud,  are  questions 
usually  for  the  jury,  with  the  burden  of  proof  upon  the  insurer. 
They  may  be  for  the  court.  Levie  v.  Met.  Life  Ins.  Co.,  163  Mass. 
117,  39  N.  E."792;  Rainger  v.  Boston  Mut.  Life  Ins.  Co.,  167  Mass. 
109,  44  N.  E.  1088;  Mattson  v.  Modern  Samaritans,  91  Minn.  434,  98 
N.  W.  330;  Hermany  v.  Fidelity  Mut.  Life  Ass'n,  151  Pa.  17,  24 
Atl.  1064;  Provident  Sav.  Ass'n  v.  Whayne's  Adm'r,  131  Ky.  84, 
93  S.  W.  1049,  29  Ky.  Law  Rep.  160 ;  Taylor  v.  Grand  Lodge,  96 
Minn.  441,  105  N.  W.  408,  3  L.  R.  A.  (N.  S.)  114;  O'Connor  v. 
Modern  Woodmen,  110  Minn.  18,  124  N.  W.  454,  25  L.  R.  A.  (N. 
S.)  1244. 

The  defendant  claims  that  it  appears  from  the  evidence,  so  that 
it  should  be  declared  as  a  matter  of  law,  that  the  insured,  with  in- 
tent to  deceive  and  defraud,  made  material  misrepresentations  to 
the  effect  that  he  had  never  consulted  a  physician,  that  a  change 
of  climate  had  never  been  advised  nor  sought  for  his  health,  and 
that  he  was  at  the  time  in  good  health,  and  that  as  a  matter  of  law 
these  misrepresentations  were  material  and  increased  the  risk  of 
loss. 

It  appears  that  four  years  before  the  application  for  insurance 
the  insured  consulted  a  physician.  There  was  testimony,  over  the 
objection  of  the  plaintiff,  that  the  physician  diagnosed  the  case  as 


Sec.  4)  WARRANTY    AS    AFFECTED    BY    STATUTE  443 

one  of  incipient  tuberculosis  and  advised  the  deceased  that  to  effect 
a  cure  he  must  live  in  the  open  air  and  change  his  habits  of  living. 
He  went  to  Montana  and  worked  for  a  year  in  railway  yards.  He 
came  back  to  his  home  and  worked  on  the  farm.  He  again  went 
to  Montana  for  a  while,  finally  returning  to  the  farm  for  a  per- 
manent stay.  The  testimony  was  ample  that  he  appeared  to  be  in 
good  health  and  was  doing  the  work  of  an  ordinary  man.  The  ex- 
amining physician  found  nothing  the  matter  with  him  when  he 
made  his  examination.  Some  weeks  before  his  death  he  caught  cold 
through  exposure  at  a  farm  party.  There  was  testimony  of  his  at- 
tending physician,  received  over  objection,  that  he  died  of  tuber- 
culosis. There  was  testimony  negativing  the  claim  that  he  died  of 
tuberculosis  at  all.  The  insured  was  a  farm  boy  and  was  sought 
out  by  the  agent  of  the  company  and  solicited  to  purchase  insur- 
ance. 

The  evidence  just  recited  bears  upon  the  materiality  of  the  rep- 
resentations, the  increase  of  risk,  and  the  intent  to  deceive  and  de- 
fraud. There  was  error  in  recei\^ing  evidence  of  the  physician  as 
to  the  condition  of  the  insured  at  the  time  he  treated  him  some  four 
years  prior  to  his  application.  It  is  doubtful  whether  a  foundation 
was  laid  for  an  objection  to  it.  The  effect  and  admissibility  of  the 
physician's  statements  in  the  proofs  of  loss  should  be  considered 
from  the  standpoint  of  an  admission  of  the  beneficiary.  Upon  an- 
other trial  these  questions,  as  well  as  the  questions  arising  upon  the 
physician's  direct  testimony,  as  to  the  cause  of  the  death  of  the 
deceased,  will  doubtless  be  properly  determined.  Upon  the  record 
before  us  we  need  express  no  opinion  as  to  the  merits  of  the  case, 
though  it  may  be  said  that,  with  all  things  conceded  to  the  defend- 
ant, there  is  little  evidence  of  an  intent  on  the  part  of  the  insured 
to  deceive  or  defraud. 

3.  The  following  question  and  answer  appear  in  the  application: 
"Q.  When  did  you  last  consult  a  physician  and  for  what?  A. 
Never."  It  is  conceded  that  four  years  prior  the  insured  had  con- 
sulted a  physician  for  some  ailment.  The  court  left  it  to  the  jury 
to  find  whether  this  answer  was  made.  In  doing  so  it  erred.  Up- 
on another  trial  there  may  be  an  issue  for  a  jury  upon  this  question 
There  was  none  upon  the  trial  had.     There  must  be  a  new  trial. 

Order  reversed. 


Statutory  Peovisions.— St.  6  Edw.  VII,  c.  41,  §§  3.3-35  (1906),  the  Marine 
Insurance  Act: 

33.  (1)  A  warranty,  in  the  following  sections  relating  to  warranties,  means 
a  promissory  warranty,  that  is  to  say,  a  warranty  by  which  the  assured 
■undertakes  that  some  particular  thing  shall  or  shall  not  be  done,  or  that 
some  condition  shall  be  fulfilled,  or  whereby  he  affirms  or  negatives  the  ex- 
istence of  a  particular  state  of  facts. 

(2)  A  warranty  may   be   express   or   implied. 

(3)  A  warranty,  as   above  defined,   is  a   condition  which  must  be   exactly 


444 


WAltKAXTII'.S  (Ch.  G 


coniplii'd  with.  wIkMIkt  it  lio  iiiiitciial  {^>  the  risk  <m-  not.  ]f  it  lie  not  so  com- 
plied with,  then,  sultject  to  any  express  provision  in  the  policy,  the  insurer 
is  discliiirjrod  from  liability  as  from  the  date  of  the  breach  of  warranty, 
but  witlunit  i)n>judi(o  to  any  lial)ility  incurred  by  him  before  that  date. 

.'M.  (1)  Noncomi)liaiice  with  a  warranty  is  excused  when,  by  reason  of  n 
chanire  of  circumstances,  the  warranty  ce.Mses  to  be  apiJlicalile  to  tlie  cir- 
cumstances of  the  contract,  or  when  compliance  with  the  warranty  is  ren- 
dered unlawful  by  any  subsequent  law. 

(2)  AVhere  a  warranty  is  broken,  the  assured  cannot  avail  himself  of  the 
defense  that  the  breach  has  been  remedied,  and  the  warranty  complied 
with,  before  loss. 

(3)  A  breach  of  warranty  may  be  waived  by  the  insurer. 

35.  (1)  An  express  warranty  may  be  in  any  form  of  words  from  which 
the  intention  to  warrant  is  to  be  inferred. 

(2)  An  express  warranty  nuist  be  included  in,  or  written  upon,  the  policy, 
or  must  be  contained  in  some  document  incorporated  by  reference  into  the 
policy. 

(3)  An  express  warranty  does  not  exclude  an  implied  warranty,  unless  it 
be  inconsistent  therewith. 

Calif oraia  Civil  Code: 

Sec.  2603.  A  warranty  is  either  express  or  implied. 

Sec.  2604.  No  particular  form  of  words  is  necessary  to  create  a  warranty. 

Sec.  2605.  Every  express  warranty,  made  at  or  before  the  execution  of  a 
policj',  must  be  contained  in  the  policy  itself,  or  in  another  instrument  sign- 
ed by  the  insured,  and  referred  to  in  the  policy,  as  making  a  part  of  it. 

Sec.  2606.  A  warranty  may  relate  to  the  past,  the  present,  the  future,  or 
to  any  or  all  of  these. 

Sec.  2607.  A  statement  in  a  policy,  of  a  matter  relating  to  the  person  or 
thing  insured,  or  to  the  risk,  as  a  fact,  is  an  express  warranty  thereof. 

Sec.  2608.  A  statement  in  a  policy,  which  imports  that  it  is  intended  to  do 
or  not  to  do  a  thing  which  materially  affects  the  risk,  is  a  warranty  that 
such  act  or  omission  shall  take  place. 

Sec.  2609.  When  before  the  time  arrives  for  the  performance  of  a  warranty 
relating  to  the  future,  a  loss  insured  against  happens,  or  performance  be- 
comes unlawful  at  the  place  of  contract,  or  impossible,  the  omission  to  fulfill 
the  warranty  does  not  avoid  the  policy. 

Sec.  2610.  The  violation  of  a  material  warranty,  or  other  material  provi- 
sion of  a  policy,  on  the  part  of  either  party  thereto,  entitles  the  other  to 
rescind. 

Sec.  2611.  A  policy  may  declare  that  a  violation  of  specified  provisions 
thereof  shall  avoid  it,  otherwise  the  breach  of  an  immaterial  provision  does 
not  avoid  the  policy. 

Sec.  2612.  A  breach  of  warranty,  without  fraud,  merely  exonerates  an  in- 
surer from  the  time  that  it  occurs,  or  where  it  is  broken  in  its  inception 
prevents  the  policy  from  attaching  to  the  risk. 


Ch.  7)  IMPLIED    CONDITIONS    OF    FORFEITURE  445 

CHAPTER  VII 
IMPLIED  CONDITIONS  OF  FORFEITURE 


SECTION  1.— SEAWORTHINESS 


DIXON  V.  SADLER. 

(Court  of  Exchequer,   1839.     5   Mees.   &   W.   405.) 

Assumpsit  on  a  policy  of  insurance,  dated  22d  of  January,  1838,  on 
the  ship  John  Cook,  and  cargo,  at  and  from  the  17th  of  January, 
1838,  until  the  17th  of  July,  1838,  at  noon,  in  port  and  at  sea,  at  all 
times  and  in  all  places,  being  for  the  space  of  six  calendar  months. 
The  pleadings  are  sufificiently  stated  in  the  opinion.  At  the  trial  be- 
fore Parke,  B.,  it  appeared  that  the  vessel  left  Rotterdam  for  Sunder- 
land properly  ballasted  and  equipped  on  the  15th  of  May,  and  arrived 
on  the  19th  of  May  opposite  a  point  called  Seaham,  which  was  about 
four  miles  from  the  port  of  Sunderland.  On  arriving  there,  and  hav- 
ing a  pilot  on  board,  the  master  commenced  heaving  part  of  his  bal- 
last overboard,  as  was  proved  to  be  usual  on  such  occasions.  Whilst 
this  was  going  on,  the  vessel  drifted  to  the  northward,  and  a  strong 
squall  coming  on  from  the  southeast,  the  ship  was  upset  on  her  broad- 
side, and  her  masts  lay  on  the  water.  Every  endeavour  was  made  to 
right  her,  but  in  vain.  She  afterwards  sunk  off  Ryhope,  drifted  on 
shore,  and  became  a  total  wreck.  If  the  crew  had  not  removed  the 
ballast,  the  ship  would  most  likely  have  stood  the  squall.  A  verdict 
having  been  entered  for  the  defendant  on  the  issue  as  made  in  the 
pleadings,  the  court  granted  the  plaintiff  leave  to  move  to  enter  a 
verdict. 

Alexander  having,  in  Easter  Term  last,  obtained  a  rule  to  enter  a 
verdict  accordingly,  or  for  judgment  non  obstante  veredicto, 

Creswell  and  S.  Temple  showed  cause. 

Parki;,  B.  In  this  case  the  defendant,  to  a  declaration  upon  a  time 
policy  for  six  months,  stating  a  loss  by  perils  of  the  seas,  pleaded  three 
pleas,  on  each  of  which  issue  was  joined.  On  the  first  and  third,  the 
verdict  was  found  for  the  plaintiff ;  on  the  second,  for  the  defendant. 
This  plea  stated,  "that,  though  the  vessel  was  lost  by  perils  of  the 
sea,  yet  that  such  loss  was  occasioned  wholly  by  the  wilful,  wrongful, 
negligent,  and  improper  conduct  of  the  master  and  mariners  of  the 
ship,  by  wilfully,  wrongfully,  negligently,  and  improperly  throwing 
overboard  so  much  of  the  ballast,  that  the  vessel  became  unseaworthv, 


446  IMPLIED    CONDITIONS    OF    FORFEITURE  (Ch.  7 

and  was  lost  \)\  \Kv\h  of  the  sea,  which  otherwise  she  would  have 
safely  cncountcrctl  and  overcome."  On  a  motion  for  judgment  non 
obstante  veredicto,  it  occurred  to  the  Court  to  be  ciuestionable  whether 
the  plea  was  not  at  all  events  bad.  inasmuch  as  the  terms  of  it  did  not 
exclude  the  case  of  a  loss  by  barratry,  for  which  the  underwriters 
would  l)e  clearly  liable,  and  that  on  this  declaration ;  and,  as  the  fact 
certainly  was,  that  the  crew  were  not  guilty  of  barratry,  it  was  very 
properly  agreed  that  the  plea  should  be  amended  by  inserting  the 
words,  "but  not  barratrously,"  after  the  words,  "negligently  and  im- 
properly." And  the  plea,  therefore,  in  its  present  shape,  raises  the 
question,  whether  the  underwriters  are  liable  for  the  wilful  but  not 
barratrous  act  of  the  master  and  crew,  in  rendering  the  vessel  unsea- 
worthy  before  the  end  of  the  voyage,  by  casting  overboard  a  part  of 
the  ballast.  The  case  was  very  fully  and  ably  argued,  during  the 
course  of  the  last  and  present  term,  before  my  Brothers  Alddrson, 
Gurne:y,  MaulE,  and  myself.  We  have  considered  it,  and  are  of 
opinion  that  the  plea  is  bad  in  substance,  and  that  the  plaintiff  is  enti- 
tled to  judgment,  notwithstanding  the  verdict. 

The  question  depends  altogether  upon  the  nature  of  the  implied 
warranty  as  to  seaworthiness,  or  mode  of  navigation,  between  the  as- 
sured and  the  underwriter,  on  a  time  policy.  In  the  case  of  an  in- 
surance for  a  certain  voyage,  it  is  clearly  established  that  there  is  an 
implied  warranty  that  the  vessel  shall  be  seaworthy,  by  which  it  is 
meant  that  she  shall  be  in  a  fit  state  as  to  repairs,  equipment,  and  crew, 
and  in  all  other  respects,  to  encounter  the  ordinary  perils  of  the  voy- 
age insured,  at  the  time  of  sailing  upon  it.^  If  the  assurance  attaches 
before  the  voyage  commences,  it  is  enough  that  the  state  of  the  ship 
be  commensurate  to  the  then  risk ;  ^  and,  if  the  voyage  be  such  as  to 
require  a  different  complement  of  men,  or  state  of  equipment,  in  dif- 
ferent parts  of  it,  as,  if  it  were  a  voyage  down  a  canal  or  river,  and 
thence  across  the  open  sea,  it  would  be  enough  if  the  vessel  were,  at 
the  commencement  of  each  stage  of  the  navigation,  properly  manned 
and  equipped  for  it.  But  the  assured  makes  no  warranty  to  the  under- 
writers that  the  vessel  shall  continue  seaworthy,  or  that  the  master  or 
crew  shall  do  their  duty  during  the  voyage ;  and  their  negligence  or 
misconduct  is  no  defence  to  an  action  on  the  policy,  where  the  loss  ha^" 

1  To  be  seaworthy  the  vessel  must  be  staunch  and  tight  in  hull,  complete 
in  rissing,  machinerv,  and  equipment,  and  properly  manned,  furnished,  and 
provisioned.  See  The  Orient  (C.  C.)  16  Fed.  916  (18S:!) ;  Wedderburn  v.  Bell, 
1  Camp.  1  (1S07) ;  Merchants'  Insurance  Co.  v.  Morrison,  62  111.  242,  14 
Am.  Rep.  93  (1871);  Fontaine  v.  Insurance  Co.,  10  .lohns.  (N.  Y.)  58  (1813); 
Richelieu  &  O.  Nav.  Co.  v.  Boston  Marine  Ins.  Co.,  1.36  U.  S.  408,  10  Sup. 
Ct.  934,  34  L.  Ed.  398  (1890),  where  policy  was  avoided  because  compass 
was  defective  at  commencement  of  voyage,  though  fact  was  unknown  to 
master.  Furthermore,  the  cargo  must  be  safely  stowed  and  not  greater 
than  the  safe  carrying  capacity  of  the  ship.  Chase  v.  Insurance  Co..  5 
Pick.  (Mass.)  51  (1827);  Cincinnati  Mut.  Ins.  Co.  v.  May,  20  Ohio,  211  (1851). 

2  Annen  v.  Woodman,  3  Taunt.  299  (1810) ;  Hibbert  v.  Martin,  1  Park, 
Ini5.  (6th  Ed.)  p.  299,  note. 


Sec.  1)  SEAWORTHINESS  447 

been  immediately  occasioned  by  the  perils  insured  against.  This  prin- 
ciple is  now  clearly  established  by  the  cases  of  Busk  v.  Royal  Ex- 
change Company,  2  B.  &  Aid.  72;  Walker  v.  Maitland,  5  B.  &  Aid. 
171;  Holdsworth  v.  Wise,  7  B.  &  Cr.  794;  Bishop  v.  Pentland,  Id. 
219;  and  Shore  v.  Bentall,  Id.  798,  note,  nor  can  any  distinction  be 
made  between  the  omission  by  the  master  and  crew  to  do  an  act  which 
ought  to  be  done,  or  the  doing  an  act  which  ought  not,  in  the  course 
of  the  navigation.  It  matters  not  whether  a  fire  which  causes  a  loss  be 
lighted  improperly,  or,  after  being  properly  lighted,  be  negligently  at- 
tended ;  whether  the  loss  of  an  anchor,  which  renders  the  vessel  un- 
seaworthy,  be  attributable  to  the  omission  to  take  proper  care  of  it,  or 
to  the  improper  act  of  shipping  it,  or  cutting  it  away ;  nor  could  it 
make  any  difference  whether  any  other  part  of  the  equipment  were 
lost  by  mere  neglect,  or  thrown  away  or  destroyed,  in  the  exercise  of 
an  improper  discretion,  by  those  on  board.  If  there  be  any  fault  in 
the  crew,  whether  of  omission  or  commission,  the  assured  is  not  to  be 
responsible  for  its  consequences. 

The  only  case  which  appears  to  be  at  variance  with  this  principle 
is  that  of  Law  v.  HoUingsworth,  6  Term  R.  160,  in  wdiich  the  fact 
of  the  pilot  who  had  been  taken  on  board  for  the  navigation  of  the 
river  Thames,  having  quitted  the  vessel  before  he  ought,  (under  what 
circumstances  is  not  distinctly  stated,)  appears  to  have  been  held  to 
vitiate  the  insurance.  In  this  respect,  we  cannot  help  thinking  that  the 
case,  although  attempts  were  made  to  distinguish  it  in  some  of  the 
decided  cases,  must  be  considered  as  having  been  overruled  by  the 
modern  authorities  above  referred  to ;  and  that  the  absence,  from  an;, 
cause  t'o  which  the  owner  was  not  privy,  of  the  master  or  any  part  of 
the  crew,  or  of  the  pilot,  who  may  be  considered  as  a  temporary  mas- 
ter, after  they  had  been  on  board,  must  be  on  the  same  footing  as  the 
absence,  from  a  similar  cause,  of  any  part  of  the  necessary  stores  or 
equipments  originally  put  on  board.  The  great  principle  established  by 
the  more  recent  decisions  is,  that,  if  the  vessel,  crew,  and  equipments 
be  originally  sufficient,  the  assured  has  done  all  that  he  contracted  to 
do,  and  is  not  responsible  for  the  subsequent  deficiency  occasioned  by 
any  neglect  or  misconduct  of  the  master  or  crew;  and  this  principle 
prevents  many  nice  and  difficult  inquiries,  and  causes  a  more  complete 
indemnity  to  the  assured,  which  is  the  object  of  the  contract  of  insur- 
ance. If  the  case,  then,  were  that  of  a  policy  for  a  particular  voy- 
age, there  would  be  no  question  as  to  the  insufficiency  of  the  plea ; 
and  the  only  remaining  point  is,  whether  the  circumstance  of  this  being 
a  time  policy  makes  a  difference.  There  are  not  any  cases  in  which 
the  obligation  of  the  assured  in  such  a  case,  as  to  the  seaworthiness 
or  navigation  of  the  vessel,  is  settled ;  but  it  may  be  safely  laid  down, 
that  it  is  not  more  extensive  than  in  the  case  of  an  ordinary  policy, 
and  that,  if  there  is  no  contract  as  to  the  conduct  of  the  crew  in  the 
one  case,  there  is  none  in  the  other.  Here  it  is  clear  that  no  objection 
arises,  on  the  ground  of  seaworthiness  of  the  vessel,  until  that  unsea- 


448  IMPLIED    CONDITIONS    OF    FORFEITURE  (Ch.  7 

worthiness  was  caused  by  the  throwing^  overboard  a  part  of  the  bal- 
last, by  the  improper  act  of  the  master  and  crew ;  and,  as  the  assured 
is  not  responsible  for  such  improper  act,  we  are  of  opinion  that  the 
plea  is  bad  in  substance,  and  the  plaintiff  entitled  to  our  judgment. 

Rule  absolute  to  enter  judgment  for  the  plaintiff  non  obstante  vere- 
dicto. 


SECTION  2.— DEVIATION 


BURGESS  V.  EQUITABLE  MARINE  INS.  CO.  OF 
PROVINCETOWN. 

(Supreme  Judicial  Court  of  Massachusetts,  1878.     12G  Mass.  70,  30  Am. 

Rep.  654.) 

Action  on  a  policy  of  insurance  on  the  fishing  vessel  Christie  John- 
stone, the  risk  commencing  on  July  15,  1874.  Trial  before  Gray,  C. 
J.,  who  reported  the  case  for  the  consideration  of  the  full  court  in 
substance  as  follows ;     *     *     * 

The  vessel  sailed  from  Plymouth  on  June  13,  1874,  on  a  cod-fishing 
voyage  to  the  Banks,  in  a  seaworthy  condition,  with  four  barrels  of 
clam  bait,  which  was  the  usual  quantity  of  bait  taken  by  vessels  of 
her  class  on  such  a  voyage.  For  several  years  past  it  has  been  the 
practice  of  such  vessels  not  to  take  enough  bait  to  last  for  the  entire 
trip,  but  to  rely  principally  on  catching  squid  on  the  Banks,  and  to 
use  them  for  bait ;  and  for  several  years  prior  to  1874  squid  have 
been  plenty  on  the  Banks,  but  in  1874  they  were  very  scarce. 

After  fishing  on  the  Banks  for  three  weeks,  and  having  exhausted 
nearly  all  his  bait,  the  master  of  the  vessel,  solely  for  the  purpose  of 
procuring  bait,  went  to  St.  Peter's,  the  nearest  practical  port  where 
bait  could  be  obtained,  there  procured  bait,  and  then  sailed  from 
St.  Peter's  to  the  Banks,  and  resumed  fishing.  To  reach  the  port  of 
St.  Peter's  the  vessel  sailed  about  one  hundred  and  ten  miles  from 
the  fishing-ground.  She  left  the  fishing-ground  on  Thursday,  reached 
St.  Peter's  on  Saturday ;  and,  having  procured  bait  there,  left  St. 
Peter's  on  Tuesday  following,  and  then  sailed  for  another  Bank,  where 
she  arrived  and  resumed  her  fishing  on  the  next  Thursday.  On  Au- 
gust 6,  1874,  while  so  fishing  on  the  Banks,  the  vessel  encountered  a 
severe  gale,  sprung  a  leak,  and  was  totally  lost,  with  all  the  property 
on  board.     *     *     * 

The  defendant  consented  to  a  verdict  for  the  plaintiff,  subject  to 
the  opinion  of  the  full  court  upon  the  question,  whether,  as  matter 
of  law,  there  had  been  a  deviation.  If,  in  the  opinion  of  the  court, 
the  going  to  St.  Peter's  for  bait  was  a  deviation  which  discharged  the 


Sec.  2)  DEVIATION  449 

insurer,  the  verdict  was  to  be  set  aside,  and  judgment  entered  for  the 
defendant;    otherwise,  judgment  for  the  plaintiff  on  the  verdict.^ 

Endicott,  J.  By  the  terms  of  the  poHcy  the  vessel  was  insured 
"at  and  from  Plymouth  to  the  Banks,  cod-fishing,  and  at  and  thence 
back  to  Plymouth."  This  is  a  definite  and  distinct  description  of  the 
contemplated  voyage  between  two  fixed  termini.  The  Banks  are 
named  as  the  outward  terminus,  and  while  there  engaged  in  cod- 
fishing,  and  until  her  return  to  Plymouth,  the  vessel  was  covered  by 
the  policy.  The  language  used  is  not  open  to  the  construction  that  it 
was  the  intention  of  the  parties  to  insure  her  while  prosecuting  the  ad- 
venture elsewhere,  or  doing  what  was  necessary  to  make  it  successful 
outside  and  beyond  the  prescribed  limits.  A  voyage  is  the  sailing  of  a 
vessel  from  one  port  or  place  to  another  port  or  place,  and  the  pur- 
pose for  which  it  is  to  be  conducted,  whether  as  a  trading,  freighting 
or  fishing  voyage,  is  often  mentioned  in  policies  of  insurance.  But 
this  designation  cannot  vary  or  extend  the  description,  route  or  ter- 
mini of  the  voyage,  as  named  in  the  policy,  unless  some  usage,  con- 
nected with  the  particular  trade  or  adventure,  is  shown  to  exist.  No 
evidence  was  offered  of  a  usage  in  such  voyage  to  leave  the  Banks 
and  go  into  port  for  bait.  So  far  as  the  evidence  reported  discloses 
any  usage  in  that  regard,  it  appears  that  for  some  years  it  had  been 
the  practice  to  carry  out  a  limited  amount  of  bait,  and  to  rely  upon 
obtaining  an  additional  supply  on  the  Banks.  Such  being  the  prac- 
tice to  obtain  bait  on  the  Banks,  when  the  supply  taken  out  was  ex- 
hausted, a  departure  from  the  Banks  for  that  purpose  could  not  have 
been  contemplated  by  the  parties  in  making  the  policy.  We  have, 
therefore,  a  definite  description  of  the  voyage  in  the  policy,  and  a 
usage  that  does  not  extend  its  provisions.  The  question  decided  in 
Friend  v.  Gloucester  Ins.  Co.,  113  Mass.  326,  arose  upon  a  clause  in 
a  policy  prohibiting  a  fishing  vessel  from  sailing  on  a  voyage  east  of 
Cape  Sable  after  a  certain  date,  and  throws  no  light  upon  the  con- 
struction to  be  given  to  the  words  of  this  policy.  The  decision  in  The 
Tarquin,  2  Low.  358,  Fed.  Cas.  No.  13,755,  turned  upon  the  construc- 
tion of  the  shipping  articles  of  seamen,  and  not  of  a  policy  of  insur- 
ance. 

We  are,  therefore,  of  opinion,  that  the  vessel,  by  leaving  the  Banks 
and  going  to  St.  Peter's  for  bait,  departed  from  the  voyage  described 
in  the  policy,  and  the  only  question  to  be  determined  is,  whether  in 
law  there  has  been  a  deviation  which  avoids  the  policy. 

It  may  be  stated,  in  general  terms,  that  the  assured  is  protected  by 
his  policy,  while  the  vessel  pursues  the  usual  and  customary  course  of 
the  voyage ;  but  any  departure  from  the  course,  or  delay  in  prose- 
cuting it,  without  necessity,  or  just  cause,  is  a  deviation,  and  dis- 
charges the  insurer,  because  another  voyage  has  been  voluntarily  sub- 

3  The  statement  of  facts  is  abbreviated. 
Vance  Ins. — 29 


450  IMPLIED    CONDITIONS    OF    FORFEITURE  (Ch.  7 

stitutcd  for  that  which  was  insured.  Whether  the  degree  or  period  of 
the  risk  is  increased,  is  unimportant,  as  the  assured  has  no  right  to  sub- 
stitute a  different  risk.  Whenever,  therefore,  there  is  a  manifest  de- 
parture from  the  course  of  the  voyage,  the  assured  must  show  that  it 
was  justified  by  the  necessity  of  the  case.  Stocker  v.  Harris,  3  Mass. 
409,  418;  Brazier  v.  Clap,  5  Mass.  1;  Coffin  v.  Newburyport  Ins. 
Co.,  9  Mass.  436,  449;  Kettell  v.  Wiggin,  13  Mass.  68. 

In  the  case  at  bar,  the  alleged  necessity  arose  from  scarcity  of  bait. 
The  plaintiff  did  not  put  on  board,  when  the  vessel  sailed  from  Ply- 
mouth, enough  for  the  entire  trip.  Squid  had  been  plenty  on  the 
Banks  during  several  years  prior  to  1874,  and  the  plaintiff  relied  upon 
catching  them  there  and  using  them  for  that  i)urpose.  They  happened 
this  season  to  be  very  scarce,  and,  after  fishing  three  weeks,  and  nearly 
exhausting  his  supply,  the  master  sailed  for  St.  Peter's,  over  one  hun- 
dred miles  distant,  procured  bait,  and  returned  to  the  Banks  after  an 
absence  of  a  week.  It  is  to  be  observed,  that  this  so-called  necessity 
did  not  arise  from  any  peril  insured  against  in  the  policy,  or  ordinarily 
insured  against  in  policies  of  insurance,  and  did  not  involve  the  safety 
of  the  vessel,  or  of  any  property  on  board ;  it  had  relation  solely  to 
the  success  of  the  fishing  adventure;  and  in  this  the  defendant  had 
no  interest  and  has  assumed  no  responsibility. 

We  are  of  the  opinion  that  the  claim  of  the  plaintiff  cannot  be  sus- 
tained; and  that  a  necessity  to  justify  the  departure  in  this  case  can- 
not be  found  in  the  fact  that,  without  going  to  St.  Peter's  for  bait,  the 
voyage  would  have  failed  to  be  successful  or  profitable  to  the  plain- 
tiff. 

The  strictness  with  which  the  courts  have  held  the  insured  to  the 
route  named  in  the  policy,  is  illustrated  by  the  cases  already  cited,  and 
by  many  others  cited  at  the  argument.  Dodge  v.  Essex  Ins.  Co.,  12 
Gray,  65 ;  Middlewood  v.  Blakes,  7  T.  R.  162 ;  Brown  v.  Tayleur,  4 
A.  &  E.  241  ;  Fernandez  v.  Great  Western  Ins.  Co.,  48  N.  Y.  571, 
8  Am.  Rep.  571 ;  Merchants'  Ins.  Co.  v.  Algeo,  32  Pa.  330.  But  the 
question  to  be  determined  here  is,  what  is  the  nature  and  extent  of 
the  necessity  or  just  cause  which  will  warrant  a  departure  from  the 
route. 

In  this  connection  it  may  be  well  to  refer  to  the  necessities  which 
clearly  justify  a  departure.  There  is  no  deviation  when  the  master 
is  compelled  by  force,  either  to  depart  from  his  route,  or  delay  its 
prosecution  by  the  acts  of  his  crew,  Elton  v.  Brogden,  2  Str.  1264; 
Driscol  v.  Passmore,  1  B.  &  P.  200;  Driscol  v.  Bovil,  1  B.  &  P.  313; 
or  where  he  is  detained  by  those  in  authority,  or  taken  out  of  his 
course  by  a  ship  of  war,  Scott  v.  Thompson,  1  N.  R.  181.  In  Phelps 
v.  Auldjo,  2  Camp.  350,  a  master  was  ordered  to  sail  out  and  exam- 
ine a  vessel  in  the  offing,  by  a  captain  of  a  king's  ship,  and,  it  appear- 
ing that  he  complied  without  remonstrance  or  threat  of  force,  it  was 
held  to  be  a  deviation.  In  cases  of  this  description  there  must  be  a 
vis  major,  compelling  a  departure  or  delay,  which  excuses  the  mas- 


Sec.  2)  DEVIATION  451 

ter.  So  where  the  master  is  obhgeci  to  leave  his  course,  or  delay  by 
stress  of  weather  or  other  peril  of  the  sea,  or  to  go  into  port  to  repair 
or  refit,  or  to  re-man  or  recruit  his  crew  disabled  by  sickness  or 
reduced  by  casualties,  or  to  avoid  capture  or  to  join  convoy  in  time 
of  war,  there  is  no  deviation.  It  is  unnecessary  to  cite  all  the  cases 
which  fall  within  these  exceptions ;  many  of  those  relied  on  by  the 
plaintiff  are  clearly  within  them.  Dunlop  v.  Allan,  Millar  on  Ins.  414; 
Green  v.  Elmslie,  Peake,  212;  Clark  v.  United  Ins.  Co.,  7  Mass.  365, 
5  Am.  Dec.  50.  The  case  last  cited  is  put  upon  the  express  ground 
that  the  ship  was  prevented  by  causes  insured  against  from  proceeding 
on  her  route,  and  the  departure  was  from  necessity.  See,  also,  Folsom 
V.  Merchants'  Ins.  Co.,  38  Me.  414. 

Nor  is  the  departure  from  the  route  for  the  purpose  of  saving  hu- 
man life  a  deviation ;  nor  is  a  policy  avoided  when  the  ship  goes  out 
of  her  course  to  obtain  necessary  medical  assistance  for  those  lawfully 
on  board.  Bond  v.  Brig  Cora,  2  Wash.  C.  C.  80,  Fed.  Cas.  No.  1,621 ; 
Perkins  v.  Augusta  Ins.  Co.,  10  Gray,  312,  71  Am.  Dec.  654.  In  this 
class  of  cases  the  justification  does  not  rest  on  the  same  ground  as 
in  those  previously  noticed.  It  is  allowed  from  motives  of  humanity, 
and  cannot  be  extended  to  the  saving  or  protection  of  property^  In 
all  other  cases  the  necessity  must  be  a  real  and  imperative  necessity 
affecting  the  vessel,  such  as  actual  force  preventing  the  master  from 
exercising  his  will,  peril  of  the  sea,  danger  of  capture,  want  of  re- 
pair, disability  of  the  crew,  or  unseaworthiness,  occurring  under  such 
circumstances  that  the  master,  acting  upon  his  best  judgment  for  the 
interest  of  all  parties,  has  no  alternative,  and  is  forced  to  leave  his 
route,  or  delay  its  prosecution. 

When  the  departure  is  caused  by  such  a  necessity,  the  change  of 
route  in  no  respect  alters  the  insurance;  because  the  course  of  a  sea 
voyage  must  at  times  be  necessarily  subject  to  extraordinary  perils  of 
the  sea,  and  contingencies  beyond  the  control  of  the  master,  and  in 
the  presence  of  which  he  is  forced  to  succumb ;  and  when  they  occur, 
and  he  is  obliged  to  depart  from  the  usual  course  of  the  voyage,  there 
is  no  deviation  in  the  legal  sense  of  the  term,  for  the  departure  is 
the  necessary  incident  of  the  route  named  in  the  policy,  as  prosecuted 
at  the  time  by  the  ship.  The  probability  of  such  occurrences  is  well 
understood;  they  are  known  perils  of  the  voyage,  and  enter  into  the 
ordinary  contract  of  marine  insurance.  And  when  the  master,  com- 
pelled by  the  necessity,  does  that  which  is  for  the  benefit  of  all  con- 
cerned, the  act  is  within  the  intention  of  the  policy,  as  much  as  if  ex- 
pressed in  terms.  It  would  be  practically  impossible  to  state  in  the 
policy  all  the  perils  which  might  arise  in  a  sea  voyage  and  excuse 
departure  from  the  route;  and  therefore,  by  the  rules  of  interpreta- 
tion applicable  to  this  species  of  contract,  the  policy  is  held  by  impli- 
cation to  include  them.  See  Greene  v.  Pacific  Ins.  Co.,  9  Allen,  217, 
219.  In  such  a  policy  as  this,  the  necessities  justifying  a  departure, 
in  the  absence  of  usage,  from  the  route,  and  a  visit  to  a  port  not  nam- 


452  IMPLIED    CONDITIONS    OV    FORFEITURB  (Cll.  7 

ed,  are  those  which  are  caused  by  some  peril  occurring  in  the  prose- 
cution of  the  voyage  within  the  limits  named  in  the  policy,  and  not 
those  which  arise  in  the  prosecution  of  the  business  for  which  the 
voyage  was  undertaken. 

It  is  true,  there  is  a  class  of  cases  much  relied  on  by  the  plaintiff, 
where  the  test  is  whether  the  ship  at  the  time  of  the  alleged  devia- 
tion was  pursuing  the  object  and  business  of  the  voyage.  But  those 
are  cases  of  delay,  where  the  ship  was  at  the  port  or  place  named  or 
permitted  in  the  policy.  The  permission  in  a  policy  to  go  to  certain 
ports  or  places  must  always  be  construed  in  reference  to  the  purpose 
of  the  voyage.  Williams  v.  Shee,  3  Camp.  469;  1  Arnould  on  Ins.  §§ 
141,  142.  Any  delay  for  the  prosecution  of  other  business,  or  any 
unreasonable  delay  in  prosecuting  the  business  of  the  voyage  at  such 
port  is  a  deviation.  African  Merchants  v.  British  Ins.  Co.,  L.  R.  8 
Ex.  154.  But  if  the  delay  was  necessary  in  order  to  accomplish  the 
objects  of  the  voyage,  and  was  reasonable  under  the  circumstances  of 
the  case,  then  there  is  no  deviation.  Columbia  Ins.  Co.  v.  Catlett,  12 
Wheat.  383,  6  L.  Ed.  664;  Phillips  v.  Irving,  7  Man.  &  Gr.  325.  In 
other  words,  if  the  ship  is  at  a  place  permitted,  the  delay  shall  not  be 
a  deviation,  if  it  is  necessary  in  the  proper  prosecution  of  the  busi- 
ness of  the  voyage.  But  this  test  cannot  be  applied  to  a  departure 
from  the  route  to  a  port  not  named  or  permitted,  for  the  purpose  of 
adventure.  In  all  trading  voyages,  for  example,  the  ship  is  confined 
to  the  ports  or  coasts  named  in  the  policy,  and  she  cannot  depart  to 
other  places,  simply  because  she  may  better  prosecute  the  trade  else- 
where. If  the  departure  from  the  route,  to  insure  the  success  of  the 
adventure  can  be  justified  as  a  necessity,  it  would  be  difficult  to  state 
any  limit  to  the  privilege,  or  to  the  duration  of  the  insurance,  and, 
in  the  absence  of  permission  to  do  so  in  the  policy,  it  cannot  be  im- 
plied. See  Kettell  v.  Wiggin,  13  Mass.  68;  Robertson  v.  Columbian 
Ins.  Co.,  8  Johns.  (N.  Y.)  491.  The  plaintiff's  vessel  might  have  de- 
layed for  any  reasonable  time  upon  the  Banks  for  the  purpose  of 
fishing  or  getting  bait,  without  being  guilty  of  deviation ;  and  would 
have  been  protected  by  the  policy,  even  without  proof  of  usage,  be- 
cause fishing  was  the  purpose  of  the  voyage,  and  she  could  properly 
prosecute  it  within  the  route  named  in  the  policy.  Noble  v.  Kenno- 
way,  2  Doug.  510,  513.  But  she  could  not  go  beyond  or  away  from 
the  route  for  that  purpose. 

The  illustration  put  by  the  defendant's  counsel  is  apposite:  "If 
a  vessel  insured  to  Havana  and  back  should  learn,  before  entering  the 
port,  that  there  was  no  cargo  there  with  which  she  could  be  loaded, 
no  one  would  say  that  Her  policy  protected  her  in  going  to  the  nearest 
port  where  a  cargo  could  be  had."  Other  illustrations  may  be  given. 
If  a  vessel  insured  to  a  particular  port,  having  letters  of  credit,  should 
find  on  arrival  that  the  parties  on  whom  they  were  drawn  had  failed, 
she  could  not  go  to  another  port  for  funds,  and  return  for  her  cargo, 
and  be  protected  by  her  policy.    If  fish  had  been  scarce  on  the  Banks 


Sec.  3-)  ILLEGALITY  453 

in  1874,  it  would  hardly  be  contended  that  the  vessel  could  have  gone 
to  other  fishing-grounds  to  fish,  although  not  more  distant  than  St. 
Peter's,  and  yet,  if  she  was  justified  by  necessity  in  leaving  to  obtain 
bait  at  St.  Peter's  and  to  return  in  order  to  make  the  trip  successful, 
it  would  be  difficult  to  hold  that  the  same  necessity  would  not  allow 
her  to  fish  elsewhere.*     *     *     * 

As  in  the  opinion  of  the  court  the  trip  to  St.  Peter's  was  a  deviation 
which  discharged  the  insurer,  by  the  terms  of  the  report  there  must 
be  judgment  for  the  defendant.** 


SECTION  3.— ILLEGALITY 


WARREN  V.  MANUFACTURERS'  INS.  CO. 

(Supreme  Judicial  Court  of  Massachusetts,   1833.     13  Piclv.   518,   25 

Am.  Dec.  311.) 

Assumpsit  oh  a  policy  of  insurance  on  profits  of  a  cargo,  valued, 
on  a  voyage  from  the  Port  of  Mansinella,  in  the  island  of  Cuba, 
to  Boston. 

It  appeared  by  the  testimony  of  the  master,  that  he  sailed  on 
the  19th  of  November,  on  his  homeward  vo3^age  from  Mansinella 
to  Boston,  with  his  water  on  deck  and  having  no  water  secured 
under  deck.    Verdict  for  the  plaintiff.*' 

Wilde,  J.  By  the  United  States  statute  of  July  20,  1790,  c.  56 
(29)  §  9,  (1  Stat.  135),  it  is  enacted  that  every  ship  or  vessel,  bound 
on  a  voyage  across  the  Atlantic  ocean,  shall,  at  the  time  of  leaving 
the  last  port  from  whence  she  sails,  have  on  board,  well  secured 
under  deck,  at  least  sixty  gallons  of  water,  etc.,  for  every  person 
on  board  such  ship,  etc.,  and  in  like  proportion  lor  shorter  or  longer 

4  Tlie  court's  discussion  of  Greene  v.  Pacific  Ins.  Co.,  9  Allen  (Mass.)  217 
(1864),  and  Stocker  v.  Harris,  3  Mass.  409  (1807),  is  omitted. 

s  Marine  Insurance  Act. — St.  6  Edw.  VII,  c.  41,  §  49  (1) — Deviation  or 
delay  in  prosecuting  the  voyage  contemplated  by  the  policy' is  excused — 

(a)  Where  authorized  by  any  special  term  in  the  policy;  or 

(b)  Where  caused  by  circumstances  beyond  the  control  of  the  master  and 
his  employer ;  or 

(c)  Where  reasonably  necessary  in  order  to  comply  with  an  express  or  im- 
plied warranty ;  or 

(d)  ^'fhere  reasonably  necessary  for  the  safety  of  the  ship  or  subject-matter 
insured;  or 

(e)  For  the  purpose  of  saving  human  life,  or  aiding  a  ship  in  distress 
where  human  life  may  be  in  danger ;  or 

(f)  Where  reasonably  necessary  for  the  purpose  of  obtaining  medical  or 
surgical  aid  for  any  person  on  board  the  ship;  or 

(g)  Where  caused  by  the  barratrous  conduct  of  the  master  or  crew,  if  bar- 
ratry be  one  of  the  perils  insured  against. 

6  The  statement  of  facts  is  abbreviated. 


454  IMPLIED    CONDITIONS    OF    FORFEITURE  (Ch.  7 

voyag-es ;  and  in  case  the  crew  of  any  ship  or  vessel,  which  shall 
not  have  been  so  provided,  shall  be  put  on  short  allowance  in  water, 
etc.,  the  master  or  owner  of  such  ship  or  vessel  shall  pay  to  each 
of  the  crew  one  day's  wages  beyond  the  wages  agreed  on,  for  every 
day  they  shall  be  so  put  to  short  allowance. 

The  defendant's  counsel  contend  that  the  noncompliance  with 
this  requisition  of  the  statute  rendered  the  voyage  illegal,  and  con- 
sequently that  the  policy  is  void.  They  rely  on  the  general  prin- 
ciple, that  a  contract  founded  on  an  illegal  consideration,  or  which 
is  made  for  the  purpose  of  furthering  any  matter  or  thing  prohib- 
ited by  statute,  or  to  aid  or  assist  any  party  therein,  is  void  as  be- 
ing against  the  policy  of  the  law.  This  general  principle  is  well 
established,  but  like  all  general  rules,  it  is  not  without  exceptions; 
and  the  present  case,  we  think,  falls  within  one  of  the  exceptions  to 
the  general  rule.  The  rule  applies  to  every  contract  which  is  found- 
ed on  a  transaction  malum  in  se,  or  which  is  prohibited  by  statute 
on  the  ground  of  public  policy;  but  where  a  contract  is  founded 
on  a  transaction  which  is  prohibited  for  the  benefit  of  a  particular 
individual  or  individuals,  and  has  no  influence  on  the  public  wel- 
fare, such  contract  is  not  absolutely  void,  but  only  voidable  by 
the  party  for  whose  benefit  the  prohibition  is  introduced.  So  where 
an  act  is  enjoined  under  a  penalty,  and  a  contract  is  remotely  and 
incidentally  connected  with  the  omission  to  do  and  perform  the 
•  act  enjoined,  the  contract  is  not  necessarily  void.  Atkinson  v.  Ab- 
bott, 11  East,  135;  Johnson  v.  Hudson,  Id.  180;  Hughes,  Ins.  273; 
L.aw  V.  Hollingsworth,  7  T.  R.  160;  Dawson  v.  Atty,  7  East,  367; 
Bell  V.  Carstairs,  14  East,  374;  Carruthers  v.  Gray,  15  East,  35; 
Ward  V.  Wood,  13  Mass.  539;  Mitchell  v.  Smith,  4  Yeates  (Pa.) 
86;   Gremare  v.  Valon,  2  Campb.  144. 

The  case  of  Atkinson  v.  Abbott,  11  East,  135,  was  a  case  on  a 
policy  of  insurance,  and  it  was  contended  for  the  defendant,  that  the 
policy  was  void  because  a  false  clearance  had  been  taken  out  con- 
trary to  the  13  Car.  II,  c.  11.  But  it  was  decided  that  this  did  not 
avoid  the  policy.  Lord  EHenborough  remarks,  that  "there  is  noth- 
ing illegal,  so  as  to  avoid  a  policy,  in  the  mere  circumstance  of 
a  ship  taking  out  a  clearance  for  a  place  named  in  the  policy,  to 
which  there  is  no  intention  of  going.  The  statute  of  Car.  II,  only 
gives  a  penalty  of  £100,  for  taking  out  a  false  clearance;  but  there 
is  nothing  in  that  to  make  the  voyage  illegal. 

In  Ward  v.  Wood,  13  Mass.  539,  the  insurance  was  upon  an 
armed  ship,  with  liberty  to  cruise  and  capture  the  vessels  and  goods 
of  the  enemy.  One  of  the  grounds  of  defense  was,  that  the  master, 
in  pursuance  of  instructions  from  the  owners,  had  broken  open 
vessels  captured,  and  taken  out  part  of  their  cargoes  before  con- 
demnation; but  the  Court  held,  that  although  such  a  practice  was 
censurable,  and  against  the  directions  of  a  statute  of  the  United 
.  States,  the  policy  was  not  thereby  rendered  void ;   that  the  statute 


Sec.  4)  SUICIDE  455 

was  merely  directory,  obedience  to  the  law  being  enforced  by 
bonds  and  penalties,  and  that  disobedience  did  not  make  the  voy- 
age illegal. 

Upon  the  authority  of  those  cases,  and  upon  principle,  we  think 
it  very  clear,  in  the  present  case,  that  the  voyage  was  not  illegal 
by  reason  of  the  non-compliance  with  the  statute,  nor  the  vessel 
unseaworthy  on  this  account.  The  statute  was  made  for  the  benefit 
of  the  crew ;  and  was  afterwards  extended  to  passengers  by  the 
United  States  statute  of  March  2,  1819,  c.  170  (chapter  46,  3  Stat. 
488).  Both  statutes  are  merely  directory,  and  amount  to  no  more 
than  this,  that  the  master  and  owner  shall  be  liable  to  a  penalty, 
if  the  crew  or  passenger  shall  be  put  on  short  allowance,  provided 
the  vessel  shall  not  have  been  supplied  with  water,  &c.,  in  compli- 
ance with  the  directions  of  the  statutes. 

The  question,  whether  independently  of  the  statutes  the  vessel 
was  not,  in  point  of  fact,  sufficiently  equipped  and  provided  with 
water  for  the  voyage,  has  been  decided  by  the  jury  on  the  evidence, 
and  no  objection  is  made  to  the  correctness  of  their  decision  in  this 
respect. 

Judgment  according  to  the  verdict.'' 


SECTION  4.— SUICIDE 


RITTER  V.  MUTUAL  LIFE  INS.  CO.  OF  NEW  YORK. 

(Supreme  Court  of  tbe  United  States,  1898.     169  U.  S.  139,  18  Sup.  Ct.  300, 

42  L.  Ed.  693.) 

This  was  an  action  on  six  policies  of  insurance.  There  was  a  ver- 
dict and  judgment  in  favor  of  the  defendant,  which  was  affirmed 
in  the  circuit  court  of  appeals.  70  Fed.  954,  17  C.  C.  A.  537,  42  L.  R. 
A.  583,  28  U.  S.  App.  612. 

The  evidence  showed  that  the  insured,  William  R.  Runk,  had  taken 
out  with  the  defendant  company  and  with  other  companies  insurance 

7  For  the  cases  on  this  subject,  see  2  Cooley,  Briefs  on  Insurance,  1592. 
In  accord  with  the  principal  case  are  those  cases  involving  insurance  upon 
buildings  occupied  as  houses  of  ill-fame  and  on  the  furniture  therein.  See 
Electrova  Co.  v.  Spring  Garden  Insurance  Co.,  156  N.  C.  232,  72  S.  E.  306,  35 
L.  R.  A.  (N.  S.)  1216  (1911),  (insurance  on  a  piano,  placed  in  a  house  of  ill- 
fame  with  a  view  to  its  sale  to  the  proprietress,  not  void  for  illegality) ;  Coni- 
than  V.  Royal  Ins.  Co.,  91  Miss.  386,  45  South.  361,  18  L.  R.  A.  (N.  S.)  214. 
124  Am.  St.  Rep.  701,  15  Ann.  Cas.  5.39  (1907).  Some  courts,  however,  hold 
that  insurance  placed  upon  goods  kept  in  violation  of  the  excise  laws  is  a 
part  of  an  illegal  transaction  tending  to  the  safer  carrying  on  of  the  same, 
and  void  because  in  violation  of  public  policy.  See  Kelly  v.  Home  Ins.  Co., 
97  Mass.  288  (1867);  Carrigan  v.  Lycoming  Fire  Ins.  Co.,  53  Vt.  418,  38  Am. 
Rep.  687  (1881).     See  notes  in  18  L.  R.  A.  (N.  S.)  214;  40  L.  R.  A.  845. 


456  IMPLIED    CONDITIONS    OF    FORFEITURE  (Ch.  7 

upon  his  life  to  an  aggregate  sum  of  $500,000.  The  combined  annual 
premiums  upon  the  insured's  policies  amounted  to  $12,000,  although 
Runk's  income  was  only  $8,400,  and  he  was  insolvent  at  the  time  the 
policies  with  defendant  company  were  procured.  The  principal  de- 
fence was  that  the  insured  deliberately  and  intentionally  took  his  own 
life,  whereby  the  event  insured  against,  his  death,  was  precipitated. 
The  policies  themselves  were  silent  as  to  suicide  of  the  insured,  al- 
though the  application,  not  a  part  of  the  contract  because  of  non-com- 
pliance with  a  Pennsylvania  statute,  contained  the  usual  clause  ex- 
cepting death  by  suicide  from  the  operation  of  the  policy. 
Mr.  Justice  Harlan  delivered  the  opinion  of  the  court. ^ 

No  error  of  law  having  been  committed  in  respect  of  the  issue  as  to 
the  insanity  of  the  assured,  it  is  to  be  taken  as  the  result  of  the  verdict 
that  he  was  of  sound  mind  when  he  took  his  life. 

This  brings  us  to  the  question  whether  the  insurance  company  was 
liable,  assuming  that  it  was  not  a  part  of  the  contract,  enforceable  in 
Pennsylvania,  that  the  assured  should  "not  die  by  his  own  act,  whether 
sane  or  insane,"  within  two  years  from  the  date  of  the  policy. 

It  is  contended  that  the  court  erred  in  saying  to  the  jury,  as,  in  effect, 
it  did,  that  intentional  self-destruction,  the  assured  being  of  sound 
mind,  is  in  itself  a  defense  to  an  action  upon  a  life  policy,  even  if  such 
policy  does  not  in  express  words  declare  that  it  shall  be  void  in  the 
event  of  self-destruction  when  the  assured  is  in  sound  mind.  But  is 
it  not  an  implied  condition  of  such  a  policy  that  the  assured  will  not 
purposely,  when  in  sound  mind,  take  his  own  life,  but  will  leave  the 
event  of  his  death  to  depend  upon  some  cause  other  than  willful, 
deliberate  self-destruction?  Looking  at  the  nature  and  object  of  life 
insurance,  can  it  be  supposed  to  be  within  the  contemplation  of  either 
party  to  the  contract  that  the  company  shall  be  liable  upon  its  promise 
to  pay,  where  the  assured,  in  sound  mind,  by  destroying  his  own  life 
intentionally  precipitates  the  event  upon  the  happening  of  which  such 
liability  was  to  arise? 

Life  insurance  imports  a  mutual  agreement,  whereby  the  insurer,  in 
consideration  of  the  payment  by  the  assured  of  a  named  sum  annually, 
or  at  certain  times,  stipulates  to  pay  a  larger  sum  at  the  death  of  the 
assured.  The  company  takes  into  consideration,  among  other  things, 
the  age  and  health  of  the  parents  and  relatives  of  the  applicant  for 
insurance,  together  with  his  own  age,  course  of  life,  habits,  and  pres- 
ent physical  condition;  and  the  premium  exacted  from  the  assured 
is  determined  by  the  probable  duration  of  his  life,  calculated  upon 
the  basis  of  past  experience  in  the  business  of  insurance.     The  results 

8  The  statement  of  facts  has  been  abbreviated,  and  that  portion  of  the 
opinion  upholding  a  finding  of  the  jury  that  the  insured  was  not  insane,  and 
holding  that  the  contract  of  insurance,  under  the  statute  of  Pennsylvania, 
contained  no  warranty  by  the  insured,  nor  any  express  condition  avoiding 
the  policy  in  case  of  suicide,  has  been  omitted. 


Sec.  4)  SUICIDE  457 

of  that  experience  are  disclosed  by  standard  life  and  annuity  tables, 
showing  at  any  age  the  probable  duration  of  life.  These  tables  are 
deemed  of  such  value  that  they  may  be  admitted  in  evidence  for  the 
purpose  of  assisting  the  jury  in  an  action  for  personal  injury,  in  which 
it  is  necessary  to  ascertain  the  compensation  the  plaintiff  is  entitled 
to  recover  for  the  loss  of  what  he  might  have  earned  in  his  trade 
or  profession  but  for  such  injury.  Railroad  Co.  v.  Putnam,  118  U.  S. 
545,  554,  7  Sup.  Ct.  1,  30  L.  Ed.  257.  If  a  person  should  apply  for 
a  policy  expressly  providing  that  the  company  should  pay  the  sum 
named  if  or  in  the  event  the  assured,  at  any  time  during  the  con- 
tinuance of  the  contract,  committed  self-destruction,  being  at  the  time 
of  sound  mind,  it  is  reasonably  certain  that  the  application  would  be 
instantly  rejected.  It  is  impossible  to  suppose  that  an  application  of 
that  character  would  be  granted.  If  experience  justifies  this  view,  it 
would  follow  that  a  policy  stipulating  generally  for  the  payment  of 
the  sum  named  in  it  upon  the  death  of  the  assured,  should  not  be  in- 
terpreted as  intended  to  cover  the  event  of  death  caused  directly  and 
intentionally  by  self-destruction  while  the  assured  was  in  sound  mind, 
but  only  death  occurring  in  the  ordinary  course  of  his  life. 

That  the  parties  to  the  contract  did  not  contemplate  insurance 
against  death  caused  by  deliberate,  intentional  self-destruction  when 
the  assured  was  in  sound  mind,  is  apparent  from  the  "provisions,  re- 
quirements, and  benefits"  referred  to  in,  and  made  part  of,  the  policy. 
They  show  that  the  policy  was  issued  on  the  20-year  distribution  plan, 
and  was  to  be  credited  with  its  distributive  share  of  surplus  appor- 
tioned at  the  expiration  of  20  years  from  the  date  of  issue ;  that  after 
three  full  annual  premiums  were  paid,  the  company  would,  upon  the 
legal  surrender  of  the  policy,  before  default  in  the  payment  of  any 
premium,  or  within  six  months  thereafter,  issue  a  nonparticipating 
policy  for  a  paid-up  insurance,  payable  as  provided,  for  the  amount 
required  by  the  provisions  of  the  New  York  statute  of  May  21,  1879 
(Laws  N.  Y.  c.  347) ;  that  the  assured  was  entitled  to  surrender  the 
policy  at  the  end  of  the  first  period  of  20  years,  "and  the  full  reserve 
computed  by  the  American  table  of  mortality,  and  four  per  cent,  inter- 
est, and  the  surplus,  as  defined  above,  will  be  paid  therefor  in  cash" ; 
that,  if  the  assured  surrendered  the  policy,  the  total  cash  value  at  the 
option  of  the  policy  holder  should  be  applied  "to  the  purchase  of  an 
annuity  for  life,  according  to  the  published  rates  of  the  company  at  the 
time  of  surrender" ;  that  after  two  years  from  the  date  of  the  policy 
the  only  conditions  that  should  be  binding  on  the  holder  of  the  policy 
were  that  "he  shall  pay  the  premiums  at  the  time  and  place  and  in  the 
manner  stipulated  in  the  policy,  and  that  the  requirements  of  the  com- 
pany as  to  age,  and  military  or  naval  service  in  time  of  war,  shall  be 
observed" ;  that  in  all  other  respects,  if  the  policy  matured  after  the 
expiration  of  two  years,  the  payment  of  the  sum  insured  should  not 
be  disputed ;   and  that  the  party  whose  life  was  insured  should  always 


458  IMPLIED    CONDITIONS   OF    FORFEITURE  (Ch.  7 

wear  a  suitable  truss.  These  provisions  of  the  contract  tend  to  show 
that  the  death  referred  to  in  the  poHcy  was  a  death  occurring  in  the 
ordinary  course  of  the  life  of  the  assured,  and  not  by  his  own  violent 
act,  designed  to  bring  about  that  event. 

In  the  case  of  fire  insurance  it  is  well  settled  that  although  a  policy, 
in  the  usual  form,  indemnifying  against  loss  by  fire,  may  cover  a  loss 
attributable  merely  to  the  negligence  or  carelessness  of  the  insured,  un- 
afifected  by  fraud  or  design,  it  will  not  cover  a  destruction  of  the  prop- 
erty by  the  willful  act  of  the  assured  himself  in  setting  fire  to  it,  not  for 
the  purpose  of  avoiding  a  peril  of  a  worse  kind,  but  with  the  intention 
of  simply  effecting  its  destruction.  Much  more  should  it  be  held  that  it 
is  not  contemplated  by  a  policy  taken  out  by  the  person  whose  life 
is  insured,  and  stipulating  for  the  payment  of  a  named  sum  to  him- 
self, his  executors,  administrators,  or  assigns,  that  the  company  should 
be  liable  if  his  death  was  intentionally  caused  by  himself  when  in 
sound  mind.  When  the  policy  is  silent  as  to  suicide,  it  is  to  be  taken 
that  the  subject  of  the  insurance  (that  is,  the  life  of  the  assured)  shall 
not  be  intentionally  and  directly,  with  whatever  motive,  destroyed  by 
him  when  in  sound  mind.  To  hold  otherwise  is  to  say  that  the  oc- 
currence of  the  event  upon  the  happening  of  which  the  company  under- 
took to  pay  was  intended  to  be  left  to  his  option.  That  view  is 
against  the  very  essence  of  the  contract.  ® 

There  is  another  consideration  supporting  the  contention  that  death 
intentionally  caused  by  the  act  of  the  assured  when  in  sound  mind — 
the  policy  being  silent  as  to  suicide — is  not  to  be  deemed  to  have 
been  within  the  contemplation  of  the  parties ;  that  is,  that  a  different 
view  would  attribute  to  tliem  a  purpose  to  make  a  contract  that  could 
not  be  enforced  without  injury  to  the  public.  A  contract,  the  tendency 
of  which  is  to  endanger  the  public  interests  or  injuriously  affect  the 
public  good,  or  which  is  subversive  of  sound  morality,  ought  never  to 
receive  the  sanction  of  a  court  of  justice,  or  be  made  the  foundation 
of  its  judgment.  If,  therefore,  a  policy — taken  out  by  the  person 
whose  life  is  insured,  and  in  which  the  sum  named  is  made  payable 
to  himself,  his  executors,  administrators,  or  assigns — expressly  pro- 
vided for  the  payment  of  the  sum  stipulated  when  or  if  the  assured, 
in  sound  mind,  took  his  own  life,  the  contract,  even  if  not  prohibited 
by  statute,  would  be  held  to  be  against  public  policy,  in  that  it  tempted 
or  encouraged  the  assured  to  commit  suicide  in  order  to  make  pro- 
vision for  those  dependent  upon  him,  or  to  whom  he  was  indebted. 

Is  the  case  any  dift"erent  in  principle  if  such  a  policy  is  silent  as  to 
suicide,  and  the  event  insured  against — the  death  of  the  assured — is 
brought  about  by  his  willful,  deliberate  act,  when  in  sound  mind? 
Light  will  be  thrown  on  this  question  by  some  of  the  adjudged  cases 

9  In  Western  Horse  &  Cattle  Ins.  Co.  v.  O'Neill,  21  Neb.  548,  32  N.  W. 
581  (1887),  the  plaintiff  was  denied  a  recovery  for  the  death  of  a  horse  in- 
sured, because  such  death  was  caused  by  the  plaintiff's  ill-treatment. 


Sec.  4)  SUICIDE  459 

having  more  or  less  bearing  upon  the  precise  point  now  before  this 
court  for  determination,  lo     *     *     * 

For  the  reasons  we  have  stated,  it  must  be  held  that  the  death  of 
the  assured,  Wilham  M.  Runk,  if  directly  and  intentionally  caused 
by  himself,  when  in  sound  mind,  was  not  a  risk  intended  to  be  covered, 
or  which  could  legally  have  been  covered,  by  the  policies  in  suit. 

The  case  presents  other  questions,  but  they  are  of  minor  importance, 
and  do  not  affect  the  substantial  rights  of  the  parties. 

We  perceive  no  error  of  law  in  the  record,  and  the  judgment  is 
affirmed. 


CAMPBELL  v.  SUPREME  CONCLAVE  IMPROVED  ORDER 

HEPTASOPHS. 

(Court  of  Errors  and  Appeals  of  New  Jersey,   1001.     66  N.  J.  Law,  274,  49 
Atl.  550,  54  L.  R.  A.  576.) 

Action  on  a  benefit  certificate  issued  by  the  defendant,  a  fraternal 
order,  to  Dr.  John  G.  Campbell,  a  member  in  good  standing,  and  paya- 
ble to  his  wife,  the  plaintiff  herein.  It  was  proved  that  Dr.  Campbell, 
while  perfectly  sane,  had  killed  himself  shortly  after  his  arrest  for 
forgery.     Judgment  for  the  plaintiff. 

The  principal  error  alleged  was  the  court's  refusal  to  give  the  fol- 
lowing instruction  requested  by  defendant:  "That  although  the  by- 
laws of  the  defendant,  as  also  the  benefit  certificate  sued  on,  are  silent 
as  to  suicide,  there  is  an  implied  condition  in  the  contract  that,  if  the 
event  upon  which  the  risk  was  assured — the  death  of  the  said  Camp- 
bell— was  brought  about  by  his  own  deliberate  act  while  in  sound 
mind,  there  can  be  no  recovery."  ^^ 

CoLijNS,  J.  It  has  been  considered  by  some  that  benefit  societies 
are  sui  generis,  as  respects  the  payment  of  death  benefits  to  dependents 
of  their  members,  and  that  the  uniform  denial  of  the  defense  of  un- 
excepted  suicide  in  suits  to  recover  on  their  benefit  certificates  is  to 
be  placed  on  grounds  peculiar  to  the  character  of  such  societies.  There 
is  no  doubt  that  such  defense  has  never  been  allowed.  Bac.  Ben.  Soc. 
§  337,  and  cases  cited.  But  those  societies  have  no  such  peculiar 
status.  Their  benefits  stand  on  the  footing  of  all  death  claims.  I 
shall  treat  this  case,  therefore,  as  within  the  general  range  of  life  in- 
surance. In  the  words  of  the  author  of  a  treatise  on  that  subject  pub- 
lished in  the  year  18S>>1 :     "If  performance  by  an  insurer  is,  in  general 

10  Here  the  court  discussed  the  cases  of  Insurance  Co.  v.  Terry,  15  Wall. 
(U.  S.)  580,  21  L.  Ed.  236  (1872);  Borradaile  v.  Hunter,  5  Man.  &  G.  6.39 
(1843) ;  Hartman  v.  Insurance  Co.,  21  Pa.  406  (1853)  ;  Insurance  Co.  v.  Arm- 
strong, 117  U.  S.  591,  6  Sup.  Ct.  877.  29  L.  Ed.  997  (1886) ;  Hatch  v.  Ins.  Co., 
120  Mass.  550,  21  Am.  Rep.  541  (1876);  Supreme  Commandery  v.  Ainsworth, 
71  Ala.  436,  46  Am.  Rep.  332  (1882) ;  Society  v.  Holland  (Fauntleroy's  Case) 
4  Bligh  (N.  R.)  194  (18.30);  Moore  v.  Woolsey,  4  El.  &  Bl.  243  (18.54). 

11  The  statement  of  facts  is  rewritten. 


460  IMPLIED    CONDITIONS    OP    FORFEITURE  (Ch.  T 

terms,  conditioned  on  the  death  of  the  insured,  there  seems  no  valid 
reason  why  death  by  committing  suicide  should  not  be  included ;  and 
such  is  the  general  doctrine."     Cooke,  Life  Ins.  §  41. 

Contrary  judicial  dicta  will  be  found  in  a  few  decisions  in  England 
and  in  this  country,  but  no  direct  adverse  adjudication  until  the  Ritter 
Case,  hereinafter  mentioned.  The  case  of  Supreme  Commandery  v. 
Ainsworth,  71  Ala.  436,  46  Am.  Rep.  332  (A.  D.  1882),  is  sometimes 
cited  as  such  an  adjudication ;  but,  on  a  careful  reading  of  the  report, 
it  is  evident  that  the  opinion  of  the  court,  declared  by  Chief  Justice 
Brickell  with  much  ability  from  his  standpoint,  was  not  necessary  to 
the  decision  of  the  cause.  The  application  of  the  doctrine  has  always 
happened  to  be  in  cases  where  the  insurance  was  effected  for  some 
designated  beneficiary  other  than  the  insured;  and,  to  that  extent, 
no  state  court  has  departed  from  it,  as  will  be  seen  on  examination  of 
the  cases  cited  in  the  most  recent  publications.  3  Am.  &  Eng.  Enc. 
Law  (2d  Ed.)  1016;  Joyce,  Ins.  §  2653;  May,  Ins.  (4th  Ed.  A.  D. 
1900)  §  324,  note  "a";  4  Berryman,  Ins.  Dig.  (A.  D.  1901)  1530  et 
seq. 

It  should  be  understood,  of  course,  that  I  have  not  been  speaking 
of  insurance  procured  with  the  intention  of  committing  suicide.  That, 
all  courts  concede,  is  voidable  because  of  fraud. ^-  The  Ritter  Case 
arose  in  1892,  was  decided  in  1895  (70  Fed.  954,  28  U.  S.  App.  612,  17 
C.  C.  A.  537,  42  L.  R.  A.  583),  and  affirmed  by  the  United  States  su- 
preme court  in  1898.  Ritter  v.  Insurance  Co.,  169  U.  S.  139,  18  Sup. 
Ct.  300,  42  L.  Ed.  693.  There  were  several  policies  in  suit,  all  alike 
in  tenor,  and  all  payable  to  the  insured,  his  executors,  administrators, 
and  assigns.  The  real  contracts,  as  evidenced  by  the  applications  for 
them,  excepted  death  by  suicide  within  two  years,  which  time  had  not 
elapsed;  but  by  virtue  of  a  statute  of  Pennsylvania,  where  the  con- 
tracts were  made,  the  trial  court  had  ruled  out  the  applications  because 
not  attached  to  the  policies,  which  themselves  expressed  no  such  ex- 
ception. The  proof  w^as  plenary  that  the  insurance  was  procured 
with  the  intent  to  commit  suicide,  but,  as  the  trial  court  had  expressly 
charged  the  jury  that  there  could  in  no  case  be  recovery  if  the  insured 
had  taken  his  own  life  designedly  while  of  sound  mind,  the  general 
question  was  necessarily  involved.  The  decision  was  that  because  the 
verdict  established  that  Runk,  the  insured,  had  committed  suicide  while 
sane,  his  executor  could  not  recover.  The  supreme  court,  speaking 
through  Mr.  Justice  Harlan,  held  (page  160,  169  U.  S.,  page  307,  18 
Sup.  Ct.,  and  page  700,  42  L.  Ed.)  that  the  death  of  the  insured,  "if 
directly  and  intentionally  caused  by  himself  when  in  sound  mind,  was 
not  a  risk  intended  to  be  covered,  or  which  could  legally  have  been 
covered,  by  the  policies  in  suit." 

12  See,  in  accord,  Smith  v.  Society,  123  N.  Y.  85,  25  N.  E.  197,  9  L.  R.  A. 
616  (1890) ;  Supreme  Conclave  Improved  Order  of  Heptasoplis  v.  Miles,  92 
Md.  613,  48  Atl.  845,  84  Am.  St.  Rep.  528  (1901) ;  Parker  v.  Association,  108 
Iowa,  117,  78  N.  W.  826  (1899). 


Sec.  4)  SUICIDE  461 

Diligent  research  has  led  to  a  discovery  of  no  other  reported  case 
■directly  adjudging  that  suicide  will  bar  recovery  upon  a  policy  not 
excepting  it  in  express  terms,  and  not  procured  with  the  intention  of 
committing  suicide,  except  the  later  one  of  Hopkins  v.  Assurance  Co. 
(C.  C.)  94  Fed.  729,  where  a  United  States  circuit  court,  being  bound 
by  the  Ritter  Case,  extended,  and,  I  think  logically  extended,  the  bar 
against  recovery  to  a  policy  taken  out  by  the  insured  for  the  benefit 
of  his  wife.  The  judgment  was  affirmed,  however,  upon  other  grounds. 
99  Fed.  199,  40  C.  C.  A.  1. 

I  will  consider  first  the  proposition  that  sane  suicide,  though  unex- 
cepted  in  express  terms,  is  not  a  risk  intended  to  be  covered  by  a  life 
insurance  contract.  In  the  early  life  policies,  death  by  suicide  was  ex- 
cepted from  the  liability  of  the  insurer ;  and  in  some  cases  this  was 
expressed  to  be  so,  whether  the  insured  was  sane  or  insane  at  the 
time  of  the  act.  In  a  note  to  the  case  of  Borradaile  v.  Hunter,  5  Man. 
■&  G.  639,  decided  in  the  year  1843,  there  appears  a  list  of  the  varying 
forms  of  the  exception  as  appearing  in  the  policies  customarily  issued 
by  18  of  the  leading  companies  of  England.  Adjudication  in  this 
•country,  contrary  to  that  in  England,  that  the  condition  of  sanity  was 
implied  in  a  general  exception  of  suicide,  led  to  the  common  expression 
in  subsequent  policies  of  a  contrary  intent.  Later,  as  such  stringency 
was  seen  to  be  unwise,  it  was  relaxed,  and  still  later,  as  the  outcome 
of  contests  over  sanity  showed  any  exception  to  be  futile,  and  as  such 
an  exception  discouraged  insurance,  it  came  to  be  omitted  altogether. 
or  made  of  very  short  duration. 

The  history  of  insurance  makes  difficult  the  argument  that  the  ex- 
ception is  not  now  expressed  because  necessarily  implied.  The  con- 
trary has  been  the  course  of  evolution  in  the  analogous  case  of  death 
resulting  as  a  punishment  for  crime.  In  an  early  English  decision, — 
Fauntleroy's  Case,  4  Bligh  (N.  R.)  194;  A.  D.  1830,— such  a  death  was 
held  to  be  an  implied  exception;  but  the  effect  of  the  raising  of  the 
question,  notwithstanding  its  decision  favorably  to  the  insurer,  was  to 
lead  to  the  general  introduction  into  policies  of  an  express  exception. 
Chief  Justice  Brickell,  of  Alabama,  was  alive  to  this  situation  when  he 
expressed  a  strong,  though  not  deterrent,  reluctance  "to  introduce,  by 
construction  or  implication,  exceptions  into  such  contracts,  which 
usually  contain  special  exceptions."  Supreme  Commandery  v.  Ains- 
worth,  71  Ala.  436,  447,  46  Am.  Rep.  2>2>2,  ZZ7. 

Of  course,  the  question  is  an  open  one,  and  the  views  of  so  influen- 
tial a  tribunal  as  the  supreme  court  of  the  United  States  deserve  most 
careful  consideration.  The  reason  for  implying  the  exception  is  thus 
stated  by  Judge  Harlan  (169  U.  S.  153,  18  Sup.  Ct.  305,  42  L.  Ed.  698) : 
""In  the  case  of  fire  insurance  it  is  well  settled  that  although  a  policy 
in  the  usual  form,  indemnifying  against  loss  by  fire,  may  cover  a  loss 
attributable  merely  to  the  negligence  or  carelessness  of  the  insured, 
unaffected  by  fraud  or  design,  it  will  not  cover  a  destruction  of  the 


4G2  IMPLIED    CONDITIONS    OF    FORFEITURE  (Ch.  7 

property  by  the  willful  act  of  the  assured  himself  in  setting  fire  to  it, 
not  for  the  purpose  of  avoiding  a  peril  of  a  worse  kind,  but  with  the 
intention  of  simply  effecting  its  destruction.  Much  more  should  it  be 
held  that  it  is  not  contemplated  by  a  policy  taken  out  by  the  person 
whose  life  is  insured,  and  stipulating  for  the  payment  of  a  named 
sum  to  himself,  his  executors,  administrators,  or  assigns,  that  the  com- 
pany should  be  liable  if  his  death  was  intentionally  caused  by  himself 
when  in  sound  mind.  When  the  policy  is  silent  as  to  suicide,  it  is  to  be 
taken  that  the  subject  of  insurance  (that  is,  the  life  of  the  assured) 
shall  not  be  intentionally  and  directly,  with  whatever  motive,  de- 
stroyed by  him  when  in  sound  mind.  To  hold  otherwise  is  to  say  that 
the  occurrence  of  the  event  upon  the  happening  of  which  the  company 
undertook  to  pay  was  intended  to  be  left  to  his  option.  This  view  is 
against  the  very  essence  of  the  contract." 

The  conclusion  stated  is  a  plain  non  sequitur.  Suicide  is  only  one 
of  many  ways  that  may  determine  the  event  of  death.  Insurance  rates 
are  based  upon  an  average  expectancy  of  life  derived  from  experience 
tables  embracing  suicide  as  well  as  all  other  causes  of  mortality. 
Many  intelligent  persons  believe  that  suicide  self-evinces  a  morbid  state 
of  mind,  and  insurers,  in  a  large  volume  of  business,  may  well  offset 
the  natural  love  of  life  against  the  infrequent  impulse  of  self-destruc- 
tion. The  supposed  analogy  to  other  insurance  is  not  new.  In  Moore 
V.  Woolsey,  4  El.  &  Bl.  243,  254,  Lord  Campbell  said,  obiter:  "If 
a  man  insures  his  life  for  a  year,  and  commits  suicide  within  the  year, 
his  executors  cannot  recover  on  a  policy,  as  the  owner  of  a  ship  who 
insures  her  for  a  year  cannot  recover  on  a  policy  if  within  the  year  he 
causes  her  to  be  sunk."  The  reasoning  is  specious  and  the  analogy 
is  false.  It  is  quite  right  that  willful  and  unnecessary  destruction  of 
the  subject  of  fire  or  marine  insurance  should  at  the  same  time  de- 
stroy the  insurer's  liability.  The  courts  therefore  imply  in  such  a  case 
an  exception  from  the  general  terms  of  the  contract,  because  that 
must  have  been  intended.  But  the  case  of  life  insurance  is  not  parallel. 
Strict  insurance  is  indemnity.  Voluntary  and  unnecessary  destruction 
of  the  property  insured  is  inconsistent  with  the  basis  of  the  contract, 
but  the  basis  of  that  which  by  a  misnomer  is  called  "insurance  upon 
life"  is  altogether  different.  That  is  an  arbitrary  agreement  to  pay  a 
fixed  sum  upon  the  happening  of  an  inevitable  event,  to  wit,  the  death 
of  the  insured,  without  regard  to  the  value  of  his  life  or  the  loss  sus- 
tained by  the  assured.  That  a  contract  of  life  insurance  is  not  a  con- 
tract of  indemnity  was  decided  in  the  exchequer  chamber  in  1854. 
Dalby  v.  Assurance  Co.,  15  C.  B.  365,  overruling  Godsall  v.  Boldero, 
9  East,  72.  There  is  no  force  in  any  argument  derived  from  contracts 
of  indemnity. 

Another  reason  not  expressly  stated  by  Judge  Harlan,  but  frequently 
assigned  in  judicial  dicta  for  the  implication  declared  by  him,  is  that 
without  it  the  insured  would  be  deriving  a  benefit  from  his  own  wrong- 


Sec.  4)  SUICIDE  463 

ful  act,  which  will  never  be  presumed  to  be  within  the  intention  of 
contracting  parties.  For  example,  recovery  on  a  life  insurance  policy 
assigned  by  the  insured  to  his  creditor,  who  afterwards  murdered  him, 
has  rigiitfully  been  denied.  Insurance  Co.  v.  Armstrong,  117  U.  S. 
591,  6  Sup.  Ct.  877,  29  L.  Ed.  997.  Granting  the  inherent  wrongful- 
ness of  suicide,  which  is  matter  for  the  moralist  rather  than  the  judge, 
this  doctrine  fails  when  applied  thereto.  No  one  can  in  this  world 
derive  a  benefit  from  his  own  death.  .  By  that  final  event  all  earthly 
profit  ends  for  him  to  whom  it  comes.  He  is  for  this  life  equally 
beyond  gain  and  loss,  and  as  to  him  the  rules  that  govern  mundane 
intercourse  become  no  longer  applicable.  Those  who  derive  the  benefit 
will  have  done  no  wrong. 

But  it  is  said  that  suicide  is.  a  fraud  on  the  insurer.  To  procure  in- 
surance with  intent  to  commit  suicide  is  a  fraud  on  the  insurer  that 
should  defeat  recovery  at  the  option  of  the  insurer,  and,  with  all  the 
incidents  of  a  rescission,  will  avoid  the  contract,  even  as  against  bene- 
ficiaries or  assignees.  Smith  v.  Society,  123  N.  Y.  85,  25  N.  E.  197,  9 
L.  R.  A.  616.  But  to  argue  that  suicide,  not  previously  intended,  is 
such  a  fraud  as  to  defeat  recovery,  is  to  beg  the  very  question  of  what 
is  the  contract;  and  the  argument  assumes  that  insurance  rates  are 
fixed  upon  a  basis  excluding  death  by  suicide,  while,  as  we  have  seen, 
the  contrary  must  be  the  case,  for  the  experience  tables  include  all 
forms  of  death.  Moreover,  it  would  be  next  to  impossible  to  fasten 
the  fraudulent  intent.  The  motives  for  suicide  are  difficult  to  fathom, 
and  are  usually  complex.  In  the  case  in  hand.  Dr.  Campbell  doubtless 
took  his  life  through  overwhelming  chagrin  due  to  arrest  on  a  criminal 
charge.  It  is  highly  improbable  that  he  thought  at  all  of  his  insurance. 
To  submit  to  a  jury  in  each  case  the  intent  of  the  act  would  be  prac- 
tically fruitless.  A  general  imperative  rule  in  all  cases  must  be  estab- 
lished, and  such  seems  to  be  the  view  of  Judge  Harlan ;  for  he  says 
that  intentional  self-destruction,  with  whatever  motive,  is  impliedly 
excepted  from  the  contract.  As  a  mere  matter  of  construction,  it  is 
of  no  importance  what  rule  is  to  govern  future  contracts ;  but,  in  view 
of  the  historical  aspect  of  the  subject,  the  reading  into  contracts  of  life 
insurance  this  unexpressed  exception  will  be  sure  to  work  great  hard- 
ship. Many  policies  are  being  carried  by  creditors  or  others  interested 
without  a  formal  assignment,  or  the  possibility  of  compelling  one, 
except  by  consent  of  the  insurer.  These  persons  have  rightly  felt  se- 
cure against  recklessness  or  malignity  extending  even  to  suicide,  and 
their  investments  should  not  be  imperiled. 

Lastly  to  be  considered  is  the  proposition  that  intentional  suicide 
when  in  sound  mind  is  not  a  risk  which  can  legally  be  covered  by 
insurance.  This  rests  upon  a  postulated  public  policy.  Judge  Harlan 
says :  "A  contract,  the  tendency  of  which  is  to  endanger  the  public 
interests  or  injuriously  affect  the  public  good,  or  which  is  subversive 
of  sound  morality,  ought  never  to  receive  the  sanction  of  a  court  of 


464  IMPLIED    CONDITIONS    OF    FORFEITURE  (Cll.  7 

justice,  or  be  made  the  foundation  of  its  judgment.  If,  therefore,  a 
poHcy  taken  out  by  a  person  wliose  Hfc  is  insured,  and  in  wliich  the 
sum  named  is  made  payable  to  himself,  his  executors,  athiiinistrators, 
or  assigns,  expressly  provided  for  the  payment  of  the  sum  stii)ulated 
when  or  if  the  assured  in  sound  mind  took  his  own  life,  the  contract, 
even  if  not  prohibited  by  statute,  would  be  held  to  be  against  public 
policy,  in  that  it  tempted  or  encouraged  the  assured  to  commit  suicide 
in  order  to  make  provision  for  those  dependent  upon  him  or  to  whom 
he  was  indebted."  We  are  not  concerned  with  an  express  contract 
to  pay  in  case  of  suicide,  but  with  a  normal  life  insurance  policy.  Pay- 
ment is  to  be  made  upon  the  event  of  death,  and  the  risk  of  death  by 
suicide,  as  applied  to  the  volume  of  insurance,  is  almost  infinitesimal. 
The  real  question  is  whether  it  is  against  sound  public  policy  for  the 
insurer  to  assume  the  risk. 

.  It  is  urged  that  parties  may  not  contract  for  even  a  possible  obliga- 
tion resting  on  criminality.  Doubtless  such  is  the  law.  Fauntleroy's 
Case,  ubi  supra,  rests  upon  that  principle;  and  it  has  recent  illustra- 
tion in  the  state  of  Massachusetts,  where  the  supreme  court  denied 
insurance  because  the  death  of  an  insured  woman  resulted  from  a 
criminal  abortion.  Hatch  v.  Insurance  Co.,  120  Mass.  550,  21  Am. 
Rep.  541.  But  suicide  is  not  criminal  in  New  Jersey.  Punishment  is 
of  the  essence  of  crime,  and  suicide  is  not  punishable  here.  Black- 
stone  defines  a  crime  or  misdemeanor  to  be  "an  act  committed  or  omit- 
ted in  violation  of  a  public  law  either  forbidding  or  commanding  it." 
4  Bl.  Comm.  5.  A  recent  writer  more  tersely  says,  "A  crime  is  an  act 
of  omission  or  commission  punishable  as  an  offense  against  the  state." 
McClain,  Cr.  Law,  §  4.  At  common  law  suicide  was  both  criminal 
and  felonious,  although  the  punishment,  except  that  of  anticipatory 
dread,  was  of  necessity  visited  upon  the  innocent,  unless  insensate 
clay  can  be  said  to  have  been  punished  by  the  burial  in  the  highway 
and  the  driven  stake.  But  in  this  country,  generally,  there  is  neither 
forfeiture  of  goods  nor  other  penalty  attached  to  suicide,  which  is 
therefore  "little  more  than  the  shadow  of  a  crime."  Patterson  v.  In- 
surance Co.,  100  Wis.  118,  75  N.  W.  980,  42  L.  R.  A.  253,  69  Am.  St. 
Rep.  899.  That  case  decides  that  suicide  does  not  fall  within  the  usual 
exception  in  a  life  insurance  policy  of  death  resulting  from  a  violation 
of  law.  The  opinion  of  Winslow,  J.,  well  merits  study  on  all  the 
phases  of  the  subject  now  sub  judice.  It  is  a  model  of  terse,  logical 
reasoning,  but,  like  most  judicial  utterances  since  the  Ritter  Case, 
which  is  evidently  disapproved,  it  is  confined  to  cases  where  the  insur- 
ance is  payable  to  a  beneficiary.  In  New  York,  also,  it  has  been  held 
that  death  by  suicide  does  not  result  from  violation  of  law,  although 
by  an  exclusive  penal  code  an  unsuccessful  attempt  to  commit  suicide  is 
there  a  crime,  while  suicide  is  not.  Darrow  v.  Society,  116  N.  Y.  537, 
22  N.  E.  1093,  6  L.  R.  A.  495,  15  Am.  St.  Rep.  430.  In  New  Jersey 
neither  suicide  nor  attempt  to  commit  suicide  has,  since  1796,  at  least, 


Sec.  4)  SUICIDE  465 

been  criminal.  This  results  from  the  enactment  in  that  year  that  no 
conviction  or  judgment  for  any  offense  against  the  state  shall  make 
or  work  forfeiture  of  estate.  Paterson's  Laws,  p.  221,  §  75,  continued 
to  the  latest  revision  of  our  criminal  procedure  act  (P.  L.  1898,  p.  919, 

As  to  the  abstract  immorality  of  suicide  generally,  opinions  may 
differ,  but  all  will  admit  that  in  some  cases  it  is  ethically  defensible. 
Else,  how  could  a  man  "lay  down  his  life  for  his  friend"?  Suicide 
may  be  self-sacrifice,  as  when  a  woman  slays  herself  to  save  her  honor. 
Sometimes  self-destruction,  humanly  speaking,  is  excusable,  as  where 
a  man  curtails  by  weeks  or  months  the  agony  of  an  incurable  disease. 
It  will  not  do  to  resort  to  the  argument  that  in  such  cases  there  is 
no  "felonious  intent."  As  to  direct  suicide,  all  that  the  common  law 
required  to  make  one  a  felo  de  se  was  that  he  should  be  of  years  of 
discretion  and  in  his  senses,  and  should  mean  to  kill  himself.  4  Bl. 
Comm.  189;  Hale,  P.  C.  411.  Extenuation  could  only  be  considered 
by  the  king,  who  would  "execute  judgment  in  mercy."  Judge  Har- 
lan has  not  yielded  to  this  argument;  for,  "with  whatever  motive" 
self-destruction  is  accomplished,  it,  in  his  view,  defeats  recovery. 
Inquiry  into  an  intent,  formed  after  procuring  insurance,  to  defraud 
the  insurer  by  suicide,  has  seemed  to  me  impracticable.  Inquiry  into 
any  other  evil  intent  seems  just  as  impracticable.  On  whom  would 
rest  the  burden  of  proof,  and  how  could  complex  motives  be  unraveled? 
Some  general  rule  must  control  this  question  of  public  policy.  Cases 
cannot  be  individualized. 

As  to  the  public  good  requiring  the  discouragement  of  suicide,  there 
may  be  also  two  opinions.  The  paternal  theory  of  government  does 
not  here  prevail.  The  common  law  condemned  suicide,  according 
to  Hale  and  Blackstone,  ubi  supra,  not  only  for  religious  reason,  but 
for  the  temporal  one  that  the  king  has  an  interest  in  the  preservation 
of  all  his  subjects,  and  doubtless  the  same  is  true  of  an  organized 
commonwealth  and  its  citizens ;  but  I  cannot  see  that  the  public  good 
is  more  concerned  to  prolong  a  life  that  may  be  worthless  to  the  public 
than  to  secure  to  creditors  their  just  demands,  or  to  afford  a  mainte- 
nance to  wife  and  children.  Insurers  may  guard  their  interests  in  their 
contracts.  I  know  no  public  policy  more  useful  than  that  which  holds 
contractors  to  performance.  That  opinions  of  what  is  sound  public 
policy  upon  this  subject  are  not  all  alike  is  shown  by  that  which  has 
been  declared  in  the  great  state  of  Missouri  by  its  legislature.  For 
m.any  years  no  defense  of  suicide  in  a  suit  to  collect  life  insurance  has 
been  permitted  unless  it  is  shown  to  the  satisfaction  of  the  court  or 
jury  at  the  trial  that  the  insured  contemplated  suicide  at  the  time  of 
application  for  the  policy,  and  any  contrary  provision  in  a  policy  is 
made  void.     Rev.  St.  Mo.  1889,  §  5855. 

If  it  be  public  policy  to  interfere  with  contracts  in  order  to  dis- 
Vance  Ins. — 30 


466  IMPLIED   CONDITIONS   OF   FORFEITURE  (Ch.  7 

couraj^e  suicide,  then  ought  the  contract  of  a  creditor  insuring  the 
life  of  his  debtor,  or  a  wife  insuring  the  hfe  of  her  husband,  to  be  de- 
feated by  the  suicide  of  the  insured,  for  the  same  motive  of  self- 
destruction  for  the  benefit  of  the  assured  will  be  impelling  in  such 
cases  as  in  a  case  where  the  contract  is  directly  with  the  insured ;  yet 
it  has  never  been  suggested  that  one  having  an  insurable  interest  in 
another's  life  may  not  at  his  own  cost  himself  contract  insurance  on 
that  life,  or  take  an  assignment  of  an  existing  policy,  without  the 
risk  of  forfeiture  by  the  suicide  of  the  insured.  Indeed,  it  has  been 
held  otherwise  even  in  England,  where  suicide  is  criminal.  Cook  v. 
Black,  1  Hare,  390 ;  Moore  v.  Woolsey,  ubi  supra.  The  fact  that  the 
insured  pays  the  premiums  and  purchases  insurance  for  a  designated 
beneficiary,  or  for  the  benefit  of  his  estate,  can  make  no  difference  in 
his  mental  attitude.  He  can  gain  nothing  by  his  death,  and  normally 
his  estate  will  go  either  to  his  creditors  or  to  his  widow  and  next  of 
kin.  I  see  no  sensible  reason  to  affirm  the  contract  in  one  case  and  dis- 
allow it  in  the  other. 

I  have  said  that  no  adjudged  case  has  permitted  suicide  as  a  defense 
against  a  beneficiary  other  than  the  insured.  This  is  true,  with  one 
exception,  even  where  the  decision  in  the  Ritter  Case  has  been  recog- 
nized as  sound  or  controlling.  Judge  Harlan  himself  was  very  careful 
to  go  no  further  than  the  case  required.  The  exception  to  which  I  have 
alluded  is  the  Hopkins  Case,  above  cited,  but  to  my  mind  the  exten- 
sion in  that  case  was  logical.  What  difference  does  it  make  whether 
a  man  contracting  insurance  designates  in  the  contract  the  beneficiary, 
or  leaves  that  designation  to  the  law  or  his  last  will  and  testament? 
The  contract  is  with  him,  and  it  is  no  more  consistent  with  public 
policy  that  he  should  be  allowed  to  contract  that  his  suicide  should  not 
forfeit  the  right  of  a  beneficiary  named  in  the  policy  to  receive  the 
insurance  money,  than  that  he  should  be  allowed  to  contract  that  such 
suicide  should  not  forfeit  the  right  of  those  who  otherwise  would  re- 
ceive it  as  creditors,  distributees,  or  legatees  of  his  estate.  The  deci- 
sions, since  the  Ritter  Case,  denying  suicide  as  a  defense  to  silent 
policies,  must,  logically,  either  reprobate  that  case,  or  distinguish  it 
only  on  the  ground  that,  as  against  a  beneficiary  named,  the  exception 
of  the  death  of  the  insured  by  suicide  cannot  be  constructively  implied. 

I  conclude  that  in  no  case  should  the  suicide  of  an  insured  person 
defeat  recovery  upon  a  contract  of  life  insurance  not  procured  by 
him  with  the  intention  of  committing  suicide,  unless  the  contract  so 
provides  in  express  terms.  Presumably  the  contract  in  this  case  was 
consummated  in  New  Jersey,  but  if  we  look  to  Maryland,  the  state 
of  the  defendant's  incorporation,  for  the  law  which  is  to  govern,  it  will 
be  found  no  different.  In  a  very  recent  decision  of  the  court  of  appeals 
of  that  state,  in  a  controversy  with  this  same  defendant,  after  full 
consideration  of  both  the  grounds  of  objection  to  recovery  that  I  have 
been  discussing,  the  same  conclusion,  and  for  substantially  the  same 


Sec.  4)  SUICIDE  467 

reasons,  has  been  reached.     Supreme  Conclave  v.  Miles,  92  Md.  613, 
48  Atl.  845,  84  Am.  St.  Rep.  528.  '^ 

The  direction  of  verdict  for  plaintiff  was  correct,  and  the  judgment 
is  affirmed.^* 

13  The  dissenting;  opinion  of  Van  Syckol,  J.,  containing  a  spirited  defense 
of  Ritter  v.  Insurance  Co..  169  V.  S.  i:!9,  18  Sup.  Ct.  ;'.00.  42  L.  Ed.  693 
(1898),  and  the  specially  concurring  opinion  of  Garrison,  J.,  are  omitted.  The 
Chancellor  and  four  of  the  Associate  Judges  concurred  in  the  dissenting 
opinion  of  Van  Syckel,  J. 

14  The  weight  of  authority  is  with  the  principal  case.  See  Patterson  v. 
Ins.  Co.,  100  Wis.  118,  75  N.  W.  980,  42  L.  R.  A.  253,  69  Am.  St.  Rep.  899 
(1898);  Supreme  Conclave  v.  Miles,  92  Md.  613,  48  Atl.  845,  84  Am.  St.  Rep. 
528  (1901)  ;  Grand  Lodge  Independent  Order  of  Mutual  Aid  v.  Wieting,  168 
111.  408,  48  N.  E.  59,  61  Am.  St.  Rep.  123  (1897).  Many  courts,  however, 
make  a  distinction  between  policies  payable  to  the  estate  of  the  insured 
and  those  payable  to  a  third  person  as  beneficiary.  Suicide  is  held  not 
to  be  a  defense  in  the  latter  cases,  on  the  ground  that  the  beneficiary  has 
a  vested  interest  In  the  policy,  which  cannot  be  defeated  by  the  wrongful 
act  of  the  insured.  Fitch  v.  Insurance  Co.,  59  N.  Y.  557,  17  Am.  Rep.  372 
(1875) ;  Patterson  v.  Insurance  Co..  100  Wis.  118.  75  N.  W.  980.  42  L.  R.  A. 
253,  69  Am.  St.  Rep.  899  (1898);  Seller  v.  Association,  105  Iowa,  87,  74  N. 
W.  941,  43  L.  R.  A.  537  (1898).  This  result  is  obtained  even  in  the  cases 
of  mutual  benefit  insurance,  where  the  beneficiary  has  no  vested  rights  in 
the  policy.  Grand  Legion  v.  Beatv,  224  111.  346,  79  N.  E.  565,  8  L.  R.  A. 
(N.  S.)  1124,  8  Ann.  Cas.  160  (1906);  Parker  v.  Des  Moines  Life  Ass'n,  108 
Iowa,  117,  78  N.  W.  826  (1899).  But  other  courts  hold  that  the  same  prin- 
ciples should  apply  to  certificates  in  a  fraternal  order  as  to  policies  payable 
to  the  estate  of  the  insured.  See  Shipman  v.  Protected  Home  Circle,  174 
N.  Y.  398,  67  N.  E.  83,  63  L.  R.  A.  347  (1903);  Davis  v.  Supreme  Council 
Royal  Arcanum,  195  Mass.  402,  81  N.  E.  294,  10  L.  R.  A.  (N.  S.)  722,  11  Ann. 
Cas.   777  (1907). 

In  Davis  v.  Supreme  Council  Royal  Arcanum,  195  Mass.  402,  81  N.  E. 
294,  10  L.  R.  A.  (N.  S.)  722,  11  Ann.  Cas.  777  (1907),  the  court  denies  the 
soundness  of  this  distinction  made  in  favor  of  policies  made  payable  to  third 
parties  as  beneficiaries:  "The  writers  of  the  opinions  in  these  cases  seem 
to  ignore  the  fact  that,  by  the  true  construction  of  the  contract,  as  between 
the  association  and  the  insured,  there  is  an  Implied  exception  of  death  by 
suicide  from  the  statement  that  death  creates  a  liability,  and  that,  as  the 
contract  as  to  the  person  to  be  paid  is  all  the  while  in  the  control  of  the 
insured  up  to  the  time  of  his  death,  it  should  not  be  treated  as  larger  and 
more  beneficial  in  the  hands  of  the  beneficiary  than  it  is  in  the  hands  of 
the  insuretl.  *  *  *  It  is  questionable  whether  some  of  the  cases  have  not 
gone  too  far  in  liolding  ordinary  life  insurance  companies  liable  to  bene- 
ficiaries for  death  by  suicide  when  the  policy  was  silent  on  that  subject.  It 
is  true,  as  is  said  in  some  of  these  cases,  that  the  insured  cannot  deprive 
a  beneficiary  of  his  rights  by  his  subsequent  misconduct.  But  it  is  equally 
true  that  if  the  original  contract  impliedly  excepts  from  its  provisions  case.s 
of  death  by  suicide,  and  if  that  is  its  true  construction  when  considered  in 
reference  to  the  beneficiary  as  well  as  in  reference  to  the  insured,  there  is  no 
more  liability  to  the  beneficiary  for  such  a  death  than  there  would  be  to 
the  executor  or  administrator  of  the  insured." 

The  tendency  of  the  courts  to  consider  suicide  of  the  insured  as  properly 
included  among  the  risks  insured  against  is  shown  by  the  case  of  Mutual 
Life  Ins.  Co.  v.  Durden,  9  Ga.  App.  797,  72  S.  E.  295  (1911).  In  this  case 
it  was  held  that  the  provision  of  the  policy  that  "the  company  shall  not  be 
liable  hereunder  in  the  event  of  the  insured's  death  by  his  own  act,  whether 
sane  or  insane,  during  the  period  of  one  year  after  the  issuance  of  the  poli- 
cy," constituted  a  waiver  by  the  insurer  of  the  benefit  of  the  Georgia  statute 
(Civ.  Code  1910,  §  2500).  providing  that  death  by  suicide  released  the  insurer 
from  his  obligation.  The  court  recognized  the  rule  that  a  statute  intended 
to  effectuate  a  rule  of  public  policy  cannot  be  waived,  but  considered  that 


468  IMPLIED    CONDITIONS    OP    FORFEITURE  (Ch.  7 

SECTION  5.— DEATH  BY  LEGAL  EXECUTION 


COLLINS  V.  METROPOLITAN  LIFE  INS.  CO. 

(Supreme  Court   of   Illinois.    1007.     2:',2    111.   37.    S3  N.    E.   542.    14    L.    R.   A. 
[N.  S.]  3.50,  122  Am.  St.  Kep.  54,  13  Ann.  Cas.   129.) 

Action  on  a  life  insurance  policy  issued  by  the  Metropolitan  Life 
Insurance  Company  on  the  life  of  Robert  Kilpatrick.  The  provisions 
of  the  policy  are  set  out  in  the  declaration,  one  of  which  is  that  the 
policy  should  be  incontestable  after  two  years  except  for  the  nonpay- 
ment of  premiums  or  for  fraud.  Two  defenses  are  set  up  in  the  pleas 
of  the  insurance  company :  First,  that  Kilpatrick  was  indicted,  tried, 
convicted,  and  executed  for  murder.  *  *  *  ^°  From  a  judgment 
for  defendant,  affirmed  by  the  Appellate  Court,  plaintiff  brings  error. 
Reversed  and  remanded,  with  directions. 

ViCKERS,  J.  Whether  the  legal  execution  of  the  assured  for  a  crime 
committed  by  him  constitutes  a  defense  to  an  action  by  his  legal  rep- 
resentative on  a  life  insurance  policy  is  a  question  of  first  impression 
in  this  state.     Where  this  defense  has  been  sustained,  it  is  generally 

there  was  no  clearly  defined  public  policy  opposed  to  the  waiver  of  the 
statute. 

In  the  modern  life  insurance  policies  suicide  is  almost  uniformly  expressly 
excepted  from  the  risks  insured  against.  This  is  held  to  be  a  reasonable 
provision.  Northwestern  Mutual  Ins.  Co.  v.  Churchill.  105  111.  App.  159 
(1902).  Unless  otherwise  specified,  it  covers  only  self-destruction  while  sane. 
Accident  Ins.  Co.  v.  Craudal,  120  U.  S.  527,  7  Sup.  Ct.  685,  30  L.  Ed.  740 
(1887). 

For  a  collection  of  the  cases  bearing  on  suicide  as  an  excepted  risk,  see 
Vance  on  Insurance,  p.  516 ;  4  Cooley,  Briefs  on  Insurance,  3224 ;  note  in 
8  L.  R.  A.  (N.  S.)  1124 ;  notes  in  11  Harv.  Law  Rev.  547,  and  21  Ilarv.  Law 
Rev.  530. 

Evidence  of  Suicide — Proofs  of  Loss. — "11.  When  the  insurance  company 
defends  upon  the  ground  of  suicide,  the  burden  is  upon  the  company  to  es- 
tablish such  contention  by  a  preponderance  of  the  evidence.  While  the  au- 
thorities are  not  uniform  upon  the  question,  the  weight  of  authority  seems 
to  hold  that  the  presumption  against  suicide  and  in  favor  of  death  from 
natural  causes  is  not  overcome  by  the  introduction  at  the  trial  of  the  proofs 
of  death,  or  even  of  the  verdict  of  a  coroner's  jury.  25  Cyc.  930,  931; 
Union  Mut.  v.  Payne,  105  Fed.  172,  45  C.  C.  A.  193  (1900) ;  Supreme  Lodge 
v.  Beck,  94  Fed.  751,  36  C.  C.  A.  467  (1899):  Goldschmidfv.  Mutual  Life,  102 
N.  Y.  486,  7  N.  E.  408  (1886).  Contra,  see  Spruill  v.  Northwestern,  120  N.  C. 
141,  27  S.  E.  39  (1897);  Newark  Mutual  v.  Newton,  22  Wall.  (U.  S.)  32,  22 
L.  Ed.  793  (1874).  In  the  present  case  the  cause  of  death  is  stated  to  be 
suicide  in  one  of  the  affidavits  composing  the  proofs  of  death.  It  is  a  matter 
of  common  knowledge  that  pi'oofs  of  death  are  made  under  conditions  of 
haste,  for  the  purpose  of  complying  with  tlie  rules  of  the  company,  and  are 
generally  made  under  circumstances  which  are  not  conducive  to  accuracy. 
The  conclusions  are  frequently  stated  from  imperfectly  formed  views,  and 
frequently  from  the  statements  of  others." — Gilbert,  J.,  in  Mutual  Life  Ins. 
Co.  V.  Burden,  9  Ga.  App.  797,  72  S.  E.  295  (1911). 

15  Those  parts  of  the  statement  of  facts  and  of  the  opinion  relating  to 
the  second  plea  (res  judicata)  are  omitted. 


Sec.  5)  DEATH    BY    LEGAL    EXECUTION  469 

upon  the  ground  that  it  is  contrary  to  public  pohcy  to  permit  a  recovery 
where  the  death  is  in  consequence  of  a  violation  of  the  law.  This  is 
the  basis  of  the  decision  of  this  case  by  the  Appellate  Court,  and  is 
the  main  reason  urged  here  in  support  of  the  judgment  below. 

It  is  said  by  the  defendant  in  error  that  to  permit  a  recovery  on  this 
policy  would  be  contrary  to  the  public  policy  of  this  state,  as  it  would 
tend  to  remove  a  restraint  thrown  around  persons  who  are  tempted  to 
commit  crimes.  The  argument  rests  upon  the  same  grounds  that 
were  urged  centuries  ago  in  support  of  the  now  obsolete  doctrine 
of  attainder  and  corruption  of  blood.  In  the  earlier  history  of  the 
common  law  various  consequences  other  than  the  punishment  of  the 
offender  followed  conviction  for  felony,  and  in  some  instances  the 
causing  of  a  death  by  mere  misadventure  or  negligence  was  visited 
with  certain  forfeitures  and  penalties.  Without  attempting  historical 
accuracy,  the  law  of  England  provided  that  all  the  property,  real  and 
personal,  of  one  attainted  should  be  forfeited  and  his  blood  so  cor- 
rupted that  nothing  could  pass  by  inheritance  to,  from,  or  through 
him.  He  could  not  sue,  except  to  have  his  attainder  reversed.  Thus 
the  wife,  children,  and  collateral  relations  of  the  attainted  person 
suffered  with  him.  As  said  by  Bishop :  "When  the  tree  fell,  it  brought 
down  all  its  branches."  1  Bishop  on  Crim.  Law,  §  968.  As  further 
illustrating  the  rigor  of  the  old  English  law,  it  was  provided  that, 
if  a  man  be  indicted  for  felony  and  flees,  he  forfeits  by  flight  his  goods, 
and  "he  that  committeth  homicide  by  misadventure  shall  forfeit  his 
goods ;  and  so  shall  he  which  doth  kill  a  man  in  his  own  defense  for- 
feit his  goods  ;  and  likewise  he  that  killeth  himself  and  is  felo  de  se 
shall  forfeit  his  goods ;  and  he  that  being  indicted  to  felony  shall  stand 
mute  and  not  answer  directly,  or  challenge  peremptorily  above  twenty 
persons,  shall  forfeit  his  goods." 

These  ancient  doctrines,  whether  resting  upon  grounds  of  public 
policy  or  upon  the  other  reason  which  is  sometimes  put  forth,  that  the 
government  is  entitled  to  the  goods  of  the  felon  as  compensation  for 
the  injury  done  and  the  expense  occasioned,  have  failed  to  satisfy 
the  conscience  and  judgment  of  courts  of  later  periods  in  England, 
and  have  never  had  a  potential  existence  in  American  jurisprudence. 
The  Constitution  of  the  United  States  provides  that  "no  attainder  of 
treason  shall  work  corruption  of  blood  or  forfeiture  except  during  the 
life  of  the  person  attainted,"  and  by  an  act  of  Congress  passed  in  1790 
all  corruption  of  blood  and  forfeitures,  whether  for  treason  or  felony, 
as  to  convictions  under  the  federal  law,  were  abolished.  This  doctrine 
never  had  any  existence  in  Illinois,  even  in  the  modified  form  which 
seems  to  be  recognized  in  the  federal  Constitution.  In  all  the  Consti- 
tutions adopted  in  this  state  a  provision  similar  to  the  one  found  in 
section  11  of  article  2  of  the  Constitution  of  1870  is  to  be  found.  Thus, 
the  Constitution  of  1818  provided :  "No  ex  post  facto  law,  nor  any 
other  law  impairing  the  validity  of  contracts,  shall  ever  be  made,  and 
no  conviction  shall  work  corruption  of  blood  or  forfeiture  of  estate." 


470  IMPLIED    CONDITIONS    OP    FORFEITURE  (Ch.  7 

The  Constitution  of  1848  contained  the  same  clause,  while  the  Consti- 
tution of  1870  declares:  "All  penalties  shall  be  proportioned  to  the 
nature  of  the  offense,  and  no  conviction  shall  work  corruption  of 
blood  or  forfeiture  of  estate ;  nor  shall  any  person  be  transported  out 
of  the  state  for  any  offense  committed  within  the  same." 

There  are  in  these  several  constitutional  provisions  clear  and  un- 
equivocal declarations  of  the  public  policy  of  this  state,  to  the  effect 
that  no  forfeiture  of  property  rights  shall  follow  conviction  for  crime. 
This  public  policy  is  further  manifested  by  our  statute  in  regard  to 
descent  of  property  in  case  of  intestacy,  and  the  general  power  of  dis- 
position of  property  by  will,  conferred  by  our  statute  of  wills.  In 
none  of  these  statutes  is  the  right  conferred  in  respect  to  property 
made  to  depend  on  the  manner  or  cause  of  the  death  of  the  owner.  To 
hold  that  the  property  of  one  who  was  executed  in  this  state  for  a 
crime  was  not  subject  to  the  same  law  of  descent  and  devise  as  prop- 
erty generally  would  be  nothing  less  than  judicial  legislation  by  in- 
grafting exceptions  in  statutes  where  none  exist  by  the  language  of  the 
law.  Statutes  of  descent  and  devise  are  legislative  declarations  of  the 
public  policy  of  the  state  on  the  subjects  to  which  they  relate.  The 
rules  of  the  common  law  on  these  subjects  have  been  wholly  super- 
seded by  our  statutes.  Kochersperger  v.  Drake,  167  111.  122,  47  N. 
E.  321,  41  L.  R.  A.  446;  Storrs  v.  St.  Luke's  Hospital,  180  111.  368, 
54  N.  E.  185,  72  Am.  St.  Rep.  211;  Sayles  v.  Christie,  187  111.  420, 
58  N.  E.  480;  In  re  Mulford,  217  111.  242,  75  N.  E.  345,  1  E.  R.  A. 
(N.  S.)  341,  108  Am.  St.  Rep.  249,  3  Ann.  Cas.  986. 

Statutes  of  descent  and  devise  similar  to  ours  have  generally  been 
held  not  to  exclude  an  heir  or  devisee  from  the  benefits  of  these  stat- 
utes on  the  ground  that  the  heir  or  devisee  had  feloniously  and  inten- 
tionally destroyed  the  life  of  the  person  from  whom  the  legacy  or 
inheritance  was  expected.  The  Court  of  Appeals  of  New  York,  in 
Riggs  v.  Palmer,  115  N.  Y.  506,  22  N.  E.  188,  5  L.  R.  A.  340,  12  Am. 
St.  Rep.  819,  by  a  divided  court  decided  against  the  right  of  a  devisee 
who  had  murdered  the  testator  to  take  under  the  will;  but  this  case 
has  not  generally  been  regarded  as  sound  by  the  other  courts.  In  a 
well-considered  case  in  Nebraska  the  Supreme  Court  of  that  state 
retracted  its  first  opinion  in  the  case,  and  upon  a  rehearing  held  that, 
under  a  statute  of  descent  similar  to  ours,  the  fact  that  the  father 
had  feloniously  murdered  his  child  did  not  prevent  the  operation  of 
the  statute  of  descent,  and  that  the  felon  inherited  the  estate  of  his 
victim,  Shellenberger  v.  Ransom,  41  Neb.  641,  59  N.  W.  935,  25  L. 
R.  A.  564.1*'     *     *     =1. 

In  Holdom  v.  Ancient  Order  of  United  Workmen,  159  111.  619,  43 
N.  E.  772,  31  L.  R.  A.  67,  50  Am.  St.  Rep.  183,  this  court  held  that 

16  The  court's  discussion  of  Owens  v.  Owens,  100  N.  C.  240,  6  S.  E.  794 
(1888),  Carpenter's  Estate,  170  Pa.  203.  32  Atl.  637,  29  L.  R.  A.  145,  50  Am. 
St.  Rep.  7(;5  (1S95),  and  Deem  v.  Millikin,  6  Ohio  Cir.  Ct.  R.  357  (1892),  which 
are  in  accord  with  Shellenberger  v.  Ransom,  41  Neb.  631,  59  N.  W.  935,  25 
L.  R.  A.  564  (1894),  is  omitted. 


Sec.  5)  DEATH    BY    LEGAL   EXECUTION  471 

an  insane  beneficiary  who  murdered  the  assured  could  recover.  The 
cases  of  Shellenberger  v.  Ransom  and  Owens  v.  Owens,  100  N.  C. 
240,  6  S.  E.  794,  are  cited  with  approval  by  this  court  upon  the  gen- 
eral proposition  that  for  the  courts  to  declare  a  forfeiture  for  crime 
where  the  Legislature  has  remained  silent  is  legislation  by  judicial 
tribunals — a  subject  with  which  they  have  no  concern.  These  cases 
are  much  stronger  than  the  one  at  bar.  There  is  much  more  room 
for  holding  that  one  who  has  been  the  guilty  agent,  in  accelerating  a 
death  as  a  result  of  which  he  expects  to  come  into  an  inheritance  or 
legacy  or  a  benefit  under  an  insurance  policy  should  be  denied  the 
benefits  of  his  own  wrong  on  grounds  of  public  policy,  than  there  is 
for  denying  innocent  heirs,  devisees,  or  beneficiaries  their  rights  be- 
cause the  person  through  whom  they  claim  was  executed  for  crime. 
This  court  held  in  Knights  of  Honor  v.  Menkhausen,  209  111.  277,  70 
N.  E.  567,  that,  while  a  beneficiary  who  has  murdered  the  assured 
could  not  recover,  still  the  heirs  of  the  assured  who  are  within  the 
class  of  eligible  beneficiaries  were  entitled  to  recover,  although  not 
named  in  the  certificate  as  beneficiaries. 

The  public  policy  of  a  state  is  to  be  sought  for  in  its  Constitution, 
legislative  enactments,  and  judicial  decisions.  When  the  sovereign 
power  of  the  state  has  by  written  Constitution  declared  the  public 
policy  of  the  state  on  a  particular  subject,  the  legislative  and  judicial 
departments  of  the  government  must  accept  such  declaration  as  final. 
When  the  Legislature  has  declared,  by  law,  the  public  policy  of  the 
state,  the  judicial  department  must  remain  silent,  and,  if  a  modifica- 
tion or  change  in  such  policy  is  desired,  the  lawmaking  department 
must  be  applied  to,  and  not  the  judiciary,  whose  function  is  to  declare 
the  law,  but  not  to  make  it.  Limiting  their  actions  to  questions  left 
open  by  the  Constitution  and  the  statutes,  courts  may,  no  doubt,  apply 
the  principles  of  the  common  law  to  the ,  requirements  of  the  social, 
moral,  and  material  conditions  of  the  people  of  the  state,  and  declare 
what  rule  of  public  policy  seems  best  adapted  to  promote  the  peace, 
good  order,  and  general  welfare  of  the  community.  Hence  arises 
the  rule  that  the  decisions  of  its  courts  are  to  be  investigated  in  deter- 
mining the  public  policy  of  any  government. 

An  insurance  policy  payable  to  the  estate  or  personal  representatives 
of  the  assured  is  a  species  of  property.  It  is  in  the  nature  of  a  chose 
in  action,  which,  subject  to  certain  conditions,  varying  according  to  the 
terms  of  the  contract,  is  payable  upon  the  contingency  of  death  or 
at  a  stated  time.  Life  insurance  has  become  an  important  factor  in 
the  commercial  and  social  life  of  our  people.  To  protect  their  credit, 
save  their  estates  from  embarrassment,  and  provide  for  dependent 
ones,  the  people  of  this  state  pay  annually  over  $30,000,000  in  pre- 
miums for  life  insurance.  See  Official  Report  of  Commissioner  of 
Insurance,  part  2,  p.  6.  The  amount  of  insurance  carried  is  approxi- 
mately $1,000,000,000.  Why  should  this  enormous  property  interest 
be   subject   to  any   diiTerent   conditions    than   those    applying   to   any 


472  IMPLIED    CONDITIONS    OF    FORFEITURE  (Cll.  7 

Other  property  owned  by  the  people?  If  a  man  who  is  executed  for 
crime  has  at  his  deatli  $1,000  in  real  estate,  $1,000  in  chattels,  and 
$1,000  life  insurance  payable  to  his  estate,  his  real  estate  descends  to 
his  heir,  and  his  personal  chattels  to  his  administrator,  but  the  $1,000 
life  insurance  must  be  left  in  the  hands  of  the  company  who  has  re- 
ceived the  premiums  because  it  is  said  to  be  contrary  to  public  policy 
to  require  the  company  to  pay,  lest  by  so  doing  it  lend  encouragement 
to  other  policy  holders  to  seek  murder,  and  execution  therefor,  in 
order  that  their  estates  or  heirs  might  profit  thereby.  This  is  defendant 
in  error's  position.  This  contention  seems  to  border  closely  on  the 
absurd.  We  know  of  no  rule  of  public  policy  in  this  state  that  will 
enforce  this  species  of  forfeiture,  but  there  is  a  rule  of  law  which 
has  often  been  applied  when  two  parties  make  a  valid  contract  and 
the  same  has  been  completely  performed  by  one  party  and  nothing 
remains  except  the  performance  by  the  other,  which  will  compel  per- 
formance or  award  damages  for  the  default  against  the  delinquent 
party. 

We  are  aware  that  courts  have  not  always  reached  the  same  conclu- 
sion upon  this  question.  So  far  as  we  are  advised,  all  the  cases  in 
which  the  opposite  conclusion  has  been  reached  are  based  upon  the 
English  case,  Amicable  Society  v.  Bolland,  4  Bligh  (N.  R.)  194,  de- 
cided by  the  House  of  Lords  in  1830.  The  facts  in  that  case  as  stated 
by  the  Lord  Chancellor  are:  "In  January,  1815,  Henry  Fauntleroy 
insured  his  life  with  the  Amicable  Insurance  Society.  In  the  month 
of  May,  in  the  same  year,  he  committed  a  forgery  on  the  Bank  of 
England.  He  continued  to  pay  the  premiums  upon  his  insurance  for 
a  considerable  period  of  time.  In  the  year  1824  he  was  apprehended, 
and  on  the  29th  of  October  in  that  year  he  was  declared  a  bankrupt, 
and  an  assignment  of  his  efifects  was  made  to  the  respondent.  On  the 
following  day,  the  30th  of  October,  he  was  tried  for  forgery,  found 
guilty,  and  sentenced  to  death,  and  in  the  month  of  November  follow- 
ing was  executed."  The  court  held  that  there  could  be  no  recovery. 
The  grounds  of  the  decision  were  that  to  allow  a  recovery  would  "take 
away  one  of  those  restraints  operating  on  the  minds  of  men  against 
the  commission  of  crime." 

It  should  be  borne  in  mind  that  forfeitures  for  the  commission  of 
crime  were  enforced  in  England  at  the  time  of  this  decision,  and 
continued  to  be,  with  more  or  less  severity,  until  abolished  by  33  and 
34  Victoria,  passed  in  1870.  1  Bouvier's  Law  Diet.  p.  446;  Schouler 
on  Wills,  §  33.  The  decison  in  the  Bolland  Case  was  based  on  the 
ground  of  public  policy,  and  no  doubt  was  in  strict  accordance  with 
the  established  policy  of  Great  Britain  at  that  time.  As  a  declaration 
of  the  public  policy  of  the  English  government  at  the  time  the  deci- 
sion was  announced,  it  must  stand  as  conclusive  evidence  of  such 
policy ;  but  it  is  no  evidence  whatever  that  the  same  public  policy  pre- 
vails in  any  other  nation  or  government.  Each  nation  or  state  having 
the  power  to  adopt  a  Constitution  and  legislate  for  itself  necessarily 


Sec.  5)  DEATH    BY    LEGAL    EXECUTION  473 

has  the  inherent  power  to  declare  its  own  rules  of  public  policy.  There 
is  nothing  in  international  law  or  the  comity  between  our  states  that 
requires  our  courts  to  enforce  the  consequences  following  the  convic- 
tion for  felony  in  obedience  to  the  public  policy  of  the  state  where  the 
conviction  is  had,  when  to  do  so  would  be  to  depart  from  our  own 
public  policy  on  the  same  subject.  A  few  citations  will  establish  this 
principle. ^^     *     *     * 

The  question,  therefore,  is  one  to  be  determined  by  our  own  local 
rules  of  public  policy.  In  view  of  these  rules  as  evidenced  by  our 
Constitution  and  the  statutes  above  referred  to,  we  conclude  that  the 
execution  of  the  assured  for  crime  is  no  defense  against  an  action  upon 
a  life  insurance  policy  held  by  the  person  executed,  in  the  absence  of 
a  stipulation  exempting  the  company  from  liability  for  a  death  from 
this  cause. 

In  view  of  the  conclusions  we  have  reached  upon  the  question  al- 
ready discussed,  the  effect  of  the  incontestable  clause  in  this  policy 
becomes  of  no  importance  and  need  not  be  further  alluded  to.     *     *     * 

The  judgment  of  the  circuit  court  of  Cook  county  and  of  the  Appel- 
late Court  for  the  First  District  are  reversed,  and  the  cause  remanded 
to  the  circuit  court  of  Cook  county,  with  directions  to  sustain  the 
demurrer  to  the  pleas,  and  for  further  proceedings  in  conformity  with 
the  views  herein  expressed. 

Reversed  and  remanded,  with  directions.^® 


NORTHWESTERN  MUTUAL  LIFE  INSURANCE  COMPANY 

V.  McCUE. 

(Supreme  Court  of  the  United  States,  1912.     223  U.  S.  234,  32  Sup.  Ct.  220. 
56  L.  Ed.  419,  38  L.  R.  A.  [N.  S.]  57.) 

On  writ  of  certiorari  to  the  United  States  Circuit  Court  of  Appeals 
for  the  Fourth  Circuit  to  review  a  decree  (93  C.  C.  A.  71,  167  Fed. 
435)  which,  reversing  a  decree  of  the  Circuit  Court  for  the  Western 
District  of  Virginia,  upheld  the  right  to  recover  upon  a  policy  of  life 
insurance  for  a  death  caused  by  legal  execution  for  crime.  Judgment 
of  Circuit  Court  of  Appeals  reversed,  and  that  of  the  Circuit  Court 
affirmed. 

The  original  suit  was  in  equity  upon  a  policy  of  insurance  for  $15,- 
000,  on  the  life  of  Jas.  S.  McCue,  issued  by  the  defendant,  incorporated 
under  the  laws  of  Wisconsin,  and  assigned  to  the  plaintiffs,  children 
of  the  assured.  Shortly  after  the  issue  of  the  policy,  Mr.  McCue 
murdered  his  wife,  and  after  due  trial  and  conviction  was  hanged. 

Mr.  Justice  McKknna  delivered  the  opinion  of  the  court : 

The  question  in  the  case  is  whether  death  by  the  hand  of  the  law  in 

17  These  citations  are  omitted. 

18  For  a  discussion  of  the  principal  case,  see  note  in  21  Harv.  Law  Rev.  530. 


474  IMPLIED   CONDITIONS   OF   FORFEITURE  (Cll.  7 

execution  of  a  conviction  and  sentence  for  murder  is  covered  by  a 
policy  of  life  insurance,  though  such  manner  of  death  is  not  excc])ted 
from  the  policy,  there  being  no  question  of  the  justness  of  the  sen- 
tence.^"    *     *     * 

The  question  was  before  this  court  in  Burt  v.  Union  Cent.  L.  Ins. 
Co.,  187  U.  S.  362,  47  L.  Ed.  216,  23  Sup.  Ct.  139.-«  In  the  policy 
passed  on,  as  in  the  policy  in  the  case  at  bar,  there  was  no  provision 
excluding  death  by  the  law.  It  was  decided,  however,  that  such  must 
be  considered  its  effect,  though  the  policy  contained  nothing  covering 
such  contingency.  These  direct  questions  were  asked:  "Do  insurance 
policies  insure  against  crime?  Is  that  a  risk  which  enters  into  and 
becomes  a  part  of  the  contract?"  And  answering,  after  discussion, 
we  said :  "It  cannot  be  that  one  of  the  risks  covered  by  a  contract  of 
insurance  is  the  crime  of  the  insured.  There  is  an  implied  obligation 
on  his  part  to  do  nothing  to  wrongfully  accelerate  the  maturity  of  the 
policy.  Public  policy  forbids  the  insertion  in  a  contract  of  a  condi- 
tion which  would  tend  to  induce  crime,  and  as  it  forbids  the  introduc- 
tion of  such  a  stipulation,  it  also  forbids  the  enforcement  of  a  contract 
under  circumstances  which  cannot  be  lawfully  stipulated  for."  Cases 
were  cited,  among  others  Ritter  v.  Mutual  L.  Ins.  Co.,  169  U.  S. 
139,  42  L.  Ed.  693,  18  Sup.  Ct.  300.  There  it  was  held  that  a  life 
insurance  policy  taken  out  by  the  insured  for  the  benefit  of  his  estate 
was  avoided  when  one  of  sound  mind  intentionally  took  his  life,  ir- 
respective of  the  question  whether  there  was  a  stipulation  in  the  policy 
or  not.  And  the  conclusion  was  based,  among  other  considerations, 
upon  public  policy,  the  court  saying  that  "a  contract,  the  tendency  of 
which  is  to  endanger  the  public  interests  or  injuriously  affect  the 
public  good,  or  which  is  subversive  of  sound  morality,  ought  never  to 
receive  the  sanction  of  a  court  of  justice,  or  be  made  the  foundation 
of  its  judgment." 

These  cases  must  be  accepted  as  expressing  the  views  of  this  court 
as  to  the  public  policy  which  must  determine  the  validity  of  insurance 
policies,  and  which  they  cannot  transcend  even  by  explicit  declaration, 
much  less  be  held  to  transcend  by  omissions  or  implications,  and  we 
pass  by,  therefore,  the  very  interesting  argument  of  counsel  for  re- 
spondents as  to  the  indefinite  and  variable  notions  which  may  be  enter- 
tained of  such  policy  according  to  times  and  places  and  the  tempera- 
ments of  courts,  and  the  danger  of  permitting  its  uncertain  concep- 
tions to  control  or  supersede  the  freedom  of  parties  to  make  and  to 
be  bound  by  contracts,  deliberately  made.  We  come,  therefore,  im- 
mediately to  the  special  contention  of  respondents,  that  the  contract 
in  controversy  is  a  Wisconsin  contract,  and  is  not  offensive  to  the  pub- 
lic policy  of  that  state  or  to  its  laws,  but  was  indeed,  as  it  is  contend- 

18  The  statement  of  facts  as  given  in  the  opinion  of  the  court  is  omitted. 

20  For  a  ciiticiism  of  Burt  v.  Union  Central  Life  Ins.  Co.,  187  U.  S.  362, 
23  Sup.  Ct.  139,  47  L.  Ed.  216  (1902),  see  notes  in  14  Harv.  Law  Rev.  624, 
and  16  Harv.  Law  Rev.  453. 


Sec.  5)  DEATH    BY    LEGAL    EXECUTION  475 

ed,  made  in  conformity  to  the  laws  of  that  state,  and  carries  all  of 
their  obligations.-^     *     *     * 

The  question  before  us,  and  the  only  question,  is:  What  rights  did 
McCue's  estate  and  children  get  by  his  policy?  And  we  are  brought 
back  to  the  simple  dispute  as  to  whether  the  policy  covers  death  by 
the  hand  of  the  law.  This  court  has  pronounced  on  that  dispute,  and 
its  ruling  must  prevail  in  the  federal  courts  of  Virginia,  in  which  state 
the  contract  was  made.  And  it  is  consonant  with  the  ruling  in  the 
state  courts.  In  Plunkett  v.  Supreme  Conclave,  I.  O.  H.,  105  Va.  643, 
55  S.  E.  9,  a  certificate  of  membership  in  the  conclave,  which  was 
issued  to  one  Charles  W.  Plunkett,  his  wife  being  beneficiary,  was  con- 
sidered. One  of  the  conditions  was  that  Plunkett  comply  with  the 
laws,  rules,  and  regulations  then  governing  the  conclave,  or  that  might 
in  the  future  be  enacted.  There  was  no  provision  against  suicide  in 
the  laws,  rules,  or  regulations  when  the  certificate  was  issued.  Such 
a  provision  was  subsequently  enacted.  Plunkett  committed  suicide, 
and  the  order  refused  to  pay  benefits.  Plunkett's  wife  brought  suit 
to  recover  them,  and  asserted  a  vested  interest  in  the  benefits  under 
the  certificate.  The  contention  was  rejected.  The  trial  court  held 
that  the  forfeiture  of  the  rights  under  the  certificate,  if  the  insured 
while  sane  committed  suicide,  was  valid,  because  (1)  it  involved  no 
vested  right  of  the  insured,  and  (2)  because  it  was  a  fundamental, 
though  unexpressed,  part  of  the  original  contract  that  the  insured 
should  not  intentionally  cause  his  own  death.  And  the  court  added : 
'Tnasmuch  as  the  original  contract  and  by-laws  were  silent  upon  the 
subject  of  suicide  by  the  insured  while  sane,  the  new  by-law  is  valid, 
because  there  can  be  no  such  thing  as  a  vested  right  for  a  sane  man 
to  commit  suicide,  and  for  the  further  reason  that  it  is  nothing  more 
than  the  written  expression  of  the  provision  which  the  law  had  read 
into  the  contract  at  its  inception." 

The  supreme  court  of  appeals  affirmed  the  judgment,  quoting  the 
reasoning  of  the  trial  court,  and  added  to  it  the  considerations  of  pub- 
lic policy  expressed  in  the  Burt  Case  and  Ritter  Case,  supra,  and  other 
cases.  If  the  public  policy  of  Virginia  were  the  same  as,  it  is  con- 
tended, that  of  Wisconsin  is,  whether  this  court  should  have  to  yield 
it,  we  are  not  called  upon  to  decide. 

Being  of  opinion  that  McCue's  policy  was  a  Virginia  contract,  it 
may  be  unnecessary  to  review  the  cases  relied  on  by  the  respondents, 
which  they  contend  declare  the  public  policy  of  the  state  of  Wisconsin. 
It  may,  however,  be  said  that  the  cases  are  not  absolutely  definite 
Two  cases  only  are  cited,  McCoy  v.  Northwestern  Mut.  Relief  Ass'n, 
92  Wis.  577,  47  L.  R.  A.  681,  66  N.  W.  697,  and  Patterson  v.  Natural 

21  That  portion  of  the  opinion  wliich  holds  that,  since  tlie  policy  was  de- 
livered to  the  insured  in  Virginia,  and  there  took  effect,  by  its  terms,  upon 
his  paying  the  first  premium,  it  was  a  Virginia  contract,  governed  by  the 
law  thereof,  and  not  a  contract  governed  by  the  laws  of  Wisconsin,  where 
the  defendant  company  was  incorporated  is  omitted. 


476  IMPLIED   CONDITIONS   OF  FORFEITURE  (Ch.  7 

Premium  Mut.  L.  Ins.  Co.,  100  Wis.  118,  42  L.  R.  A.  253,  69  Am. 
St.  Rep.  899,  75  N.  W.  980. ••^-     *     *     * 

One  other  contention  of  respondents  remains  to  be  noticed.  It  is 
contended  that  if  the  McCue  estate  cannot  recover,  the  innocent  par- 
ties, his  children,  will  be  admitted  as  claimants.  To  this  contention 
we  repeat  what  we  have  said  above — the  policy  is  the  measure  of  the 
rightr  of  everybody  under  it,  and  as  it  does  not  cover  death  by  the  law, 
there  cannot  be  recovery  either  by  McCue's  estate  or  by  his  children. 

Judgment  of  the  Court  of  Appeals  is  reversed,  and  that  of  the  Cir- 
cuit Court  is  affirmed. 

2  2  The  court's  discussion  of  these  cases  Is  omitted. 


Ch.  8)  WAIVER   AND    ESTOPPEL  47 

CHAPTER  VIII 
WAIVER  AND  ESTOPPEL 


SECTION    1.— WAIVER  AND   ESTOPPEL  DISTINGUISHED 


REDSTRAKE  v.  CUMBERLAND  MUT.  FIRE  INS.  CO. 

(Supreme  Court  of  New  Jersey,  1882.     44  N.  J.  Law,  294.) 

On  rule  to  show  cause  why  a  new  trial  should  not  be  granted. 

Magii;,  j  1  *  *  *  The  facts  developed  on  the  rule  were  briefly 
these :  2     *     *     * 

The  defendant  is  a  mutual  company.  The  act  of  incorporation  (P. 
L.  1844,  p.  116)  provides  that  each  person  insured  becomes  a  member 
of  the  company.  It  also  gives  power  to  make  rules  and  by-laws  for 
the  regulation  of  the  company.  The  by-laws  adopted,  and  in  force 
during  the  continuance  of  this  policy,  require  each  policy  to  contain 
certain  conditions,  including  that  above  quoted.  They  further  provide 
that  no  alteration  or  amendment  shall  be  made  in  the  by-laws  except 
by  the  vote  of  the  directors  in  a  specified  mode. 

The  property  insured  was  located  at  Salem,  where  the  defendant 
had  an  agent,  named  Hannah.  He  had  died  before  the  trial  of  this 
cause.  He  was  accustomed,  as  such  agent,  to  receive  notices  of  sub- 
sequent insurance  on  property  insured  by  defendant;  to  receive  the 
policies  issued  thereon  by  defendant  and  transmit  them  to  defendant 
for  the  endorsement  or  acknowledgment  required  by  the  condition 
above  quoted;  and  to  deliver  to  the  insured  the  policies  when  re- 
turned to  him  from  the  defendant.  This  course  of  conduct  in  his  em- 
ployment was  proved  by  defendant's  officers. 

It  was  further  proved  by  Mitchell,  that  while  owner  of  the  prop- 
erty he  procured  the  additional  insurance  in  question;  that  he  im- 
mediately took  the  policy  in  suit  to  Hannah ;  notified  him  of  the  addi- 
tional insurance  just  effected;  delivered  to  him  the  policy  in  suit  for 
the  purpose  of  the  required  action  of  defendant  and  paid  him  a  fee 
therefor.  He  further  declared  that  some  two  months  afterward  he 
called  on  Hannah  for  the  policy  in  suit  and  was  informed  by  him 

1  Part  of  the  opinion,  not  relating  to  waiver  or  estoppel,  is  omitted. 

2  The  policy  in  suit  was  issued  to  one  Mitchell,  and  came  to  plaintiff  by 
assignment,  to  which  defendant  consented.  The  policy  contained  a  condition 
requiring  the  insured  to  give  notice  of  subsequent  insurance  within  ten  days, 
and  to  "have  the  same  indorsed  in  the  policy  or  otherwise  acknowledged  in 
writing"  by  the  company. 


4.78  WAIVER   AND    ESTOrPEL  (Ch.  8 

that  he  could  not  find  it,  but  that  subsequently  Hannah  returned  it  to 
him,  with  the  declaration  "it  was  all  right."  Mitchell  did  not  look  at 
the  policy,  but  assumed  that  it  was  all  right  from  reliance  on  Han- 
nah's declaration.  In  fact,  the  policy  was  not  endorsed.  The  assign- 
ments were  subsequently  made  and  assented  to. 

Upon  these  facts  the  contention  of  defendant  is  that  Hannah  was 
not  such  an  agent  as  to  be  capable  of  binding  the  company  in  this 
regard  by  his  acts  or  language ;  and  that  his  acts  and  language,  if 
binding  on  the  company,  do  not  justify  a  recovery  in  this  case,  either 
because  they  do  not  amount  to  a  waiver  of  the  condition  referred  to, 
or  because  plaintiff  cannot  claim  a  waiver,  which  is  equivalent  to  an 
alteration  of  the  company's  by-laws  in  a  mode  not  authorized  there- 

llV   "  ^  't'  "t^ 

In  my  view  the  case  presented  another  ground,  entirely  conclusive 
in  favor  of  plaintiff's  recovery.  By  the  evidence  of  Mitchell  it  ap- 
peared that  Hannah  returned  the  policy  to  him  after  notice  of  the 
subsequent  insurance,  not  only  without  any  notification  of  disapproval 
on  the  part  of  the  company,  but  accompanied  the  return  with  the  dec- 
laration that  "it  was  all  right."  If  Hannah  was  the  general  agent  of 
the  company  this  declaration  would  bind  the  company.  Fire  Ins.  Co. 
V.  Building  Loan  Association,  supra  [43  N.  J.  Law,  652].  But  as- 
suming his  powers  were  limited  to  communicating  to  the  insured  the 
determination  of  the  company,  his  declaration,  in  this  regard,  was 
the  declaration  of  the  company.  If  such  declaration  influenced  the 
conduct  of  insured  and  was  acted  on  by  him,  the  defendant  will  be 
estopped  from  denying  its  truth.  The  act  of  the  company  in  express- 
ing its  determination  was  to  be  performed  in  one  of  two  ways,  viz., 
either  by  endorsement  on  the  policy  or  by  some  other  acknowledg- 
ment in  writing.  If  the  expression  was  limited  to  the  endorsement, 
it  might  be  argued  that  the  return  of  the  policy  unendorsed  would 
so  contradict  the  declaration  that  the  estoppel  could  not  arise,  because 
the  insured  could  not,  in  such  case,  have  acted  upon  the  declaration 
in  good  faith.  But  in  Mentz  v.  Lancaster  Ins.  Co.,  79  Pa.  475,  a  case 
where  the  condition  required  endorsement  of  subsequent  insurance  on 
the  policy,  Sharswood,  J.,  held  that  the  declaration  of  an  agent,  to 
whom  the  policy  had  been  delivered,  with  notice  of  the  new  insurance 
made  on  returning  the  policy,  to  the  effect  that  the  endorsement  had 
been  made  thereon,  when,  in  fact,  it  had  not  been  made,  estopped  the 
company  from  objecting  to  the  want  of  the  endorsement.     See,  also, 

3  Instructions  by  the  trial  court  adverse  to  these  contentions  were  approv- 
ed by  the  Supreme  Court.  As  to  defendant's  second  contention  the  trial 
court  had  instructed  the  jury  that  if  notice  of  the  additional  insurance  was 
given,  and  the  policy  delivered  to  defendant's  agent  for  the  action  of  the 
company,  and  if  the  company  or  the  agent  retained  the  policy  an  unreason- 
able time,  that  is,  longer  than  necessary  to  inquire  into  the  condition  of  the 
insured  property,  and  either  failed  to  return  it,  or  returned  it  without  a  noti- 
fication of  disapproval,  they  might  find  a  waiver  on  the  part  of  the  company 
of  the  condition  in  question. 


Sec.  1)  WAIVER   AND    ESTOPPEL    DISTINGUISHED  479 

Pechner  v.  Phoenix  Ins.  Co.,  65  N.  Y.  195 ;  Pitney  v.  Glenn's  Falls 
Ins.  Co.,  65  N.  Y.  6.  But  in  the  case  now  in  hand,  the  declaration 
that  the  policy  was  all  right,  was  not  necessarily  contradicted  by 
the  delivery  of  the  policy  unendorsed.  It  was  an  assertion  that  the 
company  had  approved  the  additional  insurance,  if  not  by  endorse- 
ment, then  by  the  acknowledgment  in  writing  required. 

Upon  such  an  assertion  Mitchell  evidently  acted.  He  permitted  the 
company  to  retain  the  premium  note  and  the  cash  premium  paid.  He 
held  and  transferred  the  policy,  and  his  assignees,  down  to  the  pres- 
ent claimants,  received  and  held  it  as  a  valid  and  subsisting  security 
against  loss  by  fire.  The  company  also  recognized  it  as  an  outstand- 
ing contract  by  assenting  to  each  transfer.  Under  such  circumstances 
the  company  is  estopped  from  setting  up,  as  a  defence,  the  non-per- 
formance of  this  condition  with  respect  to  the  acknowledgment  re- 
quired thereby. 

Since  the  jury  gave  credit  to  the  evidence  of  Mitchell,  which  was 
uncontradicted  and  properly  submitted  to  them,  their  verdict  should 
have  been  for  the  plaintiff,  upon  the  ground  above  stated.  This  seems 
to  render  it  unnecessary  to  determine  whether  the  instructions  com- 
plained of  were  strictly  correct  or  not.  Defendant  cannot  complain 
that  the  jury  were  permitted  to  draw  an  inference  from  the  conduct 
and  silence  of  the  agent,  when,  upon  the  same  evidence  of  his  con- 
duct and  language,  they  would  have  been  properly  instructed  to  re- 
ject the  defence  insisted  on. 

It  has  been  strongly  urged  that  plaintiff  ought  not  to  be  permitted 
to  avail  himself  of  this  verdict,  because  of  the  provisions  and  by-laws 
of  the  defendant  company.  Plaintiff,  though  holding  the  policy  by 
assignment  as  collateral  security,  is  affected  by  any  act  or  default  of 
the  insured.  State  Ins.  Co.  v.  Maackens,  38  N.  J.  Law,  564.  The 
insured  is  a  member  of  the  company  and  bound  by  its  rules,  of  which 
he  is  presumed  to  know.  Belleville  Mut.  Ins.  Co.  v.  Van  Winkle,  12 
N.  J.  Eq.  333;  Mitchell  v.  Lycoming  Mut.  Ins.  Co.,  51  Pa.  402.  The 
by-laws  prescribe  this  condition  for  the  policies  o,f  all  its  members, 
and  it  is  contended  it  cannot  be  waived  in  favor  of  one  of  them.  Be- 
sides, the  by-laws  provide  expressly  for  alteration  in  a  certain  mode, 
and  it  is  further  contended  that  a  waiver  of  this  condition  is  an  altera- 
tion of  the  by-laws  in  an  unauthorized  mode,  of  which  a  member  may 
not  take  advantage. 

If  the  question  were  whether  an  agreement  might  be  made  to  dis- 
pense with  the  performance  of  such  a  condition,  I  should  doubt  the 
existence  of  any  power  in  the  officers  or  agents  to  thus  alter  the  fun- 
damental rule  of  the  company.  Such  is  the  view  taken  in  Massachu- 
setts, where  such  conditions  and  by-laws  seem  common.  Hale  v. 
Mech.  Mut.  Ins.  Co.,  6  Gray,  169,  66  Am.  Dec.  410;  Brewer  v.  Chel- 
sea Mut.  Ins.  Co.,  14  Gray,  203.  In  the  cases  cited  the  by-laws  were 
appended  to  the  policy  and  formed  part  of  the  contract.  It  was  there 
held  that  there  was  no  power  in  an  officer  or  agent  of  the  company 


480  WAIVER    AND    ESTOPPEL  (Ch.  S 

to  waive  a  condition  required  by  the  by-laws,  in  the  face  of  an  ex- 
press provision  for  tlie  aheration  of  the  by-laws  in  a  specified  mode. 
This  is  in  accord  with  the  view  that  no  waiver  can  be  claimed  from 
the  acts  of  an  agent  in  the  face  of  an  express  limitation  on  his  power 
in  that  regard.    Catoir  v.  Am.  Life  Ins.  Co.,  33  N.  J.  Law,  487. 

In  the  case  in  question,  the  by-laws  are  not  a  part  of  the  contract 
of  insurance.  But  I  do  not  perceive  any  difference  on  that  account 
The  member  of  such  a  company  is,  in  my  judgment,  debarred  from 
insisting  on  the  validity  of  a  contract  with  his  company,  which  is 
different  in  its  form  from  that  prescribed  by  the  rules  governing  him 
and  his  fellow  members.  So  if  the  insured  in  this  case  had  given 
notice  of  subsequent  insurance  and  demanded  the  endorsement  or  ac- 
knowledgment of  the  company,  and  the  ofificers  or  the  agent  had  inform- 
ed him  that  the  company  gave  a  verbal  assent  and  would  hold  itself 
bound  without  the  endorsement  or  acknowledgment  in  writing,  I  think 
it  plain  the  insured  could  not  claim  the  condition  in  question  was  there- 
by waived  or  dispensed  with,  because  that  would  be  contrary  to  the 
express  stipulations  of  the  rules  by  which  he  was  bound. 

But  this  case  presents  no  such  features.  There  was  no  agreement 
to  waive,  nor  assertion  that  the  condition  need  not  be  literally  per- 
formed. On  the  contrary,  the  assertion  made  permitted  and  justified 
the  inference  that  the  condition  had  been,  in  fact,  complied  with.  Such 
an  assertion  acted  upon  presents  all  the  elements  of  an  estoppel  and 
is  not  a  waiver. 

Waiver  and  estoppel  are  frequently  used  in  reference  to  insurance 
policies  as  if  they  were  synonymous  terms.  May  on  Ins.  605,  608; 
Wood  on  Ins.  837.  Cases  plainly  of  estoppel  are  treated  as  presenting 
questions  of  waiver.  Viele  v.  Germania  Ins.  Co.,  26  Iowa,  9,  96  Am. 
Dec.  83;  Keenan  v.  Mo.  State  Ins.  Co.,  12  Iowa,  126,  134;  Keenan 
V.  Dubuque  Mut.  Ins.  Co.,  13  Iowa,  375 ;  Mitchell  v.  Lycoming  Mut. 
Ins.  Co.,  51  Pa.  402;  Horwitz  v.  Equitable  Mut.  Ins.  Co.,  40  Mo.  557, 
93  Am.  Dec.  321.  In  the  line  of  cases  followed  by  the  judge  below, 
the  failure  of  the  company  to  notify  insured  of  the  refusal  to  approve 
the  additional  insurance,  is  said  to  be  a  waiver  of  the  condition.  But 
it  would  clearly  be  more  proper  to  say  that  the  conduct  of  the  com- 
pany estopped  it  from  asserting  what  it  did  not  approve. 

But  in  the  view  taken  in  this  court  the  question  is  one  of  estoppel, 
and  there  is  no  reason  why  the  plaintiff  should  not  avail  himself  of  it, 
although  the  insured  is  a  member  of  the  company. 

There  was  another  point  made  in  the  argument  respecting  the  re- 
fusal to  admit  certain  evidence  ofTered  by  defendant.  Letters  of  the 
deceased  agent  to  the  company  were  offered  to  show  that  he  had  not, 
in  fact,  transmitted  to  the  company  the  notice  of  the  subsequent  insur- 
ance which  had  been  given  him  by  Mitchell,  and  also  that  he  had  not 
transmitted  to  the  company  the  policy  in  suit  delivered  him  by  Mitch- 
ell. These  were  acts  to  be  performed  by  Hannah  in  the  line  of  his 
duty  as  defendant's  agent,  and  it  will  not  avail  defendant  to  say  that 


Sec.  1)  WAIVER   AND    ESTOPPEL    DISTINGUISHED  481 

its  own  agent  failed  to  perform  his  duty.  Such  faiUire  would  not  ex- 
cuse defendant,  and  the  evidence,  if  admitted,  would  have  been  of  no 
value. 

The  rule  to  show  cause  ought,  therefore,  to  be  discharged. 


WELCH  V.  FIRE  ASS'N  OF  PHILADELPHIA. 

(Supreme  Court  of  Wisconsin,  1904.     120  Wis.  456,  98  N.  W.  227.) 

Action  by  Anton  Welch  against  the  Fire  Association  of  Philadel- 
phia.    Judgment  for  plaintiff,  and  defendant  appeals.     Affirmed. 

Action  to  recover  on  a  fire  insurance  policy.  The  complaint  was 
in  the  usual  form.  The  policy  was  issued  April  5,  1902,  to  run  three 
years.  It  was  in  the  standard  form.  The  insurance  was  $500  on  plain- 
tiff's house  and  $200  on  his  personal  property  therein.  The  fire  oc- 
curred August  12,  1902.  Proofs  of  loss  were  furnished  defendant 
November  1 1th  thereafter.  The  amount  sought  to  be  recovered  is  $500. 
Defendant  answered  claiming  a  forfeiture  for  noncompliance  with  a 
condition  of  the  policy  requiring  proofs  of  loss  to  be  furnished  the 
company  within  60  days  after  the  fire,  and  further  because  he  had 
only  a  leasehold  interest  in  the  land  upon  which  his  house  was  lo- 
cated, while  the  policy  expressly  provided  that  it  should  be  of  no  effect 
if  his  title  was  other  than  absolute,  unless  otherwise  provided  by 
agreement  indorsed  upon  the  policy  and  added  thereto ;  and  that  it 
contained  the  further  provision  that  no  agent  or  officer  or  representa- 
tive of  the  company  should  have  the  power  or  be  deemed  to  have 
waived  any  condition  of  the  policy  unless  such  waiver  should  be  in- 
dorsed upon  or  added  to  the  policy. 

The  evidence  was  to  the  effect  that  proofs  of  loss  were  delivered 
to  defendant  as  stated  in  the  complaint;  that  plaintiff's  title  to  the 
realty  was  as  stated  in  the  answer ;  that  no  change  in  writing  was 
made  in  the  insurance  contract  from  the  standard  policy ;  that  Fowler, 
who  obtained  the  policy  for  plaintiff,  was  not  an  agent  for  defendant 
except  by  force  of  the  statute ;  that,  acting  in  the  capacity  of  a  broker, 
he  obtained  the  policy  for  plaintiff  from  Loney  &  Peckham,  defend- 
ant's agents ;  that  he  delivered  it  to  plaintiff',  receiving  from  him  the 
premium  therefor  and  turning  it  over  to  such  agents  for  the  benefit 
of  defendant,  and  that  they  had  such  benefit;  that  at  the  time  of  the 
making  of  the  insurance  contract  such  broker  was  fully  informed  as  to 
the  nature  of  plaintiff's  title ;  that  he  was  an  insurance  agent,  and 
when  applied  to  for  ^  policy  was  informed  as  to  the  nature  of  plain- 
tiff's title ;  that  thereupon  he  informed  plaintiff  that  his  company 
would  not  insure  the  property,  but  that  he  would  endeavor  to  obtain 
a  policy  for  him  in  some  other  company;  that  Loney  &  Peckham, 
Vance  Ins. — 31 


482  WAIVER    AND    ESTOPPEL  (Ch.  8 

defendant's  agents,  had  no  knowledge  at  the  time  of  the  delivery  of 
the  policy  of  the  character  of  defendant's  title. ^     *     *     * 

Marshall,  J.  (after  stating  the  facts).  A  decision  in  appellant's 
favor  of  one  or  more  of  these  c|uestions  would  require  a  reversal : 
(1)  Was  the  person  who  procured  the  policy  for  respondent,  delivered 
the  same  to  him,  received  the  premium  therefor  and  paid  it  to  appel- 
lant through  its  agents,  Loney  &  Peckham,  its  general  agent  under 
the  laws  of  this  state?  (2)  If  he  was  such  agent,  so  that  his  knowl- 
edge of  the  true  character  of  respondent's  title  must  be  deemed  equiv- 
alent to  knowledge  thereof  by  appellant,  can  the  latter  yet  defeat  his 
claim  because  of  the  forfeiture  clause  respecting  the  title  to  the  sub- 
ject of  insurance  being  other  than  absolutely  vested  in  him,  and  the 
prohibition  of  any  change  in  the  insurance  contract  by  any  repre- 
sentative of  appellant  except  by  agreement  indorsed  thereon  or  added 
thereto?  (3)  Did  failure  to  furnish  proofs  of  loss  within  the  time 
stipulated  in  the  policy  terminate  appellant's  liability? 

The  first  question  is  covered  by  the  statute  (section  1977,  Rev.  St. 
1898).  It  provides  that :  "Whoever  solicits  insurance  on  behalf  of 
any  *  *  *  person  desiring  insurance  of  any  kind,  or  transmits 
an  application  for  or  a  policy  of  insurance,  other  than  for  himself,  to 
or  from  any  such  corporation,  or  who  makes  any  contract  for  insur- 
ance, or  collects  any  premium  for  insurance,  or  in  any  manner  aids 
or  assists  in  doing  either,  or  in  transacting  any  business  of  like  nature 
for  any  insurance  corporation,  *  *  *  shall  be  held  to  be  an  agent 
of  such  corporation  to  all  intents  and  purposes  unless  it  can  be  shown 
that  he  receives  no  compensation  for  such  services." 

No  argument  is  needed  to  demonstrate  that  the  acts  of  Fowler  in 
reference  to  the  policy  in  question  satisfy  some  one  of  the  circum- 
stances mentioned  in  the  statute,  fixing  his  status,  to  have  been  that 
of  a  general  agent  of  appellant.  It  is  contended  that,  as  he  acted  in 
the  capacity  of  broker,  Loney  &  Peckham  being  the  regular  agents 
of  appellant,  whatever  business  he  did  was  either  for  such  agents  or 
for  the  assured,  hence  that  the  statute  does  not  apply.  That  is  clearly 
ruled  otherwise  by  John  R.  Davis  L.  Co.  v.  Hartford  F.  Ins.  Co.,  95 
Wis.  226,  70  N.  W.  84,  37  L.  R.  A.  131,  Schomer  v.  Hekla  F.  Ins. 
Co.,  50  Wis.  575,  7  N.  W.  544,  and  other  cases,  in  which  it  is  held  that 
a  person  who  procures  a  policy  of  fire  insurance  for  another  from 
the  agent  of  the  insurance  company  issuing  the  same,  acts  in  a  two- 
fold capacity ;  that  of  agent  for  the  insured,  and,  by  force  of  the  stat- 
ute, agent  for  the  insurer;  and  that  his  knowledge  at  the  inception 
of  the  contract  is  deemed  to  be  that  of  the  company  the  same  as  if  he 
were  regularly  employed  by  it  as  its  general  agent. 

Upon  the  second  question  submitted,  it  appears  that,  unless  the  rul- 
ing should  be  different  under  the  standard  policy  law,  then  independ- 
ently thereof  it  must  be  conceded  that  the  assurer  cannot  defeat  re- 

4  Part  of  the  statement  of  facts  is  omitted. 


Sec.  1)  WAIVER   AND    ESTOPPEL    DISTINGUISHED  483 

spondent's  claim  because  of  any  defect  in  the  title  to  his  property 
known  to  Fowler  when  the  contract  was  made,  regardless  of  the  terms 
of  such  contract.  In  Roberts  v.  Continental  Ins.  Co.,  41  Wis.  321, 
after  citing  a  long  line  of  decisions  in  this  court,  it  was  said,  in  ef- 
fect, that  if,  when  the  agent  of  an  insurance  company  delivers  a  pol- 
icy of  insurance,  he  has  knowledge  of  the  facts  as  regards  the  subject 
of  the  insurance  inconsistent  with  the  terms  of  the  policy,  the  assurer, 
by  accepting  the  premium,  is  estopped  from  declaring  the  policy  void 
because  the  terms  thereof  were  not  so  changed  in  writing  as  to  con- 
form to  the  facts.  There  have  been  many  subsequent  decisions  to  the 
same  effect.  Renier  v.  Dwelling  House  Ins.  Co.,  74  Wis.  94,  42  N. 
W.  208;  Zell  v.  Herman  F.  M.  Ins.  Co.,  75  Wis.  521,  44  N.  W.  828; 
Stanhilber  v.  Mut.  Mill  Ins.  Co.,  76  Wis.  285,  45  N.  W.  221 ;  Bour- 
geois V.  Northwestern  Nat.  Ins.  Co.,  86  Wis.  606,  57  N.  W.  347; 
Goss  V.  Agricultural  Ins.  Co.,  92  Wis.  233,  65  N.  W.  1036;  Schultz 
V.  Caledonian  Ins.  Co.,  94  Wis.  42,  68  N.  W.  414;  Johnston  v.  North- 
western Live  Stock  Ins.  Co.,  94  Wis.  117,  68  N.  W.  868;  De  Witt 
V.  Home  Forum  Benefit  Order,  95  Wis.  305,  70  N.  W.  476;  St.  Clara 
Female  Academy  v.  Northwestern  Nat.  Ins.  Co.,  98  Wis.  257,  73  N. 
W.  767;  Hobkirk  v.  Phoenix  Ins.  Co.,  102  Wis.  13,  16,  78  N.  W. 
160. 

These  propositions,  independently  of  statutory  change,  are  therein 
firmly  established:  (1)  Knowledge  of  an  agent  of  an  insurance  com- 
pany at  the  time  of  delivering  one  of  its  policies,  of  facts  regard- 
ing the  subject  of  the  insurance  inconsistent  with  the  stipulations  in  the 
policy  in  respect  thereto,  is  in  legal  effect  knowledge  of  the  company. 
(2)  A  person  who  delivers  the  policy  and  receives  the  premium,  though 
acting  as  a  broker,  is  also  agent  for  the  company  within  the  foregoing 
rule  by  force  of  the  statute.  (3)  If  an  insurance  company  delivers  one 
of  its  policies  and  receives  the  premium  therefor  with  knowledge  of 
facts  rendering  it  void  when  its  terms  are  applied  to  such  facts,  in 
legal  effect  it  thereby  assures  its  customer  that  as  regards  the  contract 
the  condition  of  the  property  shall  be  considered  in  all  respects  ac- 
cording to  the  calls  of  such  contract,  regardless  of  the  truth  of  the 
matter,  and  invites  him  to  rely  thereon ;  and  such  invitation  being 
accepted,  the  company  is  estopped  from  thereafter  changing  its  posi- 
tion to  the  prejudice  of  the  assured,  though  the  policy  declares  that 
no  condition  thereof  is  subject  to  waiver  except  by  written  agreement 
indorsed  thereon  or  added  thereto.  (4)  The  doctrine  of  waiver,  strictly 
so  called,  is  not  involved  in  the  last  foregoing  rule.  It  rests  solely  on 
the  principle  of  estoppel  in  pais, — the  principle  that  one  person  cannot 
assume  a  position  in  his  business  relations  with  another  in  respect  to 
a  transaction  of  a  pecuniary  nature  upon  which  such  other,  acting 
reasonably,  has  a  right  to  rely,  and  after  such  other  has  so  acted 
change  his  position  to  that  other's  prejudice  and  obtain  judicial  aid 
to  enable  him  to  effectuate  his  fraudulent  purpose. 

It  is  confidently  insisted  in  appellant's  behalf  that  the  standard  pol- 


484  "WAIVKU    AND    ESTOPPEL  (Cll.  8 

icy  law  has  cliangcd  the  foregoing  judicial  rule,  and  that  this  court  has 
so  held.  There  is  some  warrant  therefor,  though  a  careful  examina- 
tion of  all  the  decisions  bearing  on  the  subject  shows  that  the  court 
has  not  committed  itself  to  the  extent  claimed  by  counsel.  There  are 
three  classes  of  cases  to  be  considered:  (1)  Those  involving  policies 
made  after  chapter  195,  p.  224,  Laws  1891,  was  passed,  and  when  it 
was  supposed  to  be  valid ;  (2)  those  decided  after  such  law  was  con- 
demned as  unconstitutional,  but  wherein  it  was  referred  to  in  a  way 
to  indicate  that  the  decisions  might  have  been  otherwise  had  the  at- 
tempted legislation  been  effective ;  (3)  decisions  made  as  to  policies 
governed  by  the  present  valid  policy  law.'"'     *     *     * 

Straker  v.  Phenix  Ins.  Co.,  101  Wis.  413,  77  N.  W.  752,  had  to  do 
with  a  policy  issued  under  the  present  law,  and  the  efifect  of  knowl- 
edge of  the  agent  of  acts  of  the  assured  during  the  life  of  his  con- 
tract increasing  the  fire  hazard,  as  regards  waiving  the  condition  of  the 
policy  rendering  the  same  void  in  case  of  any  such  increase  unless 
permitted  by  agreement  with  the  company  indorsed  upon  the  policy 
or  added  thereto.  While  the  standard  policy  law  was  referred  to  as 
vital  to  the  question  in  the  case  and  the  decision  was  largely  based  on 
what  was  said  in  Bourgeois  v.  Ins.  Co.,  it  is  apparent  that  not  only 
was  the  turning  question  governed  by  the  law  of  waiver,  strictly  so 
called,  but  the  decision  could  not  have  been  different  had  there  been 
no  statutory  policy  law.  The  court  has  never  held,  in  the  face  of  a 
policy  provision  forfeiting  the  contract  for  a  violation  of  its  provi- 
sions by  the  assured  after  the  issuance  thereof,  such  provision  being 
accompanied  by  a  stipulation  that  it  shall  not  be  deemed  waived  other 
than  by  a  writing  indorsed  thereon,  that  a  waiver  could  take  place 
in  any  other  manner.  The  court  has  often  held  to  the  contrary.  Han- 
kins  v.  Rockford  Ins.  Co.,  70  Wis.  1,  35  N.  W.  34;  Carey  v.  German 
Am.  Ins.  Co.,  84  Wis.  80,  54  N.  W.  18,  20  L.  R.  A.  267,  36  Am.  St. 
Rep.  907;  Burr  v.  German  Ins.  Co.,  84  Wis.  76,  54  N.  W.  22,  36 
Am.  St.  Rep.  905 ;  The  principle  involved,  however,  has  little  if  any 
analogy  to  that  of  estoppel  as  applied  in  Renier  v.  Dwelling  House 
Ins.  Co.,  and  similar  cases,  though  it  is  true  that  the  term  "waiver" 
has  been  commonly  used  in  such  a  way  as  to  indicate  to  the  contrary. 
In  Matthews  v.  Capital  F.  Ins.  Co.,  115  Wis.  272,  91  N.  W.  675,  a 
clear  distinction  was  drawn  between  the  two  principles.  Although  it 
was  there  said  that  waiver  is  commonly  applied  to  acts  going  to  the 
validity  of  the  contract  rather  than  those  in  regard  to  establishing 
liability  thereon  after  the  happening  of  a  loss,  it  is  made  clear  that 
the  acts  going  to  such  validity  which  were  in  the  mind  of  the  court, 
were  those  occurring  after  the  making  of  the  contract  and  before  a 
loss ;  not  those  involved  in  its  inception.  It  cannot  be  doubted  that, 
in  the  absence  of  any  legislative  regulation  to  the  contrary,  an  insur- 
ance company  may  be  guilty  of  such  conduct  in  the  making  of  an  in- 

5  In  that  part  of  the  opinion  omitted  the  cases  under  classes  (1)  and  (2) 
are  discussed. 


Sec.  1)  WAIVER   AND    ESTOPPEL    DISTINGUISHED  485 

surance  contract  as  to  estop  it  from  successfully  pleading  the  truth 
as  regards  the  condition  of  the  subject  of  the  insurance  inconsistent 
with  the  terms  of  the  policy,  to  avoid  paying  a  loss  to  the  policy 
holder  occasioned  by  an  injury  to  or  destruction  of  such  subject. 

After  a  careful  consideration  of  the  matter  we  are  unable  to  dis- 
cover any  very  good  reason  for  holding  that  it  was  intended  by  the 
Legislature,  in  enacting  the  standard  policy  law,  to  abrogate  the  judi- 
cial rule  so  firmly  established,  as  above  indicated.  It  is  quite  apparent 
that  the  contrary  was  intended.  In  the  closing  paragraph,  section 
1941 — 62,  Rev.  St.  1898,  occurs  this  significant  language,  following  the 
disability  clauses  upon  which  appellant  relies  as  indicating  an  inten- 
tion to  change  the  judicial  rule :  "Up  to  the  time  of  the  delivery  of 
the  policy  to  assured,  in  all  transactions  relating  to  this  policy  or  to 
the  property  herein  insured,  between  the  assured  and  any  agent  of 
the  company,  knowledge  of  the  agent  shall  be  knowledge  of  the  com- 
pany; and  in  all  transactions  relating  to  the  subject  of  insurance,  be- 
tween the  insured  and  any  agent  of  the  company  after  loss,  knowledge 
of  the  agent  shall  be  knowledge  of  the  company." 

It  must  be  presumed  that  the  word  "agent"  was  there  used  in  the 
same  sense  as  in  section  1977.  Why  was  that  clause  framed  so  per- 
fectly voicing  the  foundation  principle  of  the  doctrine  in  Renier  v.  Ins. 
Co.,  and  similar  cases,  if  it  were  [  ]  intended  to  abrogate  the  judicial 
rule,  as  we  have  termed  it,  as  regards  estopping  the  company  by  oc- 
currences characterizing  the  making  of  the  contract,  or  the  further 
rule  in  respect  to  estoppel  by  conduct  of  the  company  acting  by  its 
agent  after  loss,  referred  to  in  Matthews  v.  Capital  F.  Ins.  Co.,  supra, 
and  well  established  in  the  law  of  insurance,  at  the  time  the  policy 
law  was  enacted?  Could  there  have  been  any  other  purpose  than  to 
extend  to  policy  holders,  by  legislative  enactment,  the  same  protec- 
tion they  had  theretofore  enjoyed  when  the  making  of  their  contracts 
was  wholly  under  the  control  of  the  parties  thereto?  What  object  was 
there  in  embodying  the  clause  under  consideration  in  the  law  at  all  if 
it  were  not  to  be  treated  as  an  exception  to  that  part  immediately  pre- 
ceding it,  the  disability  provisions  upon  which  appellant  relies?  If  the 
two  clauses  are  not  to  stand  together,  the  latter  being  an  exception 
in  a  sense,  to  the  former,  then  the  latter  would  seem  to  be  clear  sur- 
plusage. The  latter  clause  was  not  in  the  policy  prepared  by  the  in- 
surance commissioner  under  the  law  of  1891,  which  was  in  part  con- 
strued by  the  court  in  Bourgeois  v.  Northwestern  Nat.  Ins.  Co.,  while 
that  part  of  section  1941 — 62  preceding  it  is  a  verbatim  copy  of  the 
commissioner's  form.  That  circumstance  renders  it  well-nigh  if  not 
decidedly  beyond  reasonable  controversy,  that  the  added  language  was 
used  to  incorporate  into  the  statute,  in  efifect,  existing  law  as  found 
in  the  decisions  of  this  court. 

If  we  were  to  entirely  overlook  the  latter  part  of  the  standard  pol- 
icy above  discussed,  and  yet  give  efifect  to  the  judicial  rule,  as  in  Re- 
nier V.  Ins.  Co.,  it  would  not  seem  to  violate  the  disability  clause 


486  WAIVER   AND    ESTOPPEL  (Ch.  8 

thereof  on  the  subject  of  waiver,  since,  as  we  have  seen,  it  does  not 
deal  with  that  subject  in  any  proper  sense.  Such  giving  effect  works 
no  change  in  the  poHcy,  strictly  speaking.  It  only  estops  the  assurer, 
by  reason  of  its  conduct,  from  successfully  alleging  that  the  situation 
of  the  subject  of  insurance  is  not  as  indicated  therein.  In  other 
words,  the  rule  stands  guard  over  the  rights  of  the  policy  holder,  pro- 
tecting him  from  loss  by  reason  of  the  assurer  assuming  one  attitude 
with  knowledge  of  all  the  facts,  for  the  purpose  of  making  a  policy 
contract,  and  then  assuming  another  and  inconsistent  attitude  to  avoid 
it.  If  the  doctrine  is  right  independently  of  the  standard  policy  law, 
it  seems  that  nothing  therein  on  the  subject  of  waiver  condemns  it, 
while  in  connection  with  such  subject,  as  we  have  indicated,  there 
seems  to  have  been  an  attempt  made  to  make  such  doctrine  a  part  of 
the  statute.  It  could  not  be  successfully  contended  that  it  was  the 
purpose  of  the  Legislature  to  enable  insurance  companies  to  profit 
by  what  was  regarded  at  the  time  of  its  enactment  as  a  fraud,  without 
some  clear,  unmistakable  language  to  that  effect.  Certainly,  in  the 
face  of  plain  indications  to  the  contrary,  such  a  contention  can  find  no 
favor  here. 

It  is  well  understood  that  the  judicial  rule  here  discussed  is  pecul- 
iar to  insurance  contracts,  and  significantly  exceptional  in  that  it  ig- 
nores the  familiar  principle  applied  to  written  obligations  generally, 
that  he  who  becomes  a  party  to  such  an  obligation  is  presumed  to  have 
knowledge  of  its  contents  and  is  bound  thereby,  unless  by  some  artifice 
resorted  to  by  the  other  party  thereto,  reasonably  calculated  to  pre- 
vent or  deter  him  from  obtaining  such  knowledge,  he  is  so  prevented 
or  deterred.  Bostwick  v.  Mutual  L.  Ins.  Co.,  116  Wis.  392,  89  N. 
W.  538,  92  N.  W.  246.  As  an  original  proposition  it  would  be  diffi- 
cult to  justify  that  special  favor  to  policy  holders  in  actions  to  recover 
losses  sustained.  The  long  line  of  decisions  in  this  state  supporting 
it,  however,  precludes  any  change  thereof  other  than  by  legislative 
enactment. 

The  authorities  elsewhere  are  not  all  in  harmony  with  it.  A  very 
few  condemn  it.  Northern  Assur.  Co.  v.  Grand  View  B.  Ass'n,  183 
U.  S.  308,  22  Sup.  Ct.  133,  46  L.  Ed.  213,  is  a  significant  instance 
thereof.  In  that  case  the  departure  from  general  principles  is  most 
vigorously  condemned  in  this  language :  "It  is  manifest  that  the  theory 
that  such  parol  evidence,  though  it  may  not  be  competent  to  change  the 
written  contract,  may  be  received  for  the  purpose  of  raising  an  estop- 
pel in  pais,  is  a  mere  invasion  of  the  rule  excluding  parol  testimony 
when  offered  to  alter  a  written  contract.  A  party  suing  on  a  contract 
in  an  action  at  law  must  be  conclusively  presumed  to  be  aware  of 
what  the  contract  contains,  and  the  legal  effect  of  his  agreement  is 
that  its  terms  shall  be  complied  with." 

The  court  said  further,  in  effect,  the  only  exception  to  that  is  where, 
by  fraud,  a  person  is  induced  to  accept  a  contract  different  from  the 
one  agreed  upon,  in  excusable  ignorance  of  the  variance.    The  excep- 


Sec.  1)  WAIVER   AND    ESTOPPEL    DISTINGUISHED  487 

tion  thus  condemned  has  the  sanction  of  some  40  years  of  our  judi- 
cial history  and  of  the  general  run  of  authorities.  Under  the  circum- 
stances we  do  not  feel  warranted  in  overturning  it  or  seriously  ques- 
tioning the  wisdom  of  it. 

The  conclusion  to  which  we  have  arrived  is  supported  by  the  courts 
generally  where  a  policy  law  exists.  That  is  amply  shown  by  citations 
in  the  brief  of  counsel  for  respondent,  and  the  absence  of  authorities 
to  the  contrary  in  that  of  appellant,  and  our  own  inability  to  discover 
any.  In  the  supporting  authorities  it  appears  that  there  was  no  judi- 
cial hesitation  in  holding  that  a  policy  like  ours  does  not,  in  letter  or 
in  spirit,  affect  the  established  rule  that  an  insurance  company,  barring 
fraud  upon  it,  participated  in  by  the  assured  and  its  agent  (Koerts  v. 
Grand  Lodge  of  Wisconsin  O.  of  H.  S.,  119  Wis.  520,  97  N.  W.  163), 
cannot  avoid  the  effect  of  the  law  charging  it  with  knowledge  w^hich 
its  agent  has  at  the  time  of  delivering  its  policy  of  insurance,  respect- 
ing the  condition  of  the  subject  thereof.  In  all  cases,  or  most  of  them, 
waiver  is  sharply  distinguished  from  estoppel.^  Forward  v.  Conti- 
nental Ins.  Co.,  142  N.  Y.  382.  Z7  N.  E.  615.  25  L.  R.  A.  637;  Wood 
V.  Am.  F.  Ins.  Co.,  149  N.  Y.  382,  44  N.  E.  80,  52  Am.  St.  Rep.  733 ; 
Robbins  v.  Springfield  F.  Ins.  Co.,  149  N.  Y.  477,  44  N.  E.  159;  Skin- 
ner V.  Norman,  165  N.  Y.  565,  59  N.  E.  309,  80  Am.  St.  Rep.  776 ; 
Hadley  v.  N.  H.  Fire  Ins.  Co.,  55  N.  H.  110;  Spalding  v.  N.  H.  F. 
Ins.  Co.,  71  N.  H.  441,  52  Atl.  858;  Clawson  v.  Citizens'  Mut.  F.  Ins. 
Co.,  121  Mich.  591,  80  N.  W.  573,  80  Am.  St.  Rep.  538. 

Counsel  for  appellant  cites  the  Minnesota  Supreme  Court  as  hold- 
ing contrary  to  the  foregoing  in  Anderson  v.  Manchester  F.  Assur. 
Co.,  59  Minn.  182,  60  N.  W.  1095,  63  N.  W.  241,  28  L.  R.  A.  609, 
50  Am.  St.  Rep.  400.  We  do  not  so  understand  that  case.  Two  points 
were  there  involved ;  one  being  that  discussed  here,  and  the  other  the 
constitutionality  of  the  standard  policy  law.  Both  were  at  first  de- 
cided in  favor  of  the  company,  one  justice  expressing  doubt  and  fa- 
voring a  rehearing,  and  another  dissenting  particularly  on  the  first 
point.  A  reargument  was  ordered,  and  on  the  final  disposition  of  the 
case  the  justice  who  dissented  at  first  wrote  the  opinion,  by  which  the 
decision  was  rested  solely  on  the  unconstitutionality  of  the  law.  The 
other  point  was  entirely  omitted  from  the  case. 

6  In  Oatman  v.  Bankers'  Mut.  Fire  Relief  Ass'n,  66  Or.  3SS,  134  Pac.  1033 
(1913),  involving  facts  strikingly  similar  to  those  in  the  principal  case,  the 
court  wholly  failed  to  perceive  the  distinction  between  waiver  and  estoppel. 
The  facts  clearly  showed  an  estoppel,  yet  the  court  decided  that  "the  niles 
relevant  to  questions  of  waiver  prior  to  the  enactment  of  the  standard  policy 
law  do  not  apply  now."  This  conclusion  was  based  largely  upon  Bourgeois 
V.  Northwestern  Nat.  Ins.  Co.,  86  Wis.  606,  57  N.  W.  347  (1S93),  which  in- 
volved an  attempted  parol  executory  waiver  prior  to  the  issue  of  the  policy, 
and  upon  Moore  v.  Hanover  Fire  Ins.  Co.,  141  N.  Y.  219,  36  N.  E.  191  (1S94), 
and  Parker  v.  Insurance  Co.,  162  Mass.  479,  39  N.  E.  179  (1895),  both  cases 
of  unauthorized  subsequent  parol  waivers. 

For  a  discussion  of  the  distinction  between  waiver  and  estoppel,  see  article 
by  John  S.  Ewert  in  18  Harvard  Law  Rev.  364. 


488  WAIVKR    AND    ESTOPPEL  (Cll.  8 

Appellant's  last  point  is  ruled  in  favor  of  respondent  by  Flatley  v. 
Phcnix  Ins.  Co.,  95  Wis.  618,  70  N.  W.  828.  That  is  in  accordance 
with  the  general  rule  laid  down  in  the  text-books  and  supported  by 
an  abundance  of  authority,  that  a  reciuirement  in  a  policy  of  insur- 
ance as  regards  furnishing  the  i)roofs  of  loss  within  a  specified  time, 
not  coupled  with  any  provision  making  failure  to  comply  therewith  a 
cause  of  forfeiture,  at  the  most  only  affects  the  maturity  of  the  claim. 
Joyce  on  Ins.  §  3282.  That  was  the  doctrine  of  this  court  when,  the 
standard  policy  law  was  framed,  and  in  harmony  therewith  no  for- 
feiture clause  was  incorporated  therein  in  connection  with  the  require- 
ment for  proofs  of  loss,  but  this  language  was  so  incorporated :  "The 
loss  shall  become  payable  sixty  days  after  notice  and  proofs  of  loss 
herein  required  have  been  received  by  this  company."  Section 
1941—57,  Rev.  St.  1898. 

The  fundamental  principle  involved  is  that  forfeitures  are  not  fa- 
vored and  will  be  held  not  to  have  been  intended,  in  the  absence  of 
language  clearly  indicating  the  contrary.  That  applies  as  well  to  a 
law  as  to  a  contract.  So,  though  in  Flatley  v.  Ins.  Co.,  the  question 
was  raised  as  regards  a  contract  which  at  its  inception  was  wholly  un- 
der the  control  of  the  parties  thereto,  it  having  been  issued  before  we 
had  a  valued  policy  law,  it  applies  just  as  strongly  in  this  case.  More- 
over, the  doctrine  of  the  court,  as  indicated,  was  in  effect  incorporated 
into  the  policy. 

The  judgment  is  affirmed.'' 


BENNETT  v.  UNION  CENT.  LIFE  INS.  CO. 

(Supreme  Court  of  Illinois,   1903.     203  111.   439,  67   N.  E.  971.) 

The  plaintiff  brought  an  action  against  the  defendant  company  to 
recover  on  a  policy  of  insurance  issued  by  the  defendant  company, 
June  28,  1898,  on  the  life  of  Fernando  W.  Bennett.  In  a  special  plea 
the  defendant  company  set  forth  that  at  the  issuance  of  the  policy  the 
insured  executed  to  the  defendant  four  promissory  notes,  payable  on 

T  "The  principal  contention  of  the  appellant's  counsel  under  this  head  seems 
to  be  that  the  evidence  offered  to  show  estoppel  was  not  within  the  issues, 
because  tlie  plaintiff  had  brought  suit  upon  the  Wisconsin  Standard  policy, 
and  to  allow  the  proof  would  be  to  nullify  the  condition  and  practically  elim- 
inate it  from  the  policy.  The  argument  is  ingenious,  but  unsound.  It  is  ad- 
mitted that  the  policy  sued  upon  was  the  Standard  policy  as  alleged  in  the 
complaint,  but  that  the  condition  referred  to  was  rendered  inoperative  by 
knowledge  on  the  part  of  the  defendant  before  issuance  of  the  first  policy  of 
the  fact  that  plaiutifC  was  not  the  owner  of  the  ground  in  fee.  The  undis- 
puted evidence  shows  that  the  defendant  had  knowledge  that  plaintiff  did 
not  own  the  land  upon  which  the  insured  building  stood,  and  issued  the  first 
policy  and  received  and  retained  the  premium  with  such  knowledge.  This, 
upon  well  settled  principles,  estopped  the  defendant  from  declaring  the  poli- 
cy void,  or  changing  its  position,  to  the  prejudice  of  the  plaintiff.  Welch  v. 
tire  Ass'n,  etc.,  120  Wis.  456,  98  N.  W.  227  (1904)."  Kerwin,  J.,  in  Farley  v. 
Spring  Garden  Ins.  Co.,  148  Wis.  622,  134  N.  W.  1054  (1912). 


Sec.  1)  WAIVER   AND    ESTOPPEL    DISTINGUISHED  489 

September  30  and  December  30,  1898,  and  on  March  30  and  June  30. 
1899,  for  the  amount  of  the  first  premium.  Three  of  the  notes  con- 
tained the  stipulation :  "Said  policy,  including  all  conditions  herein 
for  surrender  or  continuance  as  a  paid-up  policy,  shall,  without  notice 
to  any  parties  interested  therein,  be  null  and  void  on  the  failure  to 
pay  this  note  at  maturity,  with  interest  payable  annually.  In  case  this 
note  is  not  paid  at  maturity,  the  full  amount  of  premium  shall  be  con- 
sidered earned  as  premium  during  its  currency,  and  the  note  payable 
without  reviving  the  policy  or  any  of  its  provisions." 

The  policy  provided :  "The  failure  to  pay,  if  living,  any  of  the  first 
three  annual  premiums,  or  the  failure  to  pay  any  notes  or  interest  upon 
notes  given  to  the  company  for  any  premium,  on  or  before  the  days 
upon  which  they  become  due,  shall  avoid  and  nullify  this  policy,  with- 
out action  on  the  part  of  the  company  or  notice  to  the  insured  or 
beneficiary ;  and  all  payments  made  upon  this  policy  shall  be  deemed 
earned  as  premiums  during  its  currency.  Any  and  all  notes,  with  their 
conditions,  which  may  be  given  for  premiums  or  loans  upon  the  se- 
curity of  this  policy,  are  hereby  made  a  part  of  this  contract  of  insur- 
ance." 

It  was  further  alleged  that  the  said  notes  had  not  been  paid.  To 
this  plea  the  plaintiff  filed  a  replication,  the  substance  of  which  is 
given  in  the  opinion  of  the  court.  The  defendant  entered  a  demurrer, 
which  was  sustained  by  the  trial  court,  and  the  plaintiff  appealed. 
From  a  judgment  of  the  appellate  court,  affirming  that  of  the  trial 
court,  the  plaintiff  appeals  to  the  supreme  court. 

BoGGS,  J.  8  *  *  *  /pj^g  substance  of  the  replication  under  con- 
sideration is  that  the  assured  was  the  owner  of  and  entitled  to  a  por- 
tion of  the  proceeds  of  a  judgment  which  had  been  rendered  in  favor 
of  Adolph  Grunow  and  against  the  Chicago  Tire  &  Spring  Company, 
which  judgment  was  in  the  hands  of  one  C.  M.  Hardy  for  collection 
for  the  benefit  of  the  assured  and  the  other  owners  thereof ;  that  the 
appellee  company,  after  the  cause  of  forfeiture  had  fully  accrued, 
and  during  the  lifetime  of  the  assured,  agreed  with  the  assured  thai 
if  he  would  secure  to  the  company  the  payment  of  the  interest  which 
the  assured  held  in  the  said  judgment  it  would  extend  the  time  of  the 
payment  of  the  four  notes  which  he  had  given  for  the  premiums  on 
the  policy  on  his  life  until  the  said  judgment  should  be  collected,  and 
that  the  assured  accepted  such  offer  and  executed  an  order  in  writing, 
directing  and  authorizing  the  said  Hardy  to  pay  to  the  appellee  com- 
pany the  full  amount  of  the  said  notes  out  of  any  moneys  collected  by 
the  said  Hardy  for  the  assured  from  the  said  judgment  debtor,  and 
procured  such  order  to  be  accepted  by  said  Hardy,  and  delivered  the 
order,  so  accepted,  to  the  appellee  company,  and  that  the  appellee 
company  accepted  the  same,  and  held  and  retained  the  said  order  dur- 

8  The  statement  of  facts  as  given  in  the  opinion  of  the  court  is  much  ab- 
breviated, and  a  portion  of  the  opinion  dealing  with  a  question  of  pleading 
is  omitted. 


490  WAIVER   AND    ESTOPPEL  (Ch.  8 

ing  the  remainder  of  the  lifetime  of  the  assured ;  that  on  the  19th  day 
of  March,  1901,  which  was  after  the  death  of  the  assured,  but  before 
either  of  the  two  latter  notes  of  the  assured  fell  due,  the  said  Hardy 
collected  the  judgment,  and  on  the  same  day,  and  out  of  the  moneys 
so  collected,  tendered  to  the  appellee  company  the  full  amount  of  the 
four  notes  held  by  it  against  the  assured.  The  demurrer  admitted  these 
averments  to  be  true.  If  true,  it  is  manifest  the  appellee  company  could 
not  accept  and  hold  the  order  on  Hardy-  and  thus  secure  to  itself  the 
benefit  of  the  contract  during  the  lifetime  of  the  assured,  for  the 
security  of  the  amounts  due  on  the  past-due  and  also  the  unmatured 
notes,  and  be  allowed  to  repudiate  the  agreement  in  the  event  of  his 
death-. 

The  argument  of  counsel  that  the  agreement  was  without  considera- 
tion cannot  avail.  Without  conceding  a  legal  and  valuable  considera- 
tion is  an  essential  basis  of  a  waiver,  we  find  such  consideration  here 
present.  By  the  terms  of  the  contract  the  appellee  company  obtained 
the  transfer  to  it  of  the  interest  of  the  assured  in  the  judgment  as 
collateral  security  for  the  amount  of  the  four  notes — the  two  that  were 
past  due  and  the  two  that  were  unmatured.  Prior  to  the  making  of 
the  contract  set  forth  in  the  replication,  and  the  execution  by  the 
assured  of  the  order  to  Hardy,  and  its  acceptance,  the  appellee  com- 
pany had  but  the  individual  notes  of  the  assured,  without  any  security 
for  their  payment.  Conceding,  as  claimed  by  counsel,  it  had  the  right 
to  avoid  liability  on  the  policy  and  collect  the  amount  earned  as  pre- 
miums, still  the  replication  disclosed  that  the  company  preferred  to 
obtain  security  for  the  payment  of  all  the  notes  and  to  remain  liable 
upon  the  policy  of  insurance,  and  that  the  assured  provided  satisfac- 
tory security  by  means  of  the  transfer  of  his  interest  in  the  judgment 
against  the  Chicago  Tire  &  Spring  Company.  The  right  to  enforce  a 
forfeiture  is  for  the  benefit  of  the  appellee  company.  It  is  not  the 
policy  of  the  law  to  favor  a  forfeiture,  but  it  is  strictly  in  accord  with 
legal  principles  to  hold  that  it  shall  be  deemed  waived  or  abandoned 
by  acts  which  recognize  the  continued  validity  of  the  policy.  If  the 
averments  of  this  replication  can  be  supported  by  proofs,  it  is  clear 
the  defense  sought  to  be  made  by  the  special  plea  would  be  fully  pre- 
cluded. 

The  policy  contained  a  clause  providing  that  "none  of  its  terms  can 
be  modified,  nor  any  forfeiture  under  it  waived,  save  by  an  agreement 
in  writing,  signed  by  the  president,  vice  president,  secretary,  or  assistant 
secretary  of  the  company,  whose  authority  for  this  purpose  shall  not 
be  delegated."  There  is  no  attempt  here  to  vary  the  terms  of  the 
written  agreement  by  parol  proof,  but  only  to  show  that  the  appellee 
company,  subsequent  to  the  issuance  of  the  policy  and  to  the  cause  of 
forfeiture  thereof,  entered  into  a  parol  agreement,  the  legal  conse- 
quence of  which  was  to  estop  it  from  availing  itself  of  a  ground  of 
forfeiture.  The  clause  in  the  policy  has  relation  only  to  express  agree- 
ments to  waive  a  forfeiture.     The  replication  does  not  rely  upon  any 


Sec.  1)  WAIVER   AND    ESTOPPEL    DISTINGUISHED  491 

such  express  agreement.  It  sets  forth  a  contract,  entered  into  by  the 
company,  which  it  was  within  its  power  to  make,  and  from  which  the 
law  declares  a  waiver  or  estoppel,  not  because  of  any  express  agree- 
ment to  waive  any  provision  of  the  policy,  but  as  the  legal  consequence 
of  the  contract  entered  into  by  the  appellee  company.  If  the  aver- 
ments of  the  replication  are  true,  it  would  be  highly  unjust  and  inde- 
fensible, upon  any  ground  of  right  or  good  morals,  to  permit  the  com- 
pany to  avoid  liability  on  the  ground  the  policy  had  been  forfeited 
before  it  entered  into  the  contract  set  forth  in  the  replication.  The 
contract,  and  the  rights,  duties,  and  obligations  of  the  parties  under 
it,  are  inconsistent  with  the  right  of  the  appellee  company  to  insist 
upon  a  forfeiture,  and  the  law  therefore  declares  a  waiver,  not  because 
the  appellee  company  has  by  any  of  its  officers,  either  verbally  or  in 
writing,  agreed  that  the  forfeiture  should  be  waived,  but  because  the 
law  declares  it  waived  by  the  acts  and  conduct  of  the  appellee  com- 
pany, and  without  regard  to  whether  it  intended  to  expressly  agree 
to  a  waiver.  By  the  contract  set  forth  in  the  replication  the  appellee 
company  sought  to  secure  the  payment  of  premiums  not  yet  accrued 
or  earned  by  it,  and  as  a  consequence  the  law  regards  the  policy  as 
existing,  and  the  right  to  declare  a  forfeiture  waived  for  that  reason. 
The  waiver  to  be  here  enforced  is  of  the  class  known  to  the  law  as 
"implied  waivers,"  to  which  reference  is  made  in  Schimp  v.  Cedar 
Rapids  Ins.  Co.,  124  111.  354,  16  N.  E.  229,  and  it  is  founded,  not  upon 
any  express  agreement  to  waive  the  ground  of  forfeiture,  but,  as 
was  said  in  the  case  cited,  upon  the  doctrine  that  a  party  cannot  be 
heard  to  say  his  contract  "is  valid  for  one  purpose,  and,  in  the  same 
breath,  that  it  is  invalid  for  all  other  purposes,"  and  upon  "the  general 
principles  of  common  honesty  and  natural  justice  which  the  law 
exacts  of  mankind  in  their  intercourse  and  dealings  with  one  an- 
other." 0 

9  The  important  distinction  between  waiver  and  estoppel,  so  often  over- 
looked by  the  courts,  is  well  stated  by  Candler,  J.,  iu  .Jolmson  v.  ^Etna  Ins. 
Co.,  123  Ga.  404,  51  S.  E.  339,  107  Am.  «t.  Rep.  92  (1905) :  "An  insurance 
company  receives  an  application  for  a  policy.  One  of  the  rules  of  the  com- 
pany is  that  insurance  will  not  be  issued  upon  a  building  situated  on  land 
not  owned  by  the  applicant.  But  the  company,  through  its  agent,  iiuows  that 
the  applicant  owns  the  building  which  he  wishes  to  have  insured,  but  does 
not  own  the  land  on  which  it  is  situated,  and,  with  this  knowledge,  never- 
theless issues  a  policy  on  the  building.  Certainly,  after  leading  the  appli- 
cant to  believe  that  he  would  be  protected,  and  receiving  from  him  the  premi- 
ums charged  for  the  insurance,  it  should  not,  in  good  conscience,  be  heard 
to  set  up  in  defense  to  an  action  on  the  policy  that  the  ownership  of  the 
building  and  of  the  land  was  in  different  persons.  Ti-ue,  the  policy  states  on 
its  face  that  no  agent  has  the  power  to  waive  any  of  the  conditions  of  the 
policy,  and  that  none  of  them  will  be  deemed  to  have  been  waived  unless 
such  waiver  is  attached  to  or  indorsed  upon  the  policy  iu  writing.  But  this 
is  not  a  question  of  waiver  so  much  as  of  notice  and  estoppel.  The  agent's 
knowledge,  as  has  been  seen,  is  the  company's  knowledge.  In  spite  of  the 
assertion  in  the  policy  that  the  contract  shall  be  void  if  the  ownership  of  the 
property  is  of  a  given  character,  the  policy  has  been  issued  with  notice  to 
the  company  that  the  ownership  is  of  that  character.  Regardless  of  any 
question  of  waiver,  then,  the  company  has  placed  itself  in  a  position  where 


492  WAIVER    AND    ESTOPPEL  (Ch.  8 

It  was  error  to  sustain  the  deniurrer  to  the  replication  under  consid- 
eration, and  for  that  error  the  judgment  of  the  trial  court  and  that 
of  the  Appellate  Court  must  be  and  are  each  reversed.  The  cause 
will  be  remanded  to  the  trial  court,  with  directions  to  overrule  the 
demurrer  and  to  take  such  further  proceedings  in  the  cause  as  to  law 
and  justice  may  appertain.    Reversed  and  remanded. 


SECTION  2.— PAROL  WAIVER  PRIOR  TO  ISSUE  OF 

POLICY 


INSURANCE  CO.  v.  MOWRY. 

(Supreme  Court  of  the  United  States,  1877.    96  U.  S.  544,  24  L.  Ed.  674.) 

Error  to  the  Circuit  Court  of  the  United  States  for  the  District  of 
Rhode  Island. 

In  the  trial  court  there  was  a  verdict  for  the  plaintiff ;  and,  judg- 
ment having  been  rendered  thereon,  the  defendant  sued  out  this  writ 
of  error. 

Mr.  Justice  Field  delivered  the  opinion  of  the  court : 

This  was  an  action  on  a  policy  of  insurance,  issued  by  the  Union 
Mutual  Life  Insurance  Company,  a  corporation  created  under  the 
laws  of  Maine,  upon  the  life  of  Nelson  H.  Mowry,  for  the  sum  of 
$10,000.  The  insurance  was  effected  by  a  nephew  of  the  insured, 
for  his  sole  benefit.  The  nephew  was  at  the  time  a  creditor  of  the 
insured  to  the  extent  of  $6,000,  and  had  agreed  to  embark  with  him  in 
an  enterprise  requiring  the  expenditure  of  considerable  capital,  and 
depending  for  its  success  upon  the  knowledge  and  skill  of  the  in- 
sured in  business.  These  circumstances  gave  the  nephew  such  an 
interest  in  the  life  of  the  insured  as  to  prevent  the  policy  from  being 
a  wager  one.  The  insurance  effected  was  from  the  9th  of  March, 
1867,  and  the  policy  recited  the  payment  of  the  first  annual  premium 
on  that  day,  and  stipulated  for  the  payment  of  the  subsequent  pre- 

it  would  be  inequitable  to  allow  it  to  make  the  defense  which  it  seeks. 
"Waiver  is  sometimes  the  express  abandonment  of  a  right.  More  frequently 
it  is  implied  from  acts  that  are  inconsistent  with  its  continued  assertion. 
*  *  *  Estoppel  is  the  shield  of  justice  interposed  for  the  protection  of 
those  who  have  not  been  wise  or  strong  enough  to  protect  themselves.  It  is 
the  special  grace  of  the  court,  authorized  and  permitted  to  preserve  equities 
that  would  otherwise  be  sacrificed  to  cunning  and  fraud.'  Ostrander,  Fire 
Ins.  §  366.  As  to  matters  arising  subsequently  to  the  issuance  of  the  policy 
the  case  wears  a  dillerent  aspect.  The  contract  is  then  made,  and  both  par- 
ties are  on  notice  as  to  its  terms.  The  insured  is  bound  to  know  what  are 
the  rights  of  the  company,  and  that  none  of  them  can  be  relinquished  save 
in  the  manner  pointed  out  in  the  policy ;  and  he,  on  his  part,  will  not  be 
heard  to  urge  a  waiver  by  the  company  unless  it  has  been  made  in  the  man- 
ner reciuired." 


Sec.  2)  PAROL   WAIVER    PRIOR   TO    ISSUE    OF   POLICY  493 

miums  on  the  same  day  of  that  month  each  year.  The  payment  of  the 
insurance  money,  after  notice  and  proof  of  the  death  of  the  insured, 
was  made  dependent  upon  the  punctual  payment,  each  year,  of  the 
premium.  The  poHcy,  in  terms,  declared  that  it  was  made  and  ac- 
cepted by  the  insured  and  the  nephew,  upon  the  express  condition  that 
if  the  amount  of  any  annual  premium  was  not  fully  paid  on  the  day 
and  in  the  manner  provided,  the  policy  should  be  "null  and  void,  and 
wholly  forfeited."  And  it  declared  that  no  agent  of  the  company, 
except  the  president  and  secretary,  could  waive  such  forfeiture,  or 
alter  that  or  any  other  condition  of  the  policy. 

The  second  premium,  due  on  the  9th  of  March,  1868,  was  not  paid, 
and  the  insured  died  on  the  8th  of  April  following.  Forty-five  days 
after  it  was  due,  and  fifteen  days  after  the  death  of  the  insured,  this 
premium  was  tendered  to  the  company,  and  was  refused.  The  ques- 
tion for  determination  is,  whether  a  tender  of  the  premium  at  that  time 
was  sufficient  to  hold  the  company  to  the  payment  of  the  insurance 
money. 

By  the  express  condition  of  the  policy,  the  liability  of  the  company 
was  released  upon  the  failure  of  the  insured  to  pay  the  premium 
when  it  matured ;  and  the  plaintiff  could  not  recover,  unless  the  force 
of  this  condition  could  in  some  way  be  overcome.  He  sought  to  over- 
come it,  by  showing  that  the  agent,  who  induced  him  to  apply  for  the 
policy,  represented  to  him,  in  answer  to  suggestions  that  he  might  not 
be  informed  when  to  pay  the  premiums,  that  the  company  would 
notify  him  in  season  to  pay  them,  and  that  he  need  not  give  himself 
any  uneasiness  on  that  subject;  that  no  such  notification  was  given  to 
him  before  the  maturity  of  the  second  premium,  and  for  that  reason 
he  did  not  pay  it  at  the  time  required.  This  representation  before  the  , 
policy  was  issued,  it  was  contended  in  the  court  below,  and  in  this 
court,  constituted  an  estoppel  upon  the  company  against  insisting  upon 
the  forfeiture  of  the  policy. 

But  to  this  position  there  is  an  obvious  and  complete  answer.  All 
previous  verbal  arrangements  were  merged  in  the  written  agreement. 
The  understanding  of  the  parties  as  to  the  amount  of  the  insurance, 
the  conditions  upon  which  it  should  be  payable,  and  the  premium  to 
be  paid,  was  there  expressed,  for  the  very  purpose  of  avoiding  any 
controversy  or  question  respecting  them.  The  entire  engagement  of 
the  parties,  with  all  the  conditions  upon  which  its  fulfilment  could  be 
claimed,  must  be  conclusively  presumed  to  be  there  stated.  If,  by  in- 
advertence or  mistake,  provisions  other  than  those  intended  were 
inserted,  or  stipulated  provisions  were  omitted,  the  parties  could  have 
had  recourse  for  a  correction  of  the  agreement  to  a  court  of  equity, 
which  is  competent  to  give  all  needful  relief  in  such  cases.  But,  until 
thus  corrected,  the  policy  must  be  taken  as  expressing  the  final  under- 
standing of  the  assured  and  of  the  insurance  company. 

The  previous  representation  of  the  agent  could  in  no  respect  operate 
as  an  estoppel  against  the  company.     Apart   from  the   circumstance 


494  WAIVER    AND    ESTOrPEL  (Ch.  8 

that  the  poHcy  subsequently  issued  alone  expressed  its  contract,  an 
estoppel  from  the  representations  of  a  party  can  seldom  arise,  except 
where  the  representation  relates  to  a  matter  of  fact, — to  a  present  or 
past  state  of  things.  If  the  representation  relate  to  something  to  be 
afterwards  brought  into  existence,  it  will  amount  only  to  a  declaration 
of  intention  or  of  opinion,  liable  to  modification  or  abandonment  upon 
a  change  of  circumstances  of  which  neither  party  can  have  any  cer- 
tain knowledge.  The  only  case  in  which  a  representation  as  to  the 
future  can  be  held  to  operate  as  an  estoppel  is  where  it  relates  to  an 
intended  abandonment  of  an  existing  right,  and  is  made  to  influence 
others,  and  by  which  they  have  been  induced  to  act.  An  estoppel 
cannot  arise  from  a  promise  as  to  future  action  with  respect  to  a  right 
to  be  acquired  upon  an  agreement  not  yet  made. 

The  doctrine  of  estoppel  is  applied  with  respect  to  representations 
of  a  party,  to  prevent  their  operating  as  a  fraud  upon  one  who  has 
been  led  to  rely  upon  them.  They  would  have  that  effect,  if  a  party 
who,  by  his  statement  as  to  matters  of  fact,  or  as  to  his  intended  aban- 
donment of  existing  rights,  had  designedly  induced  another  to  change 
his  conduct  or  alter  his  condition  in  reliance  upon  them,  could  be  per- 
mitted to  deny  the  truth  of  his  statements,  or  enforce  his  rights  against 
his  declared  intention  of  abandonment.  But  the  doctrine  has  no  place 
for  application  when  the  statement  relates  to  rights  depending  upon 
contracts  yet  to  be  made,  to  which  the  person  complaining  is  to  be  a 
party.  He  has  it  in  his  power  in  such  cases  to  guard  in  advance 
against  any  consequences  of  a  subsequent  change  of  intention  and 
conduct  by  the  person  with  whom  he  is  dealing.  For  compliance  with 
arrangements  respecting  future  transactions,  parties  must  provide  by 
stipulations  in  their  agreements  when  reduced  to  writing.  The  doctrine 
carried  to  the  extent  for  which  the  assured  contends  in  this  case  would 
subvert  the  salutary  rule,  that  the  written  contract  must  prevail  over 
previous  verbal  arrangements,  and  open  the  door  to  all  the  evils  which 
that  rule  was  intended  to  prevent.  White  v.  Ashton,  51  N.  Y.  280; 
Bigelow,  Estoppel,  437-441;  White  v.  Walker,  31  111.  422;  Faxton  v. 
Faxon,  28  Mich.  159. 

The  learned  judge  who  tried  this  case  in  the  Circuit  Court  instructed 
the  jury,  in  substance,  that  if  they  could  find  from  the  language  of 
the  agent  that  there  was  an  agreement  between  him  and  the  assured, 
made  before  the  policy  was  executed,  that  the  latter  should  have  notice 
before  he  should  be  required  to  pay  the  annual  premium,  then  that 
the  company,  not  having  given  such  notice,  was  estopped  from  set- 
ting up  the  forfeiture  stipulated  by  the  policy  for  non-payment  of  the 
premium  when  due.  For  the  reasons  we  have  stated,  we  think  the 
court  erred  in  this  instruction. 

There  is  nothing  in  the  record  which  shows  that  the  agent  was  in- 
vested with  authority  to  make  an  insurance  for  the  company.  In  rep- 
resenting himself  as  an  agent,  he  only  solicited  an  application  by  the 
assured  to   the  company  for  a  policy.     That  instrument  was  to  be 


Sec.  2)  PAROL   WAIVER   PRIOR   TO    ISSUE    OF    POLICY  495 

drawn  and  issued  by  the  cpmpany,  and  it  shows  on  its  face  that  the 
authority  to  the  agent  was  hmited  to  countersigning  it  before  de- 
livery and  to  receiving  the  premiums.  But  even  if  the  agent  had  pos- 
sessed authority  to  make  an  insurance  for  the  company,  and  he  made 
the  agreement  pretended,  still  the  assured  was  bound  by  the  terms  of 
the  policy  subsequently  executed  and  accepted  by  him. 

The  judgment  must  be  reversed,  and  the  cause  remanded  for  a  new 
trial;  and  it  is  so  ordered.^** 

10  See,  in  accord,  Metropolitan  Life  Ins.  Co.  v.  Hall,  104  Va.  572,  52  S. 
E.  345  (1905).  Under  the  principle  governing  tlie  Mowry  Case,  prospectuses 
and  circulars  published  by  an  insurance  company  cannot  be  introduced  in 
evidence  for  the  purpose  of  preventing,  by  way  of  waiver  or  estoppel,  a  for- 
feiture under  the  terms  of  a  policy  subsequently  issued.  See  Ruse  v.  Insur- 
ance Co.,  23  N.  Y.  516  (1861).  Contra:  Southern  Mut.  Life  Ins.  Co.  v.  Mon- 
tague. 84  Ivy.  653,  2  S.  W.  443,  4  Am.  St.  Kep.  218  (1SS7)  ;  Wood  v.  Dwarris, 
11  Exch.    (Hurl.  &  G.)  493    (1856). 

So  parol  evidence  is  not  admissible  to  show  a  custom  of  miners  to  store 
powder  in  their  houses,  in  order  to  validate  a  policy  containing  a  condition 
declaring  it  void  if  powder  should  be  stored  in  the  building  insured.  Pen- 
man V.  St.  Paul  Ins.  Co.,  216  U.  S.  311,  30  Sup.  Ct.  312,  54  L.  Ed.  493  (1910). 
But  the  principle  of  this  case  does  not  apply  when  the  property  specihcally 
insured  necessarily  includes  or  involves  the  presence  of  articles  prohibited  in 
the  printed  conditions  of  the  policy.  See  McClure  v.  Mutual  Fire  Ins.  Co., 
242  Pa.  59.  88  Atl.  921.  48  L.  R.  A.  (N.  S.)  1221  (1913),  in  which  it  is  said: 
"The  weight  of  authority  is  to  the  effect  that  the  use  of  an  article  prohibited 
by  the  printed  clauses  of  the  policy  will  not  avoid  it,  if  the  prohibited  article 
is  a  customary  component  part  of  the  goods  insured,  or  is  in  customary  use 
in  carrying  on  the  trade  or  business  conducted  in  the  insured  building. 
Where  there  is  an  inconsistency  between  the  written  and  printed  portions  of 
the  policy,  the  former  must  control,  and  this  means  that,  if  there  are  printed 
prohibitions  against  keeping  certain  articles  on  the  insured  premises,  the 
policy  will  not  be  avoided  by  a  violation  of  these  provisions,  if  the  prohibited 
articles  are  a  part  of  the  general  stock  of  merchandise  intended  to  be  insur- 
ed." Also  in  accord  is  Maril  v.  Connecticut  P'ire  Ins.  Co.,  95  Ga.  604,  23  S. 
E.  463.  30  L.  R.  A.  835,  51  Am.  St.  Rep.  102   (1895). 

In  Pfiester  v.  Missouri  State  Life  Ins.  Co.,  85  Kan.  97,  116  Pac.  245  (1911), 
parol  testimony  was  admitted  to  show  a  prior  parol  agreement  as  to  the  time 
for  the  paynient  of  premiums,  in  contradiction  of  the  terms  of  the  policy. 
This  conclusion  was  reached  on  the  theory  that  the  complaint  asked  for 
reformation  of  the  contract.     See  this  case  as  reported  herein,  post,  p.  552. 


496  WAIVEU    AND    ESTOITEL  (Cll.  8 


SECTION  3.— WAIVER  SUP.vSEQUENT  TO  ISSUE  OF 

POLICY 


INSURANCE  CO.  v.  NORTON. 

(Supreme  Court  of  the  United  States,  1877.     96  U.  S.  2PA,  24  T..  Ed.  GS9.) 

Error  to  the  Circuit  Court  of  the  United  States  for  the  Northern 
District  of  Illinois. 

This  action  was  brought  by  Phoebe  A.  Norton  on  a  policy  of  in- 
surance, issued  by  the  Knickerbocker  Life  Insurance  Company  of  New 
York,  on  the  life  of  Jesse  O.  Norton,  for  the  benefit  of  his  wife  and 
children.  The  original  policy  was  dated  April  20,  1867 ;  and,  being 
partly  destroyed  by  fire,  was  reissued  in  April,  1874.  The  premium 
was  $385,  payable  annually  on  the  twentieth  day  of  April  in  each 
year ;  and  the  policy,  amongst  other  things,  contained  the  following 
conditions : 

"Second.  If  the  said  premium  shall  not  be  paid  on  or  before  twelve 
o'clock,  noon,  on  the  day  or  days  above  mentioned  for  the  payment 
thereof,  at  the  office  of  the  company  in  the  city  of  New  York  (unless 
otherwise  expressly  agreed  in  writing),  or  to  agents  when  they  pro- 
duce receipts  signed  by  the  president  or  secretary,  or  if  the  principal 
of  or  interest  upon  any  note  or  other  obligation  given  for  the  pre- 
mium upon  said  policy  shall  not  be  paid  at  the  time  the  same  shall 
become  due  and  payable,  then,  and  in  every  such  case,  the  company 
shall  not  be  liable  to  pay  the  sum  assured,  or  any  part  thereof ;  and 
said  policy  shall  cease  and  be  null  and  void,  without  notice  to  any 
party  or  parties  interested  herein,  except  that  the  stipulation  for  a 
new  policy,  as  hereinbefore  provided,  shall  remain  in  force. 

"Third.  In  case  a  loan  of  or  credit  for  a  portion  of  said  premium 
shall  be  made  on  this  policy,  said  policy  shall  be  subject  to  all  of  the 
terms  and  conditions  expressed  in  the  acknowledgment  or  obligation 
given  for  such  loan  or  credit,  and  to  the  payment  of  interest  thereon 
in  advance;  and  said  loan  or  credit  shall  be  a  just  counterclaim 
against  any  amount  which  shall  become  due  and  payable  on  the  pol- 
icy, and  shall  be  deducted  therefrom." 

By  an  indorsement  on  the  policy,  it  was  declared  that  "agents  of 
the  company  are  not  authorized  to  make,  alter,  or  abrogate  contracts, 
or  waive  forfeitures." 

The  insured  died  on  the  3d  of  August,  1875 ;  and  the  company  re- 
fused to  pay  the  insurance,  on  the  ground  that  the  policy  was  forfeit- 
ed by  reason  of  the  non-payment  of  certain  notes  given  for  the  last 
premium,  which  was  due  April  20,  1875.  It  was  conceded  that  all  the 
other  premiums  had  been  paid. 


Sec.  3j  WAIVER    SUBSEQUENT    TO    ISSUE    OP    POLICY  497 

The  declaration,  besides  a  special  count  on  the  policy,  contained  the 
ordinary  money  counts.  The  defendant  pleaded  the  general  issue, 
and,  specially,  that  the  premium  notes  were  not  paid  at  maturity,  and 
that  the  policy  thereby  became  forfeited.  The  plaintiff  replied,  first, 
that  the  agent  of  the  defendant  at  Chicago,  regularly  authorized  by 
the  defendant  so  to  do,  extended  the  time  of  payment  of  the  first 
note,  which  became  due  on  the  20th  of  June,  to  the  20th  of  July,  when 
she  tendered  the  amount  thereof  to  the  agent,  who  refused  to  receive 
the  same ;  and  that  she  also  tendered  the  amount  of  the  second  note 
at  its  maturity,  which  was  likewise  refused :  secondly,  that,  after  the 
maturity  of  the  first  note,  the  agent  of  the  defendant,  regularly  au- 
thorized so  to  do,  waived  all  advantages  the  company  might  have 
claimed  because  of  its  non-payment  at  maturity,  and  extended  the 
time  of  payment,  as  before  stated,  with  an  averment  of  tender  and 
refusal.  The  defendant,  by  way  of  rejoinder,  denied  that  it  had  ex- 
tended the  time  of  payment,  or  that  it  had  waived  any  advantages, 
as  alleged.    This  was  the  issue  at  the.  trial. 

It  appeared  on  the  trial  that  the  premium  in  question  was  settled  by 
the  payment  of  $50  in  cash,  and  the  balance  in  two  promissory  notes 
given  by  Jesse  O.  Norton  to  the  insurance  company,  payable  respec- 
tively in  two  and  three  months,  and  maturing,  one  on  the  20th  of 
June,  the  other  on  the  20th  of  July,  1875.  Each  note  contained  a 
clause,  declaring  that  if  it  were  not  paid  at  maturity  the  policy  would 
be  void, — this  being  the  usual  form  of  premium  notes. 

On  the  issue  as  to  extension  of  time  on  the  notes,  and  the  author- 
ity of  the  agent  to  grant  it,  the  plaintifif  produced  three  witnesses  :  Ran- 
dall, agent  of  the  company  down  to  March,  1874;  Frary,  his  succes- 
sor, who  was  agent  at  the  time  in  question ;  and  Martin  Norton,  son 
of  the  insured,  who  acted  in  behalf  of  his  father  in  reference  to  the 
alleged  extension,  and  to  the  tender  of  payment. 

The  testimony  of  these  witnesses  tended  to  show  that  formerly  the 
company  had  allowed  their  agent  to  extend  time  on  premium  notes  for 
a  period  of  ninety  days ;  that  this  indulgence  was  afterwards  reduced 
to  sixty  days,  and  then  to  thirty ;  and  that,  at  the  period  in  question, 
the  agent  was  required,  as  a  general  thing,  to  return  the  notes  in  his 
hands  if  not  paid  by  the  15th  of  the  month  following  that  in  which 
they  became  due. 

As  to  what  took  place  with  reference  to  the  notes  in  question,  there 
is  some  conflict  in  testimony  between  Martin  Norton  and  the  agent, 
Frary.  The  former  testified,  in  substance,  that  he  called  on  the  agent, 
in  behalf  of  his  father,  in  June,  1875,  a  few  days  after  the  first  note 
became  due,  and  told  him  that  his  father  wished  it  extended  for  thirty 
days ;  to  which  the  agent  agreed, — his  answer  being,  "All  right." 
That  he  called  again  on  or  about  the  8th  of  July,  to  request  an  exten- 
sion of  the  other  note,  which  would  become  due  on  the  20th  of  that 
month,  and  a  further  extension  of  the  first  note  to  the  10th  of  Au- 
Vance  Ins. — 32 


498  WAIVER    AND    ESTOPPEL  (Ch.  8 

gust.  That  the  agent  said  he  would  have  to  write  to  the  company 
about  this.  That,  on  the  13th,  he  called  again,  and  told  the  agent  thai 
his  father  had  concluded  to  pay  both  notes ;  and  the  agent  gave  him 
the  figures,  showing  what  was  due  on  them.  That  he  called  again  on 
the  15th,  prei)ared  to  pay  the  notes,  when  he  was  informed  by  the 
agent  that  he  could  not  receive  the  money,  having  received  orders  from 
the  company  to  return  all  the  papers  to  New  York,  and  he  had  done 
so.  That  he  then  made  a  legal  tender  of  the  amount  due  on  the  first 
note,  which  was  refused.  Frary  testified  that  he  had  no  recollection 
of  the  first  interview,  or  of  agreeing  to  extend  the  first  note.  As  to 
the  rest,  they  did  not  materially  differ. 

In  addition  to  the  testimony  relating  to  the  general  practice  of  the 
agents  in  granting  extensions  of  time  for  the  payment  of  premium 
notes,  evidence  was  given  tending  to  show  that  Norton,  the  insured, 
had  usually  received  more  or  less  indulgence  of  that  kind. 

The  counsel  for  the  defendant  moved  to  strike  out  the  testimony 
touching  the  usages  of  the  company  as  to  non-payment  of  prior  pre- 
mium notes  by  Norton,  and  prior  indulgence  thereon  to  him,  as  incom- 
petent, and  in  conflict  with  the  terms  of  the  policy,  and  as  showing  no 
authority  in  Frary  to  give  the  alleged  extension ;  which  was  without 
consideration,  if  made,  and  after  the  forfeiture  had  occurred. 

The  counsel  for  the  defendant  also  moved  to  strike  out  that  portion 
of  Martin  Norton's  testimony  relative  to  an  agreement  for  an  exten- 
sion of  the  premium  notes,  such  agreement  being  without  authority  on 
the  part  of  the  agent,  &c.  The  court  overruled  the  latter  motion ; 
and,  as  to  the  first,  directed  the  jury  to  disregard  so  much  of  Ran- 
dall's testimony  as  tended  to  show  the  conduct  of  the  defendant  and 
plaintiff  in  regard  to  former  payments ;  but  allowed  to  stand  so  much 
of  Randall's  and  Frary's  testimony  as  tended  to  show  the  powers  of 
the  agents  in  reference  to  giving  extensions  on  premiums  or  premium 
notes.    This  ruling  was  excepted  to. 

In  charging  the  jury,  the  court  left  it  to  them  to  say,  from  the  evi- 
dence, whether  the  agent  of  the  defendant  had  power  to  waive  a  strict 
compliance  with  the  terms  of  the  agreement  as  to  the  time  of  paying 
the  notes  given  for  the  premium ;  and,  if  he  had  such  power,  whether 
such  a  waiver  was  in  fact  made :  if  it  was,  and  if  the  insured  offered 
to  pay  the  notes  within  the  time  to  which  they  were  extended,  and 
the  compan}^  refused  to  receive  payment,  that  then  the  plaintiff  was 
entitled  to  recover.  The  jury  were  further  instructed  that  the  power 
vested  in  Randall,  the  previous  agent,  was  only  pertinent  as  it  tended 
to  throw  light  on  the  powers  vested  in  his  successor,  Frary.  The  de- 
fendant's counsel  excepted  to  the  charge,  and  submitted  several  in- 
structions, the  purport  of  them  being,  in  substance,  that,  in  view  of  the 
express  provisions  of  the  policy,  the  evidence  was  utterly  irrelevant 
and  incompetent  to  show  any  authority  in  the  agent  to  grant  any 
indulgence  as  to  the  time  of  paying  the  notes,  and  to  waive  the  for- 
feiture incurred  by  their  non-payment  at  maturity ;    or  to  show  that 


Sec.  3)  WAIVER    SUBSEQUENT    TO    ISSUE    OF    POLICY  499 

any  valid  and  legal  extension  was,  in  fact,  granted,  or  that  the  for- 
feiture of  the  policy  was  waived. 

These  instructions  were  refused.  There  was  a  judgment  for  the 
plaintiff,  whereupon  the  company  sued  out  this  writ  of  error. 

Mr.  Justice  BradliCy,  after  stating  the  case,  delivered  the  opinion 
of  the  court : 

The  material  question  in  this  case  is,  whether,  in  view  of  the  express 
provisions  of  the  policy,  the  evidence  introduced  by  the  assured  was 
relevant  and  competent  to  show  that  the  company  had  authorized  its 
agent  to  grant  indulgence  as  to  the  time  of  paying  the  premium  notes, 
and  waive  the  forfeiture  incurred  by  their  non-payment  at  maturity ; 
or  to  show  that  any  valid  extension  had,  in  fact,  been  granted,  or  the 
forfeiture  of  the  policy  waived. 

The  written  agreement  of  the  parties,  as  embodied  in  the  policy  and 
the  indorsement  thereon,  as  well  as  in  the  notes  and  the  receipt  given 
therefor,  was  undoubtedly  to  the  express  purport  that  a  failure  to  pay 
the  notes  at  maturity  would  incur  a  forfeiture  of  the  policy.  It  also 
contained  an  express  declaration  that  the  agents  of  the  company  wer^ 
not  authorized  to  make,  alter,  or  abrogate  contracts  or  waive  forfei- 
tures. And  these  terms,  had  the  company  so  chosen,  it  could  have  in- 
sisted on.^^  But  a  party  always  has  the  option  to  waive  a  condition  or 
stipulation  made  in  his  own  favor.  The  company  was  not  bound  to 
insist  upon  a  forfeiture,  though  incurred,  but  might  waive  it.  It  was 
not  bound  to  act  upon  the  declaration  that  its  agents  had  no  power  to 
make  agreements  or  waive  forfeitures ;  but  might,  at  any  time,  at  its 
option,  give  them  such  power.  The  declaration  was  only  tantamount 
to  a  notice  to  the  assured,  which  the  company  could  waive  and  disre- 
gard at  pleasure.  In  either  case,  both  with  regard  to  the  forfeiture 
and  to  the  powers  of  its  agent,  a  waiver  of  the  stipulation  or  notice 
would  not  be  repugnant  to  the  written  agreement,  because  it  would 
only  be  the  exercise  of  an  option  which  the  agreement  left  in  it.  And 
whether  it  did  exercise  such  option  or  not  was  a  fact  provable  by  parol 
evidence,  as  well  as  by  writing,  for  the  obvious  reason  that  it  could 
be  done  without  writing. 

That  it  did  authorize  its  agents  to  take  notes,  instead  of  money,  for 
premiums,  is  perfectly  evident,  from  its  constant  practice  of  receiving 
sucTi  notes  when  taken  by  them.  That  it  authorized  them  to  grant 
indulgence  on  these  notes,  if  the  evidence  is  to  be  believed,  is  also  ap- 
parent from  like  practice.  It  acquiesced  in  and  ratified  their  acts  in 
this  behalf.     For  a  long  period,  it  allowed  them  to  give  an  indulgence 

11  It  has  frequently  been  so  held.  See  Carey  v.  Insurance  Co.  (1S93)  84 
Wis.  SO,  54  N.  W.  18,  20  L.  R.  A.  267.  36  Am.  St.  Rep.  907  (unauthorized 
oral  waiver  by  agent  of  change  of  possession);  Black  v.  Atlantic  Home  Ins. 
Co.  (1908)  148  N.  C.  169,  61  S.  E.  672,  21  L.  R.  A.  (N.  S.)  578  (oral  consent 
given  for  additional  insurance  bv  local  agent  without  authority) ;  McElroy 
V.  Metropolitan  Life  Ins.  Co.  (1909)  84  Neb.  866,  122  N.  W.  27,  23  L.  R.  A. 
(N.  S.)  968,  19  Ann.  Cas.  28  (time  for  payment  of  premiums  extended  orally 
by  local  agent  contrary  to  the  terms  of  the  policy). 


500  WAIVER    AND    ESTOl'PEL  (Ch.  S 

of  ninety  days;  after  that,  of  sixty;  then  of  thirty  days.  It  is  in 
vain  to  contend  that  it  gave  them  no  authority  to  do  this,  when  it  con- 
stantly allowed  them  to  exercise  such  authority,  and  always  ratified 
their  acts,  notwithstanding  the  language  of  the  written  instruments. 

We  think,  therefore,  that  there  was  no  error  committed  hy  the 
court  below  in  admitting  evidence  as  to  the  practice  of  the  company 
in  allowing  its  agents  to  extend  the  time  for  payment  of  premiums 
and  of  notes  given  for  premiums,  as  indicative  of  the  power  given 
to  those  agents ;  nor  any  error  in  submitting  it  to  the  jury,  upon  such 
evidence,  to  find  whether  the  defendant  had  or  had  not  authorized 
its  agent  to  make  such  extensions ;  nor  in  submitting  it  to  them  to  say 
whether,  if  such  authority  had  been  given,  an  extension  was  made  in 
this  case. 

Much  stress,  however,  is  laid  on  the  fact  that  the  extension  claimed 
to  have  been  given  in  this  case  was  not  given,  or  applied  for,  until 
after  the  first  note  became  due  and  the  forfeiture  had  been  actually 
incurred.  But  we  do  not  deem  this  to  be  material.  The  evidence  does 
not  show  that  any  distinction  was  made  in  granting  extensions  before 
or  after  the  maturity  of  the  notes.  The  material  question  is,  whether 
the  forfeiture  was  waived ;  and  we  see  no  reason  why  this  may  not 
be  done  as  well  by  an  agreement  made  for  extending  the  note  after 
its  maturity,  as  by  one  made  before.  In  either  case,  the  legal  efifect  of 
the  indulgence  is  this :  the  company  say  to  the  insured,  Pay  your  note 
by  such  a  time,  and  your  policy  shall  not  be  forfeited.  If  the  insured 
agrees  to  do  this,  and  does  it,  or  tenders  himself  ready  to  do  it,  the 
forfeiture  ought  not  to  be  exacted.  In  both  cases,  the  parties  mutually 
act  upon  the  hypothesis  of  the  continued  existence  of  the  policy.  It  is 
true,  if  the  agreement  be  made  before  the  note  matures  and  before  the 
forfeiture  is  incurred,  it  would  be  a  fraud  upon  the  assured  to  attempt 
to  enforce  the  forfeiture,  when,  relying  on  the  agreement,  he  permits 
the  original  day  of  payment  to  pass.  On  the  other  hand,  if  the  agree- 
ment be  made  after  the  note  matures,  such  agreement  is  itself  a  recog- 
nition, on  the  company's  part,  of  the  continued  existence  of  the  pol- 
icy, and,  consequently,  of  its  election  to  waive  the  forfeiture.  It  is 
conceded  that  the  acceptance  of  payment  has  this  effect ;  and  we  do 
not  see  why  an  agreement  to  accept,  and  a  tender  of  payment  accord- 
ing to  the  agreement,  should  not  have  the  same  effect.  Both  are  acts 
equally  demonstrative  of  the  election  of  the  company  to  waive  the  for- 
feiture of  the  policy.  Grant  that  the  promise  to  extend  the  note  is 
without  consideration,  and  not  binding  on  the  company, — which  is 
perhaps  true  as  well  when  the  promise  is  made  before  maturity  as 
when  it  is  made  afterwards, — still  it  does  not  take  from  the  compa- 
ny's act  the  legitimate  effects  of  such  act  upon  the  forfeiture  of  the 
policy.  Perhaps  the  note  might  be  sued  on  in  disregard  of  the  exten- 
sion ;  but  if  it  could  be,  that  would  not  annihilate  the  fact  that  the 
company  elected  to  waive  the  forfeiture  by  entering  into  the  transac- 
tion.   If  it  should  repudiate  its  agreement,  it  could  not  repudiate  the 


Sec.  3)  WAIVER    SUBSEQUENT    TO    ISSUE    OF    POLICY 


501 


waiver  of  the  forfeiture,  without  at  least  giving  to  the  assured  rea- 
sonable notice  to  pay  the  money. 

Forfeitures  are  not  favored  in  the  law.  They  are  often  the  means 
of  great  oppression  and  injustice.  And,  where  adequate  compensation 
can  be  made,  the  law  in  many  cases,  and  equity  in  all  cases,  discharges 
the  forfeiture,  upon  such  compensation  being  made.  It  is  true,  we 
held  in  Statham's  Case  (93  U.  S.  24),  that,  in  life  insurance,  time  of 
payment  is  material,  and  cannot  be  extended  by  the  courts  against  the 
assent  of  the  company.  But  where  such  assent  is  given,  the  courts 
should  be  liberal  in  construing  the  transaction  in  favor  of  avoiding 
a  forfeiture. 

The  case  of  leases  is  not  without  analogy  to  the  present.  It  is  fa- 
miliar law,  that,  when  a  lease  has  become  forfeited,  any  act  of  the 
landlord  indicating  a  recognition  of  its  continuance,  such  as  distrain- 
ing for  rent,  or  accepting  rent  which  accrued  after  the  forfeiture,  is 
deemed  a  waiver  of  the  condition.^"     *     *     * 

These  cases  show  the  readiness  with  which  courts  seize  hold  of  any 
circumstances  that  indicate  an  election  or  intent  to  waive  a  forfeiture. 
We  think  that  the  present  case  is  within  the  reason  of  these  author- 
ities;  and  that  the  objection,  that  the  note  was  already  past  due  when 
the  agreement  to  extend  it  was  made,  is  not  sufficient  to  prevent  said 
agreement  from  operating  as  a  waiver  of  the  forfeiture. 

Several  minor  points  were  raised  by  the  defendant ;  but  they  are 
all  either  substantially  embraced  in  the  main  points  already  considered 
or  are  not  of  sufficient  force  to  require  special  discussion. 

We  find  no  error  in  the  record,  and  the  judgment  of  the  Circuit 
Court  is  affirmed. ^^ 

12  The  court  here  discusses  at  some  length  the  cases  of  Poe  v.  Meux,  4 
Caru.  &  Cress.  606  (1825),  Doe  v.  Birch,  1  M.  &  W.  402  (1886).  and  Ward 
V.  Day,  4  Best  &  Smith,  337  (1863). 

13  There  is  abundant  authority  to  the  effect  that  waivers  of  conditions 
in  a  policy,  made  subsequent  to  the  inception  thereof,  may  be  shown  by 
parol,  without  doing  violence  to  the  parol  evidence  rule.  See  Union  Central 
lAie  Ins.  Co.  v.  Hook,  62  Ohio  St.  256,  56  N.  E.  906  (1900);  Carrigan  v.  Ly- 
coming Fire  Ins.  Co.,  53  Vt.  418,  38  Am.  Rep.  687  (1881) ;  Wilson  v.  Conway 
Fire  Ins.  Co.,  4  R.  I.  141  (1856) ;  Riley  v.  American  Central  Ins.  Co.,  117 
Mo.  App.  229,  92  S.  W.  1147  (1906)  ;  Hartford  Life  Ins.  Co..  v.  Unsell,  144 
U.  S.  439,  12  Sup.  Ct.  671,  36  L.  Ed.  496  (1892);  Hastings  v.  Brooklyn  Life 
Ins.  Co.,  138  N.  Y.  473,  34  N.  E.  289  (1893);  Graham  v.  Security  Mut.  Life 
Ins.  Co.,  72  N.  J.  Law,  298,  62  Atl.  681  (1905). 

"The  conditions  mentioned  in  the  policy  could,  of  course,  be  waived  by 
the  company,  either  before  or  after  they  were  broken;  they  were  Inserted 
for  its  benefit,  and  it  depended  upon  its  pleasure  whether  they  should  be  en- 
forced. The  difficulty  in  this  case,  and  in  nearly  all  cases  where  a  waiver 
is  alleged  in  the  absence  of  written  proof  of  the  fact,  arises  from  a  considera- 
tion of  the  effect  to  be  given  to  the  acts  of  agents  of  the  company  in  their 
dealings  with  the  assured.  Of  course,  such  agents,  if  they  bind  the  company, 
must  have  authority  to  waive  a  compliance  with  the  conditions  upon  the 
breach  of  which  the  forfeiture  is  claimed,  or  to  waive  the  forfeiture  when 
incurred,  or  their  acts  waiving  such  compliance  or  forfeiture  nmst  be  sub- 
sequently approved  by  the  company.  The  law  of  agency  is  the  same,  wheth- 
er it  be  applied  to  the  act  of  an  agent  undertaking  to  continue  a  policy  of 
insurance  or  to  any  other  act  for  which  his  principal  is  sought  to  be  held 


502  WAIVER    AND    ESTOPPEL  (Ch.  8 

Mr.  Justice  Swayne,  Mr.  Justice  FiivI.d,  and  Mr.  Justice  Strong 
dissented. 

Mr.  Justice  Strong.  I  dissent  from  the  judgment  given  in  this 
case.  The  insurance  effected  by  the  policy  became  forfeited  by  the 
non-payment  ad  diem  of  the  i)remium  note.  The  policy  then  ceased 
to  be  a  binding  contract.  It  was  so  exj^ressly  stipulated  in  the  instru- 
ment. Admitting  that  the  company  could  afterwards  elect  to  treat  the 
policy  as  still  in  force,  or,  in  other  words,  could  waive  the  forfeiture, 
the  local  agent  could  not,  unless  he  was  so  authorized  by  his  princi- 
jials.  The  policy  declared  that  agents  should  not  have  authority  to 
make  such  waivers.  And  there  is  no  evidence  in  this  case  that  the 
company  gave  to  the  agent  parol  authority  to  waive  a  forfeiture  after 
it  had  occurred.  They  had  ratified  his  acts  extending  the  time  of  pay- 
ment of  premium  notes,  when  the  extension  was  made  before  the  notes 
fell  due.  But  no  practice  of  the  company  sanctioned  any  act  of  its 
agent  done  after  a  policy  had  expired,  by  which  new  life  was  given  to 
a  dead  contract. 

responsible.  *  *  *  The  company,  notwithstanding  the  provision  in  the 
policy  that  its  agents  were  not  authorized  to  waive  the  forfeitures,  sent  to 
them  renewal  receipts  signed  by  its  secretary,  to  be  used  when  countersigned 
by  its  local  manager  and  cashier,  leaving  their  use  subject  entirely  to  the 
judgment  of  the  local  agent.  The  propriety  of  their  use.  in  the  absence 
of  any  fraud  in  the  matter,  could  not  afterwards  be  questioned  by  the  com- 
pany. *  *  *  So  far,  then,  as  the  waiver  of  tlie  forfeiture  incurred  for 
nonpayment  of  the  premiums  is  concerned,  it  is  clear  that  the  company,  by 
its  course  of  dealing,  had,  notwithstanding  the  provision  of  the  policy,  left 
the  matter  to  be  determined  by  its  local  agent,  to  whom  the  renewal  receipts 
were  intrusted."  Field,  J.,  in  Globe  Mut.  Ins.  Co.  v.  Wolff,  95  U.  S.  326,  24 
L.  Ed.  887  (1877). 

Unauthorized  Subsequent  Waivers. — It  is  manifest  that  unless  the  act 
of  the  agent  in  waiving  a  condition  of  the  policy  is  authorized  expressly  or 
Impliedly,  as  in  the  principal  case,  such  waiver  cannot  be  binding  upon  the 
insurer.  Thus  in  Baumgartel  v.  Providence  Washington  Ins.  Co.,  136  N.  Y. 
547,  32  N.  E.  990  (1893),  where  defendant  had  issued  to  plaintiff  a  "policy  of 
tire  insurance  which  contained  a  clause  to  the  effect  that,  unless  otherwise 
provided  by  agreement  indorsed  thereon,  it  should  be  void  in  case  of  other 
insurance  on  the  property  insured,  and  It  also  provided  that  no  agent  of 
the  company  should  have  power  to  waive  any  provision  or  condition  of  the 
policy  except  such  as  by  its  terms  might  be  the  subject  of  agreement  indorsed 
thereon  or  added  thereto,  and,  as  to  those,  that  he  should  have  no  such 
power  nor  be  deemed  to  have  waived  them  unless  in  writing  so  indorsed  or 
attached,  and  where,  in  an  action  upon  the  policy,  it  appeared  that,  during 
its  life,  the  plaintiff,  without  notice  to  the  defendant  and  without  its  knowl- 
edge or  consent,  obtained  other  insurance  upon  the  property,  and  that  tliere- 
after  he  informed  the  agent,  who  had  issued  -the  policy,  of  this  fact,  and 
that  the  agent  had  replied,  "All  right;  I  will  attend  to  it,"  but  it  did  not  ap- 
pear that  the  plaintiff  then  had  the  policy  in  suit  with  him,  or  afterwards 
applied  to  said  agent  for  written  consent  to  the  other  insurance,  it  was  held 
that  knowledge  of  the  agent  of  the  subseciuent  insurance  did  not  satisfy  the 
condition  of  the  policy,  and  that  plaintiff"  having  failed  to  comply  therewith, 
the  policy  was  forfeited  and  void,  and  also  held  that  the  statements  of  de- 
fendant's agent  did  not  amount  to  a  waiver  of  the  conditions  or  authorize 
the  application  of  the  doctrine  of  estoppel.  It  was  said  in  the  opinion:  "The 
stipulation  with  respect  to  further  insurance  is  one  of  the  conditions  upon 
which,  by  the  agreement  of  the  parties,  the  liability  of  the  defendant  depend- 
ed in  case  of  a  loss  during  the  term  of  the  insurance.  The  parties  have  also 
agreed   upon   the   mode   in    which   the   condition   could   be   complied   with   or 


Sec.  3)  WAIVER    SUBSEQUENT    TO    ISSUE    OF    POLICY  503 

LIVERPOOL  &  LONDON  &  GLOBE  INS.  CO.  v.  SHEFFY. 

(Supreme  Court  of  Mississippi,  1894.     71  Miss.  D19,  IG  South.  307.) 

Action  by  J.  K.  Sheffy  against  the  Liverpool  &  London  &  Globe 
Insurance  Company.  There  was  a  judgment  for  plaintiff,  and  defend- 
ant appeals.    Affirmed. 

Woods,  J.  Two  questions  are  presented  by  this  appeal,  viz. :  First, 
did  the  insured  forfeit  his  right  to  a  recovery  on  the  policy  sued  on 
by  reason  of  his  procurement  of  subsequent  and  additional  insurance 
without  having  the  consent  of  the  appellant  indorsed  in  writing  on  its 
prior  policy?  And,  second,  has  the  insured  forfeited  his  right  to  re- 
covery on  the  policy  issued  by  appellant  by  a  violation  of  what  is 
known  as  the  "iron-safe  clause,"  contained  in  the  contract  of  insur- 
ance? ^*  We  shall  not  enter  upon  any  discussion  of  the  disputed  facts. 
The  jury  has  found  these  issues  for  the  appellee,  and  we  are  satisfied 
with  that  finding.  The  fact  that  the  subsequent  insurance  in  the 
Orient  Company  was  brought  to  the  attention  of  the  appellant's  agent, 
with  whom  alone  the  insured  dealt  at  all  times,  and  the  other  fact 
that  request  was  made  of  this  agent  that  he  indorse  the  appellant's 
consent  to  this  additional  insurance  in  writing  on  the  policy  sued  on, 
and  the  still  further  fact  that  the  agent  told  the  insured  that  such  in- 
dorsement in  writing  was  unnecessary,  and  that  in  case  of  loss  the  ap- 
pellant company  would  pay  wathout  regard  to  such  a  technicality,  we 
now  assume  to  be  true. 

L  The  naked  inquiry,  then,  is,  could  the  agent  of  the  insurer  waive 
the  condition  of  the  contract  requiring  consent  for  additional  insur- 
ance to  be  made  in  writing  indorsed  on  the  policy  ?  Or,  to  put  it  oth- 
erwise, is  the  insurer  estopped  from  claiming  a  forfeiture  by  the  acts 
and  conduct  of  its  agent?  We  do  not  understand  that  there  is  any 
disagreement  between  counsel  as  to  the  character  of  the  agency  in  this 
case.  Clearly,  Roberts,  Davis  &  Co.  were  general  a/ents.  They  repre- 
sented and  stood  for  the  company.  They  received  applications,  they 
issued  policies,  they  collected  premiums,  they  received  notice  of  other 
insurance,  and  gave  consent  thereto,  and  in  general  they  did  for  the 

waived,  namely,  by  writing  indorsed  upon  tlie  policy  in  the  form  of  a  con- 
sent to  the  other  insurance.  The  agent  had  power  to  give  this  consent  only 
in  the  manner  prescribed  by  the  contract.  But  there  is  not  in  the  case  any 
proof,  even  of  verbal  consent  by  the  agent  that  the  plaintiff  might  procure 
further  and  additional  insurance.  *  *  *  The  effect  of  such  stipulations  in 
a  contract  of  insurance,  as  well  as  the  manner  in  which  they  may  be  modi- 
fied or  waived  by  agents  of  the  comjiany,  have  been  so  thoroughly  discussed 
and  so  clearly  pointed  out  that  a  reference  to  some  of  the  more  recent  cases 
on  the  subject  is  all  that  is  needful  here.  Allen  v.  German  American  Ins. 
Co.,  123  N.Y.  6.  2.5  N.  E.  309  (1890);  Quinlan  v.  Providence  Washington  Ins. 
Co..  133  N.  Y.  356,  31  N.  E.  31,  28  Am.  St.  Rep.  645  (1892)  ;  Messelback  v. 
Norman,  122  N.  Y.  583,  26  N.  E.  34  (1890) ;  Walsh  v.  Hartford  F.  Ins.  Co.,  73 
N.   Y.   5   (1878)." 

14  That  portion  of  the  opinion  which  holds  that  there  was  in  fact  no  breach 
of  warranty  in  respect  to  the  "iron-safe  clause"  has  been  omitted. 


504  WAIVER    AND    ESTOPPEL  (Ch.  8 

company  whatever  it  could  do  in  the  matter  of  making  and  continuing 
contracts  for  insurance.  The  company,  being  an  artificial  creature, 
could  only  act  through  human  agencies,  and  what  these  general  agents 
did  in  this  case,  as  indicated  above,  the  company  itself  may  be  said 
to  have  done.  The  power  to  make  the  contract  of  insurance  by  the 
general  agent  necessarily  involves  the  power  al.^o  to  modify  or  vary 
the  same  by  subsequent  contract.  The  clause  in  the  contract  which  re- 
quires written  consent  for  additional  insurance  to  be  indorsed  upon 
the  policy  is  no  more  unchangeable  at  the  pleasure  of  the  parties  than 
any  other  provision  or  condition  of  the  contract.  The  contract  of  the 
insurance  evidenced  by  the  policy  is  no  more  sacred  than  any  other 
contract,  and  we  have  yet  to  learn  that  ordinary  contracts  between 
men  may  not  be  altered,  varied,  or  wholly  abrogated  at  the  election  of 
the  parties  to  them.  The  condition  of  the  policy  requiring  consent 
in  writing  for  additional  insurance  is  inserted  for  the  benefit  of  the 
insurer,  and  we  are  at  a  loss  to  conjecture  any  reason  for  holding  that 
the  insurer  may  not  waive  it  at  his  pleasure.  It  is  a  mere  method  or 
manner  of  evidencing  the  insurer's  consent,  and  it  is  impossible  to 
conceive  why  the  insurer  may  not  waive  this  mere  manner  of  con- 
senting, and  substitute  another.  Is  it  because  of  some  supposed  su- 
perior dignity  of  the  written  over  parol  ?  The  supposition  is  vain  and 
idle.  The  parol  contract  may  modify  or  put  an  end  to  the  written 
contract,  just  as  the  written  may  m6dify  or  end  the  parol.  Every  new 
contract,  whether  written  or  parol,  supersedes  the  old,  whether  in 
parol  or  writing,  according  to  the  will  and  purpose  of  the  parties. 

From  what  we  have  already  said  touching  the  power  of  the  gen- 
eral agents  of  the  appellant  company,  it  seems  to  us  to  necessarily 
follow  that  such  agents  may  waive  the  condition  requiring  consent 
in  writing  for  additional  insurance.  This  case,  on  its  facts  as  found 
by  the  jury,  goes  far  beyond  the  most  of  the  reported  cases  in  which 
this  question  has  been  passed  upon  by  many  courts  of  last  resort  in 
accordance  with  the  views  which  we  entertain.  Here  the  insured  ac- 
tually applied  to  the  company,  or  its  general  agents  standing  for  it,  to 
have  the  proper  written  consent  indorsed,  and  was  refused  on  the  de- 
clared ground  that  it  was  unusual  and  unnecessary,  and  that  any  loss 
would  be  promptly  adjusted  without  regard  to  that  technicality.  It 
would  be  unconscionable  to  now  allow  the  company  to  assert  a  for- 
feiture for  the  doing  of  or  the  omitting  to  do  that  which  the  insured 
did  or  omitted  at  his  own  suggestion.  To  state  the  offense  thus  il- 
lumined shocks  conscience  and  offends  judgment. 

May,  in  his  work  on  Insurance,  states  the  prevailing  tendency  of 
judicial  opinion  in  these  words :  "In  many  policies  the  notice  of  in- 
surance is  required  to  be  in  writing,  and  indorsed  on  the  policy,  and  it 
has  formerly  been  frequently  held  to  be  essential  that  these  particulars 
should  be  literally  complied  with ;  *  *  *  but  the  courts  have  be- 
come more  liberal  in  favor  of  the  assured  in  their  construction  of  this 
sort  of  stipulation  in  policies  of  msurance.    While,  as  we  have  seen,  the 


Sec.  3)  WAIVER    SUBSEQUENT    TO    ISSUE    OF    POLICY  505 

old  rule  required  the  consent  to  be  given  in  writing^  and  indorsed  on 
the  policy,  it  is  the  decided  tendency  of  the  modern  cases  to  hold  that, 
if  the  notice  be  duly  given  to  the  company,  or  its  agent,  of  the  additional 
insurance,  and  no  objection  is  made,  the  company  will  be  estopped 
from  insisting  on  a  forfeiture  of  the  policy  because  their  consent  there- 
to was  not  indorsed  as  liberally  required  by  the  stipulation."  May,  Ins. 
§§  369,  370. 

Wood  on  Fire  Insurance  (volume  2,  p.  802)  has  this  language :  "It 
has  formerly  been  held  that  not  only  notice  of  other  insurance,  prior 
or  subsequent,  must  be  given,  but  also  that  it  must  be  indorsed  upon 
the  policy  when  so  provided  therein.  But  the  tendency  of  the  courts 
latterly  is  towards  a  more  liberal  construction  in  favor  of  the  assured, 
and  there  is  now  no  question  but  that  oral  notice,  and  an  oral  assent, 
or  acts  amounting  to  an  assent,  without  an  indorsement  upon  the  pol- 
icy, is  sufficient." 

Flanders  on  Fire  Insurance  states  the  rule  thus :  "Where,  however, 
the  underwriter  has  notice  of  the  additional  insurance,  and,  although 
not  formally  giving  his  consent  thereto,  yet  by  his  acts,  such  as  col- 
lecting assessments,  treats  the  policy  as  in  full  force,  it  will  be  a 
waiver  of  the  right  to  resist  a  recovery  upon  that  ground."  Fland. 
Ins.  pp.  47,  51,  56,  57. 

In  the  very  recent  and  excellent  work  of  Biddle  on  Insurance  the 
writer's  conclusion  from  an  exhaustive  examination  of  adjudged  cases 
is  thus  stated:  "Probably  any  condition  inserted  in  the  policy  for  the 
benefit  of  the  insurer  may  be  waived  by  him."    2  Bid.  Ins.  p.  1086.^'^ 

To  the  same  effect  are  the  following  authorities  selected  from  the 
many  examined:  Cobb  v.  Insurance  Co.,  11  Kan.  93;  Pitney  v.  In- 
surance Co.,  65  N.  Y.  6;  Young  v.  Insurance  Co.,  45  Iowa,  377,  24 
Am.  Rep.  784 ;  Insurance  Co.  v.  Earle,  33  Mich.  143 ;  Insurance  Co. 
v.  Lyons,  38  Tex.  254;  Hadley  v.  Insurance  Co.,  55  N.  H.  110.  The 
rule  now  announced  was  foreshadowed  and  bound  up  in  the  cases  of 
Rivara  v.  Insurance  Co.,  62  Miss.  720,  Association  v.  Matthews,  65 
Miss.  301,  4  South.  62,  and  Insurance  Co.  v.  Bowdre,  67  Miss.  620,  7 
South.  596,  19  Am.  St.  Rep.  326.     *     *     * 

Affirmed. 

15  This  power  of  waiver  is  not  ordinarily  possessed  by  agents  of  limited 
authority.  See  New  York  Life  Ins.  Co.  v.  O'Dom,  100  Miss.  219,  56  South. 
379,  Ann.  Cas.  1914A,  588  (1911). 


506  WAIVER   AND    ESTOPPEL  (Ch.  8 


SECTION  4.— ESTOPPEL 
INSURANCE  CO.  v.  WILKINSON. 

(Suprome  Court  of  the  United  States,  1871.     13  Wall.  222,  20  L.  Ed.  617.) 

In  error  to  the  Circuit  Court  for  the  District  of  Iowa ;  the  case 
being  thus : 

The  Union  Mutual  Insurance  Company,  of  Maine,  insured  the  hfe 
of  Mrs.  Malinda  Wilkinson  in  favor  of  her  husband.  Both  husband 
and  wife,  prior  to  the  rebellion,  had  been  slaves,  and  the  husband 
came  to  Keokuk,  Iowa,  from  Missouri.  The  company  did  business 
in  Keokuk  (where  the  application  was  made  and  the  policy  delivered), 
through  an  agent,  one  Ball,  to  whom  it  furnished  blank  applications. 
The  mode  of  doing  business  appeared  to  have  been  that  the  agent  pro- 
pounded certain  printed  questions,  such  as  are  usual  on  applications 
for  insurance  on  lives,  contained  in  a  form  of  application,  and  took 
down  the  answers ;  and  when  the  application  was  signed  by  the  ap- 
plicant, the  friend  and  physician  forwarded  it  to  the  company,  and  if 
accepted,  the  policy  was  returned  to  this  agent,  who  delivered  it  and 
collected  and  transmitted  the  premiums. 

On  this  form  of  application  were  the  usual  questions  to  be  answered 
by  the  person  proposing  to  effect  the  assurance ;  and  by  the  terms  of 
the  policy  it  became  void  if  any  of  the  representations  made  proved  to 
be  untrue. 

Among  the  questions  was  this  one :  "Has  the  party  ever  had  any 
serious  illness,  local  disease,  or  personal  injury;  if  so,  of  what  nature, 
and  at  what  age?"    And  the  question  was  answered :   "No." 

So,  too,  after  an  interrogatory  as  to  whether  the  parents  were  alive 
or  dead, — they  being,  in  the  case  of  Mrs.  Wilkinson,  both  dead, — were 
the  questions  and  answers:  "Question.  Mother's  age,  at  her  death? 
Answer.  40.     Question.  Cause  of  her  death?     Answer.  Fever." 

Mrs.  Wilkinson  having  died,  and  the  company  refusing  to  pay  the 
sum  insured,  Wilkinson,  the  husband,  brought  suit  in  the  court  below 
to  recover  it.  The  defence  was  that  the  answers  as  above  given  to 
the  questions  put  were  false ;  that  in  regard  to  the  first  one,  Mrs. 
Wilkinson,  in  the  year  1862,  had  received  a  serious  personal  injury, 
and  that  in  regard  to  the  others,  the  mother  had  not  died  at  the  age 
of  40,  but  at  the  earlier  age  of  23,  and  had  died  not  of  fever  but  of 
consumption.^®     *     *     * 

16  That  portion  of  the  statement  of  facts  relating  to  an  injury  received 
by  the  insured  by  a  fall  from  a  tree  in  childhood,  and  that  part  of  the 
opinion  which  holds  that,  if  the  injury  resulting  from  such  fall  was  tempo- 
rary only,  it  was  not  "serious"  within  the  terms  of  the  policy,  so  as  to  re- 
sult in  an  avoidance  of  the  same,  is  omitted.  Involving  the  same  facts  is 
the  case  of  Wilkinson  v.  Conn.  Mut.  Life  Ins.  Co.,  30  Iowa,  119,  6  Am.  Rep. 


Sec.  4)  ESTOPPEL  507 

As  to  the  other  matter,  the  age  at  which  the  mother  died  and  the 
disease  which  caused  her  death,  evidence  having  been  given  by  the 
defendant  tending  to  show  that  she  died  at  a  much  younger  age  than 
forty  years,  and  of  consumption,  the  plaintiff,  in  avoidance  of  this, 
was  permitted  (under  the  plaintiff's  objection  and  exception)  to  prove 
that  the  agent  of  the  insurance  company,  who  took  down  the  answers 
of  the  applicant  and  his  wife  to  all  the  interrogatories,  was  told  by 
both  of  them  that  they  knew  nothing  about  the  cause  of  the  mother's 
death,  or  of  her  age  at  the  time ;  that  the  wife  was  too  young  to  know 
or  remember  anything  about  it,  and  that  the  husband  had  never  known 
her ;  and  to  prove  that,  there  was  present  at  the  time  the  agent  was 
taking  the  application,  an  old  woman,  who  said  that  she  had  knowl- 
edge on  that  subject,  and  that  the  agent  questioned  her  for  himself, 
and  from  what  she  told  him  he  filled  in  the  answer  which  was  now 
alleged  to  be  untrue,  without  its  truth  being  affirmed  or  assented  to  by 
the  plaintiff  or  the  wife. 

This  the  jury  found  in  their  special  verdict,  as  they  had  the  other 
facts,  and  found  that  the  mother  died  at  the  age  of  23 ;  did  not  die 
of  consumption ;  and  that  the  applicant  did  not  know  when  the  ap- 
plication was  signed  how  the  answer  to  the  question  about  the  mother's 
age  and  the  cause  of  her  death  had  been  filled  in.     *     *     * 

On  the  second  branch — that  relating  to  the  age  of  the  mother — the 
court  said  to  the  jury,  that  if  the  applicant  did  not  know  at  what  age 
her  mother  died,  and  did  not  state  it,  and  declined  to  state  it,  and  that 
her  age  was  inserted  by  the  agent  upon  statements  made  to  him  by 
others  in  answer  to  inquiries  he  made  of  them,  and  upon  the  strength 
of  his  own  judgment,  based  upon  data  thus  obtained,  it  was  no  defence 
to  the  action  to  show  that  the  agent  was  mistaken,  and  that  the  mother 
died  at  the  age  of  23  years. 

Verdict  and  judgment  having  gone  for  the  plaintiff,  the  insurance 
company  brought  the  case  here  on  error. 

Mr.  Justice  INIillER  delivered  the  opinion  of  the  court.  *  *  * 
Passing  then  to  the  second  branch  of  the  case.  The  defendant  ex- 
cepted to  the  introduction  of  the  oral  testimony  regarding  the  action 
of  the  agent,  and  to  the  instructions  of  the  court  on  that  subject;  and 
assigns  the  ruling  of  the  court  as  error  on  the  ground  that  it  permitted 
the  written  contract  to  be  contradicted  and  varied  by  parol  testimony. 

The  great  value  of  the  rule  of  evidence  here  invoked  cannot  be 
easily  overestimated.  As  a  means  of  protecting  those  who  are  honest, 
accurate,  and  prudent  in  making  their  contracts,  against  fraud  and 
false  swearing,  against  carelessness  and  inaccuracy,  by  furnishing  evi- 
dence of  what  was  intended  by  the  parties,  which  can  always  be  pro- 
duced without  fear  of  change  or  liability  to  misconstruction,  the  rule 
merits  the  eulogies  it  has  received.  But  experience  has  shown  that 
in  reference  to  these  very  matters  the  rule  is  not  perfect.    The  written 

657  (1870),  where  a  similar  conclusion  is  reached  with   reference  to  a  war- 
ranty against  "any  accidental  or  serious  injury." 


508  WATVKR    AND    ESTOPPEL  (Ch.  8 

instrument  does  not  always  represent  the  intention  of  1)r)th  parties, 
and  sometimes  it  fails  to  do  so  as  to  either ;  and  where  this  has  been 
the  result  of  accident,  or  mistake,  or  fraud,  the  principle  has  been 
long  recognized  that  under  proper  circumstances,  and  in  an  appropri- 
ate proceeding,  the  instrument  may  be  set  aside  or  reformed,  as  best 
suits  the  purposes  of  justice.  A  rule  of  evidence  adopted  by  the 
courts  as  a  protection  against  fraud  and  false  swearing,  would,  as 
was  said  in  regard  to  the  analogous  rule  known  as  the  statute  of 
frauds,  become  the  instrument  of  the  very  fraud  it  was  intended  to 
prevent,  if  there  did  not  exist  some  authority  to  correct  the  universality 
of  its  application.  It  is  upon  this  principle  that  courts  of  equity  pro- 
ceed in  giving  the  relief  just  indicated;  and  though  the  courts,  in  a 
common  law  action,  may  be  more  circumscribed  in  the  freedom  with 
which  they  inquire  into  the  origin  of  written  agreements,  such  as  in- 
quiry is  not  always  forbidden  by  the  mere  fact  that  the  party's  name 
has  been  signed  to  the  writing  offered  in  evidence  against  him. 

In  the  case  before  us  a  paper  is  offered  in  evidence  against  the 
plaintiff  containing  a  representation  concerning  a  matter  material  to 
the  contract  on  which  the  suit  is  brought,  and  it  is  not  denied  that  he 
signed  the  instrument,  and  that  the  representation  is  untrue.  But  the 
parol  testimony  makes  it  clear  beyond  a  question,  that  this  party  did 
not  intend  to  make  that  representation  when  he  signed  the  paper,  and 
did  not  know  he  was  doing  so,  and,  in  fact,  had  refused  to  make  any 
statement  on  that  subject.  If  the  writing  containing  this  representa- 
tion had  been*  prepared  and  signed  by  the  plaintiff  in  his  application 
for  a  policy  of  insurance  on  the  life  of  his  wife,  and  if  the  representa- 
tion complained  of  had  been  inserted  by  himself,  or  by  some  one  who 
was  his  agent  alone  in  the  matter,  and  forwarded  to  the  principal  office 
of  the  defendant  corporation,  and  acted  upon  as  true,  by  the  officers 
of  the  company,  it  is  easy  to  see  that  justice  would  authorize  them  to 
hold  him  to  the  truth  of  the  statement,  and  that  as  they  had  no  part 
in  the  mistake  which  he  made,  or  in  the  making  of  the  instrument 
which  did  not  truly  represent  what  he  intended,  he  should  not,  after 
the  event,  be  permitted  to  show  his  own  mistake  or  carelessness  to 
the  prejudice  of  the  corporation. 

If,  however,  we  suppose  the  party  making  the  insurance  to  have 
been  an  individual,  and  to  have  been  present  when  the  application  was 
signed,  and  soliciting  the  assured  to  make  the  contract  of  insurance, 
and  that  the  insurer  himself  wrote  out  all  these  representations,  and 
was  told  by  the  plaintiff  and  his  wife  that  they  knew  nothing  at  all 
of  this  particular  subject  of  inquiry,  and  that  they  refused  to  make 
any  statement  about  it,  and  yet  knowing  all  this,  wrote  the  representa- 
tion to  suit  himself,  it  is  equally  clear  that  for  the  insurer  to  insist 
that  the  policy  is  void  because  it  contains  this  statement,  would  be  an 
act  of  bad  faith  and  of  the  grossest  injustice  and  dishonesty.  And 
the  reason  for  this  is  that  the  representation  was  not  the  statement 
of  the  plaintiff,  and  that  the  defendant  knew  it  was  not  when  he  made 


Sec.  4)  ESTOPrEL  509 

the  contract;  and  that  it  was  made  by  the  defendant,  who  procured 
the  plaintiff's  signature  thereto. 

It  is  in  precisely  such  cases  as  this  that  courts  of  law  in  modern 
times  have  introduced  the  doctrine  of  equitable  esto])pels,  or,  as  it  is 
sometimes  called,  estoppels  in  pais.  The  principle  is  that  where  one 
party  has  by  his  representations  or  his  conduct  induced  the  other  parly 
to  a  transaction  to  give  him  an  advantage  which  it  would  be  against 
equity  and  good  conscience  for  him  to  assert,  he  would  not  in  a  court 
of  justice  be  permitted  to  avail  himself  of  that  advantage.  And  al- 
though the  cases  to  which  this  principle  is  to  be  applied  are  not  as 
well  defined  as  could  be  wished,  the  general  doctrine  is  well  understood 
and  is  applied  by  courts  of  law  as  well  as  equity  where  the  technical 
advantage  thus  obtained  is  set  up  and  relied  on  to  defeat  the  ends  of 
justice  or  establish  a  dishonest  claim.  It  has  been  applied  to  the  pre- 
cise class  of  cases  of  the  one  before  us  in  numerous  well-considered 
judgments  by  the  courts  of  this  country.  Indeed,  the  doctrine  is  so 
well  understood  and  so  often  enforced  that,  if  in  the  transaction  we 
are  now  considering,  Ball,  the  insurance  agent,  who  made  out  the  ap- 
plication, had  been  in  fact  the  underwriter  of  the  policy,  no  one  would 
doubt  its  applicability  to  the  present  case.  Yet  the  proposition  admits 
of  as  little  doubt  that  if  Ball  was  the  agent  of  the  insurance  company, 
and  not  of  the  plaintiff,  in  what  he  did  in  filling  up  the  application, 
the  company  must  be  held  to  stand  just  as  he  would  if  he  were  the 
principal. 

Although  the  very  well-considered  brief  of  counsel  for  plaintiff  in 
error  takes  no  issue  on  this  point,  it  is  obvious  that  the  soundness  of 
the  court's  instructions  must  be  tested  mainly  by  the  answer  to  be 
given  to  the  question,  "Whose  agent  was  Ball  in  filling  up  the  ap- 
plication?" 

This  question  has  been  decided  differently  by  courts  of  the  highest 
respectability  in  cases  precisely  analogous  to  the  present.  It  is  not 
to  be  denied  that  the  application,  logically  considered,  is  the  work  of 
the  assured,  and  if  left  to  himself  or  to  such  assistance  as  he  might 
select,  the  person  so  selected  would  be  his  agent,  and  he  alone  would  be 
responsible.  On  the  other  hand,  it  is  well  known,  so  well  that  no  court 
would  be  justified  in  shutting  its  eyes  to  it,  that  insurance  companies 
organized  under  the  laws  of  one  State,  and  having  in  that  State  their 
principal  business  office,  send  these  agents  all  over  the  land,  with 
directions  to  solicit  and  procure  applications  for  policies,  furnishing 
them  with  printed  arguments  in  favor  of  the  value  and  necessity  of  life 
insurance,  and  of  the  special  advantages  of  the  corporation  which 
the  agent  represents.  They  pay  these  agents  large  commissions  on 
the  premiums  thus  obtained,  and  the  policies  are  delivered  at  their 
hands  to  the  assured.  The  agents  are  stimulated  by  letters  and  instruc- 
tions to  activity  in  procuring  contracts,  and  the  party  who  is  in  this 
manner  induced  to  take  out  a  policy,  rarely  sees  or  knows  anything 
about  the  company  or  its  officers  by  whom  it  is  issued,  but  looks  to 


510  WAIVER    AND    ESTOrPEL  (Cll.  S 

and  relics  upon  the  aj^^cnt  who  has  persuaded  him  to  effect  insurance 
as  the  full  and  complete  representative  of  the  company,  in  all  that  is 
said  or  done  in  making  the  contract.^ ^  Has  he  not  a  right  to  so  re- 
gard him?  It  is  quite  true  that  the  reports  of  judicial  decisions  are 
filled  with  the  efiforts  of  these  companies,  by  their  counsel,  to  establish 
the  doctrine  that  they  can  do  all  this  and  yet  limit  their  res])onsibility 
for  the  acts  of  these  agents  to  the  simple  receipt  of  the  premium  and 
4elivery  of  the  policy,  the  argument  being  that,  as  to  all  other  acts  of 
the  agent,  he  is  the  agent  of  the  assured.  This  proposition  is  not 
without  support  in  some  of  the  earlier  decisions  on  the  subject;  and, 
at  a  time  when  insurance  companies  waited  for  parties  to  come  to 
them  to  seek  assurance,  or  to  forward  applications  on  their  own  mo- 
tion, the  doctrine  had  a  reasonable  foundation  to  rest  u]:)on.  But  to 
apply  such  a  doctrine,  in  its  full  force  to  the  system  of  selling  policies 
through  agents,  which  we  have  described,  would  be  a  snare  and  a 
delusion,  leading,  as  it  has  done  in  numerous  instances,  to  the  grossest 
frauds,  of  which  the  insurance  corporations  receive  the  benefits,  and 
the  parties  supposing  themselves  insured  are  the  victims.  The  tenden- 
cy of  the  modern  decisions  in  this  country  is  steadily  in  the  opposite 
direction.  The  powers  of  the  agent  are,  ])rima  facie  coextensive  with 
the  business  intrusted  to  his  care,  and  will  not  be  narrowed  by  limita- 
tions not  communicated  to  the  person  with  whom  he  deals.  An 
insurance  company,  establishing  a  local  agency,  must  be  held  re- 
sponsible to  the  parties  with  whom  they  transact  business  for  the 
acts  and  declarations  of  the  agent,  within  the  scope  of  his  employ- 
ment, as  if  they  proceeded  from  the  principal. 

In  the  fifth  edition  of  American  Leading  Cases,  after  a  full  con- 
sideration of  the  authorities,  it  is  said:  "By  the  interested  or  officious 
zeal  of  the  agents  employed  by  the  insurance  companies  in  the  wish 
to  outbid  each  other  and  procure  customers,  they  not  unfrequently 
mislead  the  insured,  by  a  false  or  erroneous  statement,  of  what  the 
application  should  contain,  or,  taking  the  preparation  of  it  into  their 
own  hands,  procure  his  signature  by  an  assurance  that  it  is  properly 
drawn,  and  will  meet  the  requirements  of  the  policy.  The  better 
opinion  seems  to  be  that,  when  this  course  is  pursued,  the  description 
of  the  risk  should,  though  nominally  proceeding  from  the  insured, 
be  regarded  as  the  act  of  the  insurers." 

The  modern  decisions  fully  sustain  this  proposition,  and  they  seem 
to  us  founded  in  reason  and  justice,  and  meet  our  entire  approval. 
This  principle  does  not  admit  oral  testimony  to  vary  or  contradict  that 
which  is  in  writing,  but  it  goes  upon  the  idea  that  the  writing  offered 
in  evidence  was  not  the  instrument  of  the  party  whose  name  is  signed 

17  The  coiu'ts  have  frequently  referred  to  the  peculiar  conditions  under 
which  in.surance  contracts  are  made  as  a  justification  for  relaxing  the  parol 
evidence  rule.  See  People's  Fire  Ins.  Ass'n  v.  Goyne,  79  Ark.  315,  96  S.  W. 
365,  16  L.  R.  A.  (N.  S.)  IISO,  9  Ann.  Cas.  373  (1906):  Chismore  v.  Anchor 
Fire  Ins.  Co.,  131  Iowa,  180,  108  N.  W.  230  (1906). 


Sec.  4)  ESTOPPEL  511 

to  it;  that  it  was  procured  under  such  circumstances  by  the  other 
side  as  estops  that  side  from  using  it  or  relying  on  its  contents ;  not 
that  it  may  be  contradicted  by  oral  testimony,  but  that  it  may  be  shown 
by  such  testimony  that  it  cannot  be  lawfully  used  against  the  party 
whose  name  is  signed  to  it. 
Judgment  affirmed/^ 


VAN  SCHOICK  V.  NIAGARA  FIRE  INS.  CO. 

(Court  of  Appeals  of  New  York,  1877.     68  N.  Y.  434.) 

FoLGKR,  J.  This  was  an  action  upon  a  policy  of  fire  insurance. 
It  contained  this  condition:  ''Any  interest  in  property  insured  not 
absolute,  or  that  is  less  than  a  perfect  title,  or  if  a  building  is  insured 
that  is  on  leased  ground,  the  same  must  be  specifically  represented  to 
the  company,  and  expressed  in  this  policy  in  writing,  otherwise  the 
insurance  shall  be  void."  The  fact  is,  that  part  of  the  property  de- 
scribed in  the  policy,  as  subject  of  the  insurance,  was  a  building  on 
leased  ground.  That  fact  was  not  expressed  in  writing  in  the  policy. 
The  defendant  claims  that  thereby  the  insurance  was  void,  and  puts 
itself  thereon  as  a  defense  to  the  action.  It  is  to  be  observed  of  this 
condition  that  it  is  not  one  of  those  which  are  subsequent  to  the 
formation  of  the  contract;  a  breach  of  which  may  occur  after  there 
has  been  a  valid  contract  made  and  entered  into,  and  continued  in 
existence  for  a  part  of  its  prescribed  term.  It  is  a  condition  precedent, 
lying  at  the  threshold  of  the  making  of  the  contract,  and  which  if  not 
then  performed,  or  not  then  obviated,  prevents  the  formation  of  an 
enforceable  contract.     It  is  obvious  that  this  building  being  on  leased 

18  The  principal  case  is  affirmed  and  followed  in  Insurance  Co.  v.  Malione, 
21  Wall.  (U.  S.)  152.  22  L.  Ed.  593  (1874).  It  is  distinguished  in  New  York 
Life  Ins.  Co.  v.  Fletcher.  117  U.  S.  519.  6  Sup.  Ct.  837,  29  L.  Ed.  934  (1886), 
as  follows:  "The  present  case  is  verj^  different  from  Union  Mut.  L.  Ins. 
Co.  V.  Wilkinson,  13  Wall.  222,  20  L.  Ed.  617  (1871),  and  from  American 
Ins.  Co.  V.  Mahoue,  21  Wall.  152,  22  L.  Ed.  593  (1874).  In  neither  of  these 
cases  was  any  limitation  upon  the  power  of  the  agent  brought  to  the  notice 
of  the  assured.  Reference  was  made  to  the  interested  and  officious  zeal  of 
insurance  agents  to  procure  contracts,  and  to  the  fact  that  parties  who  were 
induced  to  take  out  policies  rarely  knew  anything  concerning  the  company 
or  its  officers,  but  relied  upon  the  agent  who  had  persuaded  them  to  effect 
in.surance,  'as  the  full  and  complete  rep I'esenta five  of  the  company  in  all 
that  is  said  or  done  in  making  the  contract,'  and  the  court  held  that  the 
powers  of  the  agent  are  prima  facie  coextensive  with  tlie  business  intrusted 
to  his  care,  and  would  not  be  narrowed  by  limitations  not  communicated  to 
the  person  with  whom  he  dealt.  Whei'e  svich  agents,  not  limited  in  their  au- 
thority, undertake  to  prepare  applications  and  take  down  answers,  they  will 
be  deemed  as  acting  for  the  companies.  In  such  cases  it  may  well  be  held 
that  the  description  of  the  risk,  though  nominally  proceeding  from  the  as- 
sured, should  be  regarded  as  the  act  of  the  company.  Nothing  in  these  views 
has  any  bearing  upon  the  present  case.  Here  the  power  of  the  agent  was 
limited,  and  notice  of  such  limitation  given  by  being  embodied  in  the  applica- 
tion, which  the  assured  was  required  to  make  and  sign,  and  which,  as  we 
have  stated,  he  must  be  presumed  to  have  read.  He  is,  therefore,  bound  by 
its  statements." 


512  WAIVER    AND    ESTOrPEL  (Ch.  S 

ground,  the  very  moment  that  the  policy  passed  from  the  defendant  to 
the  plaintiff,  the  insurance  on  it  was  void,  if  the  condition  holds.  They 
were  concurrent  acts,  the  delivery  of  the  contract,  and  a  breach  of 
this  condition ;  so  that  at  the  same  instant  that  the  defendant  said  we 
insure  this  building,  at  the  same  instant  the  condition  was  broken  and 
the  insurance  was  void.  So  that  if  nothing  is  shown  to  break  the  rigid 
effect  of  this  condition,  there  never  was  any  insurance  by  this  defend- 
ant upon  that  building. 

We  would  scarce  expect  two  parties  to  go  through  so  senseless  and 
trifling  an  act,  if  the  facts  were  known  to  each  at  the  time ;  but  would 
rather  conclude  that  they  had  by  words  or  act  agreed  that  the  condition 
should  not  be  considered  as  binding.  "If  these  defendants  were  an 
entity,  and  could  have  stood  near  to  that  building,  when  the  oral 
negotiation  for  insurance  was  made  and  completed,  and  have  seen"  and 
known  that  it  was  upon  leased  ground ;  "could  it  fairly  be  contended 
that  they  would  have  offered  to  the  plaintiff,  or  that  he  would  know- 
ingly have  received,  as  the  correctly  written  evidence  of  the  contract, 
this  policy,  with  the  condition  in  question,  contained  in  it  as  an  oper- 
ative and  binding  clause?  We  cannot  suppose  that  either  plaintiff  or 
defendant  would  do  the  utterly  absurd  thing  of  making,  with  delib- 
eration and  knowledge,  a  contract  that  was  void  from  inception,  and 
was  in  contradiction  of  the  facts  and  statements  of  the  negotiation." 
It  is  plain  that  the  plaintiff  and  the  agent  meant  to  contract  and-  did 
contract  for  the  insurance  of  that  building,  as  a  building  on  leased  land. 
Cone  V.  Niagara  Falls  Fire  Ins.  Co.,  60  N.  Y.  619.  Hence  we  are 
not  surprised  that  the  plaintiff  claims  that  the  fact  that  the  building 
was  on  leased  ground,  was  made  known  to  the  defendant  when  the 
policy  was  applied  for:  and  that  the  policy  was  delivered  and  the  pre- 
miums accepted  by  them,  without  insisting  upon  the  fact  and  the 
condition.  He  makes  that  action  of  the  company,  with  that  knowledge, 
his  reply  to  their  defense,  based  on  that  condition  and  its  breach. 

We  must  first  inquire,  whether  the  plaintiff  is  right  as  to  the  fact 
of  the  prior  knowledge  of  the  defendant  that  the  building  was  upon 
leased  ground.  It  is  shown  that  at  a  time  previous  to  the  issuing  of 
this  policy,  the  facts  in  relation  to  the  title  of  the  property,  just  as  they 
were  (that  the  land  was  owned  by  one  person,  and  the  building  by  an- 
other, and  the  contract  between  them),  were  told  to  one  Lewis,  an 
insurance  agent.  This  Lewis,  when  the  policy  in  suit  was  issued, 
having  this  information,  and  with  a  view  to  this  insurance,  asked  if 
there  was  any  change  in  the  property,  and  was  told  that  there  was 
not.  So  that  at  the  time  of  the  issuing  of  this  policy,  Lewis  was  in- 
formed of  the  fact,  that  this  building  was  within  the  scope  of  this 
condition.  It  is  now  to  learn,  if  Lewis  was  the  agent  or  substantially 
so  of  the  defendant.  It  is  shown  that  one  Doolittle  was  the  commis- 
sioned and  ostensible  agent  of  the  defendant,  but  that  Lewis  and  he 
were  in  partnership  in  the  business  of  soliciting  and  procuring  insur- 
ance ;  that  Lewis  did  with  assent  of  Doolittle  so  act  as  to  this  defend- 


Sec.  4)  ESTOPPEL  513 

ant,  that  such  action  was  known  to  defendant  and  not  disapproved  of 
by  it ;  that  a  joint  commission  had  for  some  time  been  promised  by 
the  defendant  to  those  two  as  its  agents,  which  was  delayed,  but  finally 
issued  before  the  delivery  of  this  policy.  Bodine  v.  Exchange  Fire 
Ins.  Co.,  51  N.  Y.  117,  'lO  Am.  Rep.  566.  We  think  that  the  facts 
bring  the  case  within  that  decision.  So  that,  as  the  information  of 
the  agent  is  the  information  of  his  principal,  the  defendant  when  it 
accepted  this  risk,  had  information  that  this  building  stood  upon  leased 
ground.  Besides  that,  in  stating  these  facts,  as  they  appeared  to  him, 
on  the  motion  of  the  defendant  that  the  court  direct  a  verdict  for  it,  the 
learned  judge  who  held  the  Circuit  assumed  or  found  that  Lewis  had 
the  relations  of  an  agent  to  the  defendant.  No  objection  was  made  by 
the  defendant  to  this,  nor  any  request  to  go  to  the  jury  upon  it  as  a 
question  of  fact.  So  it  must  be  taken  as  a  conceded  fact  in  the  case. 
Tallman  v.  Atlantic  Ins.  Co.,     42  N.  Y.  87. 

And  so  again  comes  up  the  oft-recurring  and  still  vexed  question 
between  insurance  companies  and  their  policy-holders,  whether  a  fact, 
thoroughly  well  known  and  comprehended  by  both  sides  to  the  con- 
tract before  it  is  delivered,  may,  by  force  of  some  condition,  crouched 
unseen  in  the  jungle  of  printed  matter  with  which  a  modern  policy  is 
overgrown,  make  a  defense  for  the  company,  after  the  catastrophe 
and  damage  has  happened  against  which  it  professes  to  guard.  It  is 
to  be  confessed  that  the  decisions  of  this  State  do  not,  upon  a  cursory 
perusal  at  least,  seem  strictly  in  harmony,  in  regard  to  it.  There  are 
cases  which  hold  that  where  an  application  is  made  a  part  of  the 
policy  by  the  terms  of  it,  and  some  false  assertion  has  been  inserted 
in  the  application  by  the  agent,  when  the  truth  has  been  at  the  same 
time  well  known  to  him,  that  the  insured  shall  not  be  prejudiced  there- 
by. Rowley  v.  Empire  Ins.  Co.,  42  N.  Y.  557 ;  Plumb  v.  Catt.  County 
Mut.  Ins.  Co.,  18  N.  Y.  392,  72  Am.  Dec.  526;  Ames  v.  N.  Y.  Ins. 
Co.,  14  N.  Y.  253.  There  are  others,  where  the  fact  fell  within  the 
condemnation  of  some  condition  of  the  policy ;  yet  as  the  fact  as  it 
existed  was  known  to  the  company,  it  was  held  to  be  estopped  from 
setting  up  the  condition  against  a  recovery.  14  N.  Y.,  supra;  Bidwell 
V.  N.  W.  Ins.  Co.,  24  N.  Y.  302 ;  Bodine  v.  Exchange  Ins.  Co.,  51  N.  Y. 
117,  10  Am.  Rep.  566.  There  are  others,  in  which  there  was  a  suit 
in  equity,  seeking  a  reformation  of  the  contract,  and  it  was  held  that 
the  facts  showed  unmistakably  that  the  parties  never  meant  to  enter 
into  a  contract  with  such  a  condition  or  description  in  it  as  was  set 
up  against  a  recovery.  Cone  v.  Niagara  Falls  Fire  Ins.  Co.,  60  N.  Y. 
619;  Maher  v.  Hibernia  Ins.  Co.,  67  id.  283.  In  the  latter  case, 
the  facts  made  a  clear  estoppel  en  pais  against  the  company.  It  has 
also  been  held  that  a  warranty,  part  of  the  printed  matter  of  the 
policy,  has  been  dispensed  with  by  the  oral  agreement  of  the  parties 
made  before  the  delivery  of  the  policy.  McCall  v.  Sun  Mut.  Ins.  Co., 
66  N.  Y.  505.  On  the  other  hand,  in  an  action  at  law,  it  has  been 
Vance  Ins. — 33 


514  WAIVER    AND    ESTOPPEL  (Ch.  8 

held  that  where  the  terms  of  the  poHcy  are  clear  and  unambiguous, 
parol  proof  is  inadmissible  to  vary  them,  or  to  show  that  either  or 
both  parties  were  not  aware  that  they  were  exchanginc^  a  contract  such 
as  was  requested,  and  as  agreed  with  the  facts  in  the  situation  of  the 
property.  Pindar  v.  Resolute  Fire  Ins.  Co.,  47  N.  Y.  114.  See,  also, 
Rohrbach  v.  Germania  Ins.  Co.,  62  N.  Y.  47,  20  Am.  Rep.  451.  And 
so  it  has  been  held  that  parol  proof  is  not  admissible  to  show  that 
both  parties  knew  that  a  statement  in  an  application  for  a  policy  was 
not  true.  Ripley  v.  /Etna  Ins.  Co.,  30  N.  Y.  136;  86  Am.  Dec.  362. 
Other  cases  bearing  upon  the  subject  might  be  cited — quantum  suff. 

There  is  no  doubt  but  that  ordinarily  considered,  this  condition  in 
the  policy  was  a  warranty  that  the  building  did  not  stand  upon  leased 
land ;  and  that  the  truth  of  that  warranty  became  a  condition  precedent 
to  any  liability  on  the  part  of  the  defendant.  Yet  there  is  no  doubt 
too  that  a  condition  in  a  policy  may  be  waived  by  the  insurer,  or,  as 
some  cases  put  it,  he  be  estopped  from  setting  it  up,  and  that  such 
result  may  be  worked  by  parol,  or  by  act  without  words.  It  has  been 
held  over  and  over,  that  the  customary  clause  in  a  policy  that  it  will 
not  be  binding  upon  the  insurer  until  the  premium  is  paid  in  fact  may 
be  waived  by  parol,  or  by  act,  and  the  policy  may  be  delivered  and 
become  a  binding  contract  upon  the  insurer  without  payment  in  hand 
of  the  premium.  Trustees  v.  Brooklyn  F.  Ins.  Co.,  19  N.  Y.  305  ; 
Sheldon  v.  Atlantic  F.  Ins.  Co.,  26  N.  Y.  460,  84  Am.  Dec.  213 ;  Wood 
V.  Poughkeepsie  Ins.  Co.,  32  N.  Y.  619;  Boehen  v.  Williamsburgh 
Ins.  Co.,  35  N.  Y.  131,  90  Am.  Dec.  787;  Bodine  v.  Ins.  Co.,  supra. 
As  to  other  waivers,  see  Ludwig  v.  Jersey  City  Ins.  Co.,  48  N.  Y. 
384,  8  Am.  Rep.  556,  and  cases  there  cited;  Shearman  v.  Niagara  Fire 
Ins.  Co.,  46  N.  Y.  532,  7  Am.  Rep.  380.  Now  in  this  first  class  of 
cases,  it  has  been  thought  that  the  fact  that  the  insurer  delivered  to 
the  insured  the  written  contract,  as  the  consummated  agreement  be- 
tween them,  and  did  not  then  exact  present  payment  of  the  premium 
as  a  necessary  precedent  to  delivery,  was  too  plainly  in  contradiction 
with  the  condition  for  prepayment  for  it  to  be  supposed  that  it  was 
meant  by  the  insurer  or  supposed  by  either  party  that  it  was  intended 
to  make  that  condition  a  potent  part  of  the  contract.  Such  a  provision, 
it  is  said,  could  have  no  effect  upon  the  delivered  and  perfect  contract 
in  which  it  was  contained,  19  N.  Y.,  supra.  It  would  be  imputing  a 
fraudulent  intent  to  the  defendant  in  this  case,  to  say  or  to  think  that 
they  did  not  mean  when  they  delivered  this  policy  to  the  plaintiff,  to 
give  him  a  valid  and  binding  contract  of  insurance,  or  that  they  did 
not  mean  that  he  should  believe  that  he  had  one,  or  that  they  did  not 
suppose  that  he  did  so  believe.  And  such  imputation  can  be  avoided 
only  by  supposing  that  it  had  overlooked  this  condition,  and  so  for- 
gotten to  express  the  fact  as  to  the  building,  in  writing,  upon  the 
policy;  or  that  it  waived  the  condition,  or  held  itself  estopped  from 
setting  it  up.  The  condition  of  prepayment  of  premium  is,  like  this 
under  consideration,  one  at  the  threshold  of  the  making  of  the  con- 


Sec.  4)  ESTOPPEL  515 

tract,  and  if  it  is  not  observed,  no  valid  contract  is  made  unless  it  is 
stepped  over  or  thrust  aside.  It  is  consistent  with  fair  dealing  and 
a  freedom  from  fraudulent  purpose,  to  hold  that  one  or  the  other  was 
done ;  that  is,  that  there  was  waiver,  or  is  estoppel. 

There  are  other  conditions  precedent  which  may  be  waived.  Thus 
in  Myers  v.  Life  Ins.  Co.,  27  Pa.  268,  67  Am.  Dec.  462,  it  is  said  that 
the  countersigning  by  the  agents  is  under  some  circumstances  not 
essential,  though  required  by  condition.  The  ground  there  stated  is, 
that  on  an  equitable  interpretation  of  the  whole  contract,  it  may  be- 
come the  duty  of  the  court  to  dispense  with  a  portion  of  the  forms 
of  the  contract,  if  it  can  find  any  reliable  substitute  for  them ;  on  the 
principle  that  cures  defective  execution  of  powers,  where  the  intention 
to  execute  is  sufficiently  plain.  The  contract  was  to  be  complete  when 
delivered  by  the  agents,  and  countersigning  by  them  was  to  be  the 
appointed  evidence  of  its  proper  delivery.  There  may  be  other  evi- 
dence to  be  regarded  as  equivalent.  So  here,  it  was  not  that  the 
defendant  would  not  at  all  insure  a  building  on  leased  lands.  They  did 
agree  to  take  a  risk  upon  it.  But  to  have  it  insured  by  them,  the  fact 
of  it  being  on  leased  land  must  be  expressed  to  them.  This  was  done. 
As  evidence  that  it  was  done,  it  must  they  said  in  the  policy  afterward 
delivered,  appear  in  writing  on  the  policy.  This  is  like  countersigning 
by  agent,  but  one  of  the  forms  of  making  the  contract.  That  the 
policy  was  delivered  and  the  premium  received,  with  full  purpose  of 
insuring  that  building,  with  full  purpose  of  making  a  valid  and  obliga- 
tory contract,  is  evidence  that  through  neglect  or  forgetfulness  one 
of  the  forms  was  not  observed ;  or  that  it  was  waived  by  the  parties. 

This  case  is  to  be  distinguished  from  that  of  Pindar  v.  Resolute  Fire 
Ins.  Co.,  47  N.  Y.  114.  There  Pindar  asked  a  policy  in  a  certain 
form  of  words.  The  insurer  issued  it  to  him  in  a  different  form,  and 
in  such  form  as  would  not  cover  certain  classes  of  goods,  and  as  by  the 
presence  of  those  classes  in  the  store  rendered  the  whole  policy  void. 
It  was  not  proposed  to  show  that  the  insurer  knew  that  the  very  class 
of  goods  on  which  insurance  was  sought  was  in  the  store,  and  that  the 
policy  was  delivered  with  the  purpose  to  insure  that  class,  and  with 
the  mutual  understanding  that  by  the  policy  it  was  insured.  Hence 
that  case  differs  from  this,  and  it  was  properly  held  that  Pindar  was 
bound  by  his  contract.  In  Rohrbach's  case,  supra,  the  decision  went 
upon  the  effect  of  a  peculiar  clause  in  the  policy,  and  in  that  fact  is 
quite  different  from  this.  Chase  v.  Hamilton  Ins.  Co.,  20  N.  Y.  52, 
is  put  upon  a  ground  very  like  that  in  Rohrbach's  case;  that  it  was 
printed  in  the  application,  that  the  company  would  not  be  bound  by 
knowledge  of  the  agent,  and  that  the  company  could  not  be  held  there- 
by unless  there  was  fraud  or  prevention  of  the  application  from  mak- 
ing a  true  statement.  Ripley  v.  yEtna  Ins.  Co.,  supra,  is  to  be  distin- 
guished from  this  in  hand.  There  the  representation  or  warranty 
was  promissory.  It  was  an  agreement  by  the  applicant  that  he  would 
thereafter  keep  a  watchman  in  his  mill  of  nights.     This  looked  to  the 


516  WAIVER    AND    ESTOPPEL  (Cll.  R 

future  conduct  on  his  part.  It  was  not  a  part  of  the  form  of  the  con- 
tract. And  though  the  agent  of  the  insurer  knew  the  custom  of  the 
appHcant  had  not  been  to  keep  a  watchman  in  his  mill  from  midnight 
on  the  last  day  of  the  week  till  midnight  of  the  first  day  of  the  next 
week,  that  did  not  affect  his  promise  thereafter  to  do  differently.  It 
is  also  said  in  that  case  that  there  may  be  a  waiver  of  conditions,  but 
only  on  an  agreement  founded  on  a  valuable  consideration,  or  when 
the  act  relied  upon  as  a  waiver  is  such  as  to  estop  a  party  from  in- 
sisting on  the  condition.  In  the  case  in  hand  there  is  a  consideration 
in  the  premium  paid  which  would  not  have  been  done  with  an  under- 
standing that  the  condition  should  remain  and  be  enforced,  thus  mak- 
ing the  payment  futile.  In  the  purview  of  some  of  the  cases  there  is 
also  an  estoppel. 

It  is  difficult  to  make  all  the  cases  upon  this  subject  harmonize ;  but 
by  the  force  of  authority,  we  are  constrained  to  hold,  that  such  a  con- 
dition as  this  may  be  waived  by  the  insurer  by  express  words  to  that 
effect,  or  by  acts  done  under  such  circumstances,  as  would  otherwise 
impute  a  fraudulent  purpose,  and  as  will  estop  him  from  setting  up 
the  condition  against  the  insured. ^^     *     *     * 

We  therefore  conclude  that  the  judgment  appealed  from  should  be 
affirmed. -° 

Church,  C.  J.,  and  Andrews  and  Miller,  JJ.,  concur.  Allen, 
Rapallo,  and  Earl,  JJ.,  dissent. 

Judgment  affirmed. 


FRANKLIN  FIRE  INS.  CO.  v.  MARTIN. 

(Court  of  Errors  and  Appeals  of  New  Jersey,  1878.     40  N.  J.  Law,  ri68, 

29  Am.  Rep.  271.) 

This  action  was  brought  upon  a  policy  of  insurance,  under  seal, 
bearing  date  April  27,  1870,  issued  to  the  plaintiff  as  owner  of  the 
property  insured.  At  the  trial  before  the  Circuit,  a  verdict  was  had 
by  Martin,  the  plaintiff  below,  whereupon  this  writ  of  error  was 
sued  out  by  the  defendant.  Errors  were  assigned  upon  the  record, 
and  upon  the  proceedings  at  the  trial. 

19  For  the  same  reasons  as  discussed  in  the  principal  ease,  the  knowledge 
of  a  soliciting  or  sub  agent  is  imputed  to  the  insurer.  See  Cue  v.  Connecti- 
cut Fire  Ins.  Co.,  89  Kan.  90,  130  Pac.  66-1,  44  L.  R.  A.  (N.  S.)  1218  (1913), 
where  the  court  quotes  with  approval  from  the  opinion  of  Ladd,  .J.  in 
Gurnett  v.  Ins.  Co.,  124  Iowa,  547,  549,  100  N.  W.  542,  543  (1904),  as  follows: 
"The  law  is  charitable  enough  to  assume,  in  the  absence  of  any  showing  to 
the  contrary,  that  an  insurance  company  intends  to  execute  a  valid  contract 
in  return  for  the  premium  received ;  and  when  the  policy  contains  a  con- 
dition which  renders  it  void  at  its  inception,  and  this  result  is  known  to  the 
insurer,  it  will  be  presumed  to  have  intended  to  waive  the  condition,  and  to 
execute  a  binding  contract,  rather  than  to  have  deceived  the  insured  into 
thinking  his  iiroperty  is  insured  when  it  is  not,  and  to  have  taken  his  money 
without  consideration." 

2  0  See  "Parol  Waivers  under  the  New  York  Fire  Policy,"  12  Columbia  Law 
Rev.  134. 


Sec.  4)  ESTOPPEL  517 

The  property  insured  was  described  in  the  policy  as  "his  two-story 
and  attic  frame,  shingle-roof  building,  occupied  as  a  dwelling  and 
boarding-house,  situate  on  the  west  side  of  the  Bergen  Point  plank 
road,  in  Bayonne,  Hudson  county.  New  Jersey.  Above  building  known 
as  the  'Mansion  House.'  " 

Among  the  conditions  of  insurance  were  the  following:  "li  the 
assured  shall  cause  the  buildings,  goods,  or  other  property  to  be  de- 
scribed in  this  policy  otherwise  than  as  they  really  are,  so  that  they 
be  charged  at  a  lower  premium  than  is  herein  proposed,  this  policy 
shall  be  of  no  force;  or,  if  the  risk  shall  be  increased  by  any  means 
whatever,  within  the  control  of  the  assured,  during  the  continuance 
of  the  insurance,  and  notice  thereof  be  not  given  to  the  company,  and 
such  increased  risk  be  allowed  and  endorsed  thereon,  this  policy  shall 
be  of  no  force."     *     *     * 

Depue,  J.  "^  *  *  *  Fourth.  In  the  policy,  the  property  insured 
is  described  as  a  building  occupied  "as  a  dwelling  and  boarding-house." 
This  description  defines  the  character  of  the  risk  assumed,  and  is  a 
warranty  that  the  property,  at  the  time  of  the  insurance,  was  used 
for  that  purpose.  Dewees  v.  Manhattan  Ins.  Co.,  35  N.  Y.  Law, 
366.  In  fact,  it  was  at  that  time  occupied  as  a  dwelling  and  boarding- 
house,  and  also  as  a  country  tavern,  and  in  a  room  back  of  the  bar- 
room  there  was  kept  for  use  a  billiard-table.  The  property  continued 
to  be  so  used  until  the  fire  occurred. 

In  the  conditions  of  insurance,  it  is  stipulated  that  if  the  assured 
shall  cause  the  buildings,  goods  or  other  property  insured  to  be  de- 
scribed in  his  policy  otherwise  than  as  they  really  are,  so  that  they 
be  charged  at  a  lower  premium  than  is-  therein  proposed,  the  policy 
shall  be  of  no  force.  In  the  classification  of  risks,  drinking-houses 
and  taverns  were  classified  as  extra  hazardous,  and  subject  to  a 
higher  premium  than  hazardous  risks ;  and  billiard-rooms  were  named 
in  the  specially  hazardous  class,  subject  to  a  still  higher  premium. 
Dwelling  and  boarding-houses  were  not  mentioned  in  any  special 
classification.  The  consequence  of  a  misdescription  of  the  use  of  the 
premises  at  the  date  of  the  insurance  is  prescribed  by  the  condition 
mentioned.  It  does  not  avoid  the  policy  simply  for  a  misdescription  in 
that  respect.  To  accomplish  that  result,  the  misrepresentation  must 
have  been  operative  to  cause  the  insurance  to  be  effected  at  a  lower 
premium  than  it  would  otherwise  be  subject  to;  and  that  question 
was  properly  left  to  the  jury.  Columbian  Ins.  Co.  v.  Lawrence,  2 
Pet.  46,  7  L.  Ed.  335 ;  1  Bigelow's  Ins.  Cas.  264. 

Fifth.  The  insurance  was  obtained  through  one  Buckley,  an  agent 
of  the  company.  The  judge  received  evidence  that  he  inspected  the 
premises  at  the  time  of  taking  the  proposals  of  insurance,  and  knew 
the  manner  in  which  they  were  then  used,  and  left  the  question  to 
the  jury   whether  the  parties  themselves  did  not  knowingly  use  the 

21  Part  of  the  statement  of  facts  and  part  of  the  opinion  are  omitted. 


518  WAIVER    AND    ESTOPPEL  (Ch.  8 

term  boarding-house  to  describe  the  very  thing  that  was  insured; 
and  if  they  did,  in  that  view  the  knowledge  of  the  agent  was  material: 
tliat  if  the  agent,  acting  on  his  own  knowledge,  making  his  own  sur- 
vey, undertake  to  describe  the  building,  it  is  his  description  of  the 
risk,  and  if  the  company  accept  it,  it  agrees  that  the  term  used  shall 
describe  the  risk  as  it  existed. 

The  evidence  in  relation  to  the  agent's  knowledge  of  the  actual 
condition  of  the  property  was  competent  on  the  question  whether  the 
assured,  by  the  misdescription,  in  fact  procured  the  insurance  to  be 
made  at  a  lower  premium  than  would  otherwise  have  been  demanded. 
But  these  instructions  were  erroneous.  They  left  the  jury  to  find  from 
such  knowledge  by  the  agent  that  the  company  insured  a  country 
tavern  under  the  description  of  a  dwelling  and  boarding-house — thus 
making  a  different  contract  from  that  expressed  on  the  face  of  the 
policy. 

There  is  a  distinction  between  a  representation  which  is  merely  col- 
lateral to  the  contract  of  insurance,  and  a  warranty  or  condition 
which  is  part  of  the  contract  itself.  A  representation  collateral  to  the 
contract  will  not  avoid  the  policy  though  it  be  untrue,  unless  it  was 
fraudulently  made ;  but  the  validity  of  the  entire  contract  depends 
upon  the  truth  or  fulfilment  of  the  warranties  and  conditions.  Dewees 
V.  Manhattan  Ins.  Co.,  34  N.  J.  Law,  247.  Where  the  defence  is  that 
a  representation  collateral  to  the  contract  was  false,  and  was  fraud- 
ulently made,  the  gist  of  the  defence  is  the  fraud  of  the  plaintiff  by 
which  the  insurer  was  misled,  and  induced  to  make  the  contract  of 
insurance.  To  such  a  defence,  proof  that  the  agent  of  the  insurer 
had  knowledge  of  the  true  state  and  condition  of  the  premises,  is  a 
complete  answer ;  for  with  such  knowledge  no  deception  is  practiced. 
Marshall  v.  Columbian  Mut.  Fire  Ins.  Co.,  27  N.  H.  157;  Protection 
Ins.  Co.  V.  Harmer,  2  Ohio  St.  452,  59  Am.  Dec.  684 ;  Patten  v.  In- 
surance Co.,  40  N.  H.  375 ;  State  Mutual  Ins.  Co.  v.  Arthur,  30  Pa. 
315.  A  different  rule  prevails  with  respect  to  a  warranty  contained 
in  the  policy;  if  it  is  in  fact  not  complied  with,  the  contract  falls, 
without  regard  to  the  knowledge  of  the  insurer  of  the  actual  condition 
of  the  property  insured.  This  distinction  between  a  representation 
collateral  to  the  contract  and  a  warranty  which  is  part  of  it,  is  taken  in 
State  Mutual  Ins.  Co.  v.  Arthur,  supra,  and  it  was  there  held  that 
knowledge  of  the  insurer  or  its  agent  of  the  exact  state  and  condition 
of  the  premises  will  relieve  the  insured  from  the  consequences  of  a 
false  or  imperfect  representation,  but  not  as  against  a  warranty  not 
complied  with. 

If  the  proposal  for  insurance  be  prepared  by  the  agent  of  the  com- 
pany, and  he  misdescribe  the  premises,  with  full  knowledge  of  their 
actual  condition,  and  there  be  no  fraud  or  collusion  between  the  agent 
and  the  insured,  the  contract  of  insurance  may  be  reformed  in  equity, 
and  made  to  conform  to  the  condition  of  the  premises  as  they  were 
known  to  the  agent.    Collett  v.  Morrison,  9  Hare,  162;  In  re  Universal 


Sec.  4)  ESTOPPEL  519 

Non-Tariff  Fire  Ins.  Co.,  L.  R.  19  Eq.  385 ;  Malleable  Iron  Works  v. 
Phoenix  Ins.  Co.,  25  Conn.  465 ;  Woodbury  Savings  Bank  v.  Charter 
Oak  Ins.  Co.,  31  Conn.  517;  Maher  v.  Hibernia  Ins.  Co.,  67  N.  Y. 
283.  But  in  an  action  at  law  upon  the  policy,  the  rights  of  the  parties 
must  be  determined  by  the  contract  of  insurance,  which  cannot  be 
altered  or  modified  by  extrinsic  evidence  of  a  different  agreement,  to 
be  established  from  a  knowledge  of  the  insurer  or  its  agents  of  the 
actual  condition  of  the  property  insured.  Dewees  v.  Manhattan  Ins. 
Co.,  35  N.  J.  Law,  366.  When  the  insurer  defends  on  the  ground 
of  a  breach  of  warranty,  it  is  no  answer  that  he  knew  that  such  war- 
ranty was  not  in  fact  true.  Columbia  Ins.  Co.  v.  Cooper,  50  Pa.  331. 
Thus,  being  stipulated  in  the  conditions  of  insurance  that  a  false 
description  of  the  property  insured  should  avoid  the  policy,  it  was 
held  that  a  misdescription  defeated  the  plaintiff's  right  to  recover 
under  it,  though  the  statements  were  known  to  be  false  by  the  insurer's 
agent  who  prepared  the  description,  and  informed  the  plaintiff  that 
in  that  respect  the  description  was  immaterial.  Smith  v.  Cash  Mut. 
Ins.  Co.,  24  Pa.  320.  Evidence  is  not  competent  in  an  action  on  the 
policy  to  show  that  the  matter  complained  of  as  a  breach  of  warranty 
was  mentioned  to  the  agent  at  the  time  of  the  application,  and  that  he 
said  it  was  of  so  little  consequence  that  it  need  not  be  mentioned  in 
the  policy.  Loehner  v.  Home  Mut.  Ins.  Co.,  17  Mo.  247.  Nor  will  it 
be  received  to  show  that  the  insured  informed  the  agent  of  the  exact 
condition  of  his  title,  and  that  the  agent  filled  out  the  application  in 
his  own  language.  Hough  v.  City  Fire  Ins.  Co.,  29  Conn.  10,  76  Am. 
Dec.  581.  The  decided  weight  of  authority  is  against  the  admission  of 
such  evidence  as  a  clear  violation  of  the  salutary  rule  of  law,  that 
all  prior  statements  are  merged  in  the  concluded  contract,  and  that 
a  contract  put  in  writing  cannot  be  added  to  or  altered  by  parol  tes- 
timony. Barrett  v.  Union  Mut.  Ins.  Co.,  7  Cush.  (Mass.)  175;  Lowell 
V.  Middlesex  Ins.  Co.,  8  Cush.  (Mass.)  127;  Jenkins  v.  Quincy  Mut. 
Ins.  Co.,  7  Gray  (Mass.)  370;  Kibbe  v.  Hamilton  Mut.  Ins.  Co.,  11 
Gray  (Mass.)  163 ;  Jennings  v.  Chenango  County  Ins.  Co.,  2  Denio 
(N.  Y.)  75;  Rohrbach  v.  Germania  Ins.  Co.,  62  N.  Y.  47,  20  Am. 
Rep.  451;  Columbia  Ins.  Co.  v.  Cooper,  50  Pa.  331;  Sheldon  v. 
Hartford  Fire  Ins.  Co.,  22  Conn.  235,  58  Am.  Dec.  420.  Many  of  the 
cases  to  the  same  effect  are  cited  by  the  Chief  Justice  in  his  opinion  in 
Dewees  v.  Manhattan  Ins.  Co.,  as  reported  in  35  N.  J.  Law,  366, 
which,  in  itself,  is  a  weighty  authority  against  the  competency  of 
such  evidence.^  ^     *     *     * 

2  2  The  court  here  cites  with  running  comment,  as  supporting  its  position, 
the  following  cases  from  Connecticut:  Sheldon  v.  Hartford  Fire  Ins.  Co., 
22  Conn.  235,  58  Am.  Dec.  420  (1853);  Glendale  Mfg.  Co.  v.  Protection  Ins. 
Co.,  21  Conn.  19,  54  Am.  Dec.  309  (1851) ;  Peck  v.  N.  L.  Mut.  Ins.  Co.,  22 
Conn.  575  (18.53);  Bevin  v.  Connecticut  Mut.  Ins.  Co.,  23  Conn.  244  (1854); 
Bebee  v.  Hartford  Co.  Mut.  Ins.  Co.,  25  Conn.  51,  65  Am.  Dec.  553  (1856) ; 
Hough  V.  City  Fire  Ins.  Co.,  29  Conn.  10,  76  Am.  Dec.  581  (1860)  ;  Woodbury 
Savings  Bank  v.  Charter  Oak  Ins.  Co.,  31  Conn.  517  (186.3).     Then  follows  a 


520  WAIVKR    AND    ESTOPPEL  (Cll.  S 

The  Supreme  Court  of  the  United  States  has  held  that  the  poHcy 
of  insurance  issued  by  the  company,  and  accepted  by  the  insured,  must 
be  taken  to  be  the  final  agreement  of  the  parties,  and  that  if  by  inad- 
vertence or  mistake,  stipukited  provisions  were  omitted,  or  provisions 
other  than  those  intended  were  inserted,  the  remedy  was  in  ec|uity  for 
the  correction  of  the  agreement,  and  that  neither  party  coukl  resort 
to  the  verbal  negotiations  preliminary  to  the  execution  of  the  policy, 
to  contradict  or  vary  its  terms,  or  to  ascertain  what  the  contract  really 
was.  Ins.  Co.  v.  Lyman,  15  Wall.  664,  21  L.  Ed.  246;  Insurance  Co. 
V.  Mowry,  96  U.  S.  544,  24  L.  Ed.  674.  But  in  Insurance  Co.  v. 
Wilkinson,  13  Wall.  222,  20  L.  Ed.  617,  the  same  court,  following 
Plumb  V.  Cattaraugus  Ins.  Co.,  18  N.  Y.  392,  72  Am.  Dec.  526,  and 
Rowley  v.  Empire  Ins.  Co.,  42  N.  Y.  557,  held  that  parol  evidence 
that  the  application  of  the  insured  was  prepared  by  the  company's 
agent,  and  that  he  filled  up,  from  inquiries  made  by  himself,  the  an- 
swers to  the  interrogatories,  the  falsity  of  which  was  the  breach  of 
warranty  relied  on,  was  competent  as  a  matter  of  estoppel.  The  only 
other  cases  cited  for  this  decision  were.  Combs  v.  Hannibal  Ins.  Co., 
43  Mo.  148,  97  Am.  Dec.  383,  which  was  itself  decided  on  a  following 
of  the  two  New  York  cases  above  cited,  and  Woodbury  Savings 
Bank  v.  Charter  Oak  Ins.  Co.,  31  Conn.  526,  which  was  a  bill  in 
equity  for  the  reformation  of  the  policy. 

It  is  manifest  that  the  theory  that  such  parol  evidence,  though  it  may 
not  be  competent  to  change  the  written  contract,  may  be  received  for 
the  purpose  of  raising  an  estoppel  in  pais,  is  a  mere  evasion  of  the 
rule  excluding  parol  testimony  when  offered  to  alter  a  written  con- 
tract. A  party  suing  on  a  contract  in  an  action  at  law,  must  be  con- 
clusively presumed  to  be  aware  of  what  the  contract  contains,  and  the 
legal  effect  of  his  agreement  is  that  its  terms  shall  be  complied  with. 
Extrinsic  evidence  of  the  kind  under  consideration,  must  entirely 
fail  in  its  object,  unless  its  purpose  be  to  show  that  the  contract  ex- 
pressed in  the  written  policy  was  not,  in  reality,  the  contract  as  made. 
A  defendant  cannot  be  estopped  from  making  the  defence  that  the 
contract  sued  on  is  not  his  contract,  or  that  his  adversary  has  himself 
violated  it  in  those  particulars  which  are  made  conditions  to  his  rights 
under  it,  on  the  ground  of  negotiations  and  transactions  occurring  at 
the  time  the  contract  was  entered  into,  unless  the  plaintiff  is  permitted 
to  show,  from  such  sources,  that  the  contract,  as  put  in  writing,  does 
not  truly  express  the  intention  of  the  parties.  The  difficulty  lies  at  the 
very  threshold.  An  estoppel  cannot  arise  except  upon  proof  of  a  con- 
tract different  from  that  contained  in  the  written  policy,  and  an  in- 
flexible rule  of  evidence  forbids  the  introduction  of  such  proof  by 
parol  testimony,  when  offered  to  vary  or  affect  the  terms  of  the  written 
instrument.     The  subject  has  been  so  fully  and  forcibly  discussed  by 

review  of  the  New  York  cases,  which  is  wholly  omitted.     See  Van  Schoick  v. 
Niagara  Fire  Ins.  Co.,  68  N.  Y.  438  (1877),  reported  ante,  p.  511. 


Sec.  4)  ESTOPPEt  521 

Chief  Justice  Beasley,  in  Dewees  v.  Manhattan  Ins.  Co.,  that  it  is  un- 
necessary to  pursue  it  further. 

Nor  is  the  reasoning  of  the  learned  justice  who  deHvered  the  opin- 
ion in  Insurance  Co.  v.  Wilkinson,  that  the  admission  of  such  testi- 
mony is  rendered  necessary  by  the  manner  in  which  agents  are  sent 
over  the  country  by  insurance  companies,  and  stimulated  by  them  to 
exertions  in  effecting  insurance — which  often  leads  to  a  disregard  of 
the  true  principles  of  insurance,  as  well  as  fair  dealing — any  more 
satisfactory.  It  introduces  into  the  administration  of  the  law  the 
novel  doctrine  that  the  rules  which  regulate  the  admission  of  evidence 
fluctuate  with  the  character  of  the  agencies  parties  employ  in  trans- 
acting business,  and  upon  that  foundation  establishes  an  exceptional 
rule  of  evidence  to  be  applied  to  an  entire  class  of  contracts,  whether 
agents,  ignorant,  incompetent,. or  unscrupulous,  were  employed  or  not. 
It  leaves  the  whole  subject  of  contracts  of  insurance  at  the  mercy 
of  a  kind  of  evidence  which  is  regarded  as  too  untrustworthy  and  un- 
reliable ever  to  control  contracts  in  writing. 

The  cases  usually  cited  for  the  proposition  that  a  contract  of  insur- 
ance is  excepted  out  of  the  class  of  written  contracts  with  respect  to 
the  admissibility  of  parol  evidence,  to  vary  or  control  the  written  con- 
tract, will  be  found,  on  examination,  to  be,  to  a  large  extent,  those 
in  which  the  proof  has  been  received  with  a  view  to  the  reformation 
of  the  policy  in  equity,  or  to  meet  the  defence  that  the  contract  was 
induced  by  false  and  fraudulent  representations  not  embodied  in  the 
contract,  or  are  the  decisions  of  courts  in  which  the  legal  and  equitable 
jurisdictions  are  so  blended  that  the  functions  of  a  court  of  equity 
have  been  transferred  to  the  jury  box.  A  distinction  is  sometimes 
made  between  policies  issued  by  a  stock  company  and  those  issued  by 
a  mutual  company.  This  distinction  is  without  any  substance.  In  a 
mutual  company,  the  insured,  by  taking  out  policies,  become  members 
of  the  company.  But,  nevertheless,  a  member  of  a  corporation,  and 
even  a  director,  in  dealing  with  the  corporation,  stand,  with  respect 
to  their  contracts,  just  the  same  as  a  stranger,  (Stratton  v.  Allen, 
16  N.  J.  Eq.  229,)  and  the  powers  of  agents  of  every  kind  of  prin- 
cipals, to  act  for  and  bind  their  principals,  are  determined  by  the  un- 
varying rule  of  ascertaining  what  authority  is  delegated  to  them.  How 
the  contract  was  effected,  whether  directly  with  the  insurer  or  by  the 
intervention  of  agents,  is  of  no  consequence.  The  question  of  the  ad- 
missibility of  the  testimony  does  not  relate  to  the  method  by  which 
the  contract  was  made.  It  concerns  the  rule  of  evidence  by  which  the 
contract,  however  made,  shall  be  interpreted. 

Upon  principle,  it  is  impossible  to  perceive  on  what  ground  such  tes- 
timony should  be  received.  A  policy  of  insurance  is  a  contract  in 
writing,  of  such  a  nature  as  to  be  within  the  general  rule  of  law  that 
a  contract  in  writing  cannot  be  varied  or  altered  by  parol  testimony. 
If  it  be  ambiguous  in  its  terms,  parol  evidence  such  as  would  be  com- 


522  WAIVER    AND    ESTOPPEL  (Cll.  8 

pclent  to  remove  an  ambiguity  in  other  written  contracts,  may  be  re- 
sorted to  for  the  purpose  of  cxjjlaining  its  meaning.  If  it  incorrectly 
or  imperfectly  expresses  the  actual  agreement  of  the  parties,  it  may 
be  reformed  in  equity.  If  strict  compliance  with  the  conditions  of  in- 
surance, with  respect  to  matters  to  be  done  by  the  insured  after  the 
contract  has  been  concluded,  has  been  waived,  such  waiver  may,  in 
general,  be  shown,  by  extrinsic  evidence,  by  parol.  Further  than  this, 
it  is  not  safe  for  a  court  of  law  to  go.  To  except  policies  of  insurance 
out  of  the  class  of  contracts  to  which  they  belong,  and  deny  them 
the  protection  of  the  rule  of  law  that  a  contract  which  is  put  in  writ- 
ing shall  not  be  altered  or  varied  by  parol  evidence,  of  the  contract 
the  parties  intended  to  make,  as  distinguished  from  what  appears, 
by  the  written  contract,  to  be  that  which  they  have  in  fact  made,  is 
a  violation  of  principle  that  will  open  the  door  to  the  grossest  frauds. 
If,  as  was  said  by  Judge  Folger,  in  Van  Schoick  v.  Niagara  Fire  Ins. 
Co.,  "a  fact  thoroughly  well  known,  and  comprehended  by  both  sides 
to  the  contract  before  it  is  delivered,  may,  by  force  of  some  condition, 
crouched  unseen  in  the  jungle  of  printed  matter  with  which  a  modern 
policy  is  overgrown,  make  a  defence  for  the  company,  after  the 
catastrophe  and  damage  have  happened,  against  which  it  professes 
to  guard,"  the  remedy  is  v/ith  the  legislature  to  prescribe  what  condi- 
tions only  shall  be  valid,  and  to  compel  the  printing  of  them  in  the 
policy,  in  such  a  manner  as  to  be  capable  of  being  read  and  understood. 
A  court  of  law  can  do  nothing  but  enforce  the  contract  as  the  parties 
have  made  it.  The  legal  rule  that  in  courts  of  law  the  written  contract 
shall  be  regarded  as  the  sole  repository  of  the  intentions  of  the  parties, 
and  that  its  terms  cannot  be  changed  by  parol  testimony,  is  of  the 
utmost  importance  in  the  trial  of  jury  cases,  and  can  never  be  de- 
parted from  without  the  risk  of  disastrous  consequences  to  the  rights 
of  parties. 

In  the  present  case,  the  property  insured  was  described  in  the  policy 
as  a  dwelling  and  boarding-house.  There  was  no  ambiguity  in  the 
terms  used,  that  justified  resort  to  extrinsic  evidence  to  explain  the 
meaning  of  the  contract.  The  effect  given  to  the  testimony  on  this 
subject,  by  the  charge  of  the  court,  was  to  change  the  terms  of  the 
contract  and  reform  it,  and  make  another  and  a  different  contract.  In 
this  there  was  error,  for  which  the  judgment  should  be  reversed.  -^ 

For  affirmance — Dixon,  ClEme;nt,  LiIvLY.     3. 

For  reversal — The  Chancellor,  Chiee  Justice,  Depue,  Reed, 
ScuDDER,  Van  Syckel,  Woodhull,  Dodd,  GrEEn.     9. 

23  See,  in  accord.  Bennett  v.  St.  Paul  Fire  &  Marine  Ins.  Co.,  55  N.  J.  Law, 
377,  27  Atl.  641   (1893). 


Sec.  4)  ESTOPPEL  523 

BIGGAR  V.  ROCK  LIFE  ASSURANCE  CO. 

(High  Court  of  Justice,  King's  Bench  Division,  [1902]  1  K.  B.  .516.) 

Wright,  J.  ^*  In  this  case  Biggar,  who  was  a  pubhcan,  seems  to 
have  been  canvassed  by  the  insurance  company's  agents,  who  in  Feb- 
ruary induced  him  to  send  in  a  proposal  for  insurance  against  acci- 
dents. The  ordinary  course  would  have  been  for  the  applicant  to  fill 
in  the  answers  to  the  questions  in  the  proposal  form  ;^  but  in  the  pres- 
ent case  Cooper,  the  company's  agent,  filled  up  the  proposal  form 
without  consulting  Biggar  as  to  the  answers  to  be  given,  and  then  in- 
vited Biggar  to  sign  the  form  so  filled  up,  which  Biggar  did  without 
reading  it.  The  proposal  form  so  signed  contained  not  only  the  ques- 
tions, with  the  answers  inserted  by  the  agent,  but  also  a  declaration 
at  the  foot  to  which  Biggar  himself  signed  his  name,  and  which  stated 
(inter  alia)  that  "no  company  has  ever  declined  to  assure  me  nor  to 
renew  my  policy,"  and  also  that  he  requested  the  company  to  grant 
"a.  policy  in  accordance  with  the  above  particulars" ;  by  the  declara- 
tion Biggar  further  agreed  that  "the  above  statements  shall  form 
the  basis  of  the  contract."  The  answers  inserted  by  Cooper,  the 
agent,  were  false  in  many  material  particulars ;  but  Biggar  was  not 
aware  of  their  falsity,  and  apparently  was  not  aware  of  what  the  an- 
swers were  in  fact  or  of  what  were  the  questions  to  which  they  were 
the  answers.  This  false  proposal  form  was  afterwards  transmitted 
to  the  company  by  Cooper  and  the  proposal  was  accepted ;  the  premi- 
um was  then  paid  by  Biggar  through  Cooper  and  the  policy  was  issued. 
Some  little  time  afterwards  Biggar  met  with  an  accident,  and  the  ques- 
tion now  is  whether  he  is  entitled  to  recover  on  the  policy. 

It  is  plain  that  the  policy  is  prima  facie  avoided,  for  some  of  the 
particulars  and  statements  in  the  answers,  the  correctness  of  which 
was  a  condition  precedent  to  the  validity  of  the  policy,  were  false ; 
Biggar,  therefore,  cannot  recover  unless  he  is  able  to  show  that  the 
insurance  company  is  prevented  from  setting  up  that  ground  of  avoid- 
ance by  reason  of  its  agent,  Cooper,  having  acted  in  fraud  of  his 
principals.  I  will  deal  with  a  minor  point  first.  It  is  said  that  in  any 
case  (whatever  may  be  the  proper  decision  as  to  the  main  question 
here)  the  claimant  is  disentitled  to  recover,  because  he  signed  a  paper 
containing  certain  other  particulars,  and  especially  tlie  statement  that 
no  company  had  ever  declined  to  assure  him  or  to  renew  his  policy. 
I  am  inclined  to  think  that  that  is  of  itself  sufficient  to  prevent  him 
from  having  any  claim  against  the  company ;  but  I  do  not  wish  to  rest 
my  decision  upon  that,  because  I  do  not  think  the  case  was  stated  with 
reference  to  that  particular  contention,  and  I  do  not  think  it  is  so 
explicit  with  regard  to  it  as  I  could  have  wished,  I  do  not  feel  quite 
clear  that  this  representation  which  he  signed  is  sufficiently  untrue, 
and  I  prefer  to  deal  with  the  case  upon  the  main  point. 

'•4  The  statement  of  facts  is  omitted. 


524  WAIVER    AND    ESTOPPEL  (Cll.  8 

As  to  that,  I  agree  with  tlie  principles  which  were  laid  down  by  the 
Supreme  Court  of  the  United  States  in  New  York  Life  Insurance  Co. 
V.  Fletcher,  117  U.  S.  519,  6  Sup.  Ct.  837,  29  L.  Ed.  934,  decided  in 
1885,  in  which  the  judgment  of  the  whole  Court  was  delivered  by 
Field,  J.  It  seems  to  me  that  that  case  is  very  much  in  point,  although 
in  some  respects  it  is  different  from  the  present  case ;  in  some  respects 
it  is  weaker,  and  in  some  respects  stronger.  I  agree  with  the  view  taken 
by  the  Supreme  Court  in  that  case,  and  apparently  in  other  cases  there 
cited,  that  if  a  person  in  the  position  of  the  claimant  chooses  to  sign 
without  reading  it  a  proposal  form  which  somebody  else  filled  in,  and 
if  he  acquiesces  in  that  being  sent  in  as  signed  by  him  without  taking 
the  trouble  to  read  it,  he  must  be  treated  as  having  adopted  it.  Busi- 
ness could  not  be  carried  on  if  that  were  not  the  law.  On  that  ground 
I  think  the  claimant  is  in  a  great  difficulty.  But,  further,  it  seems  to  me 
that  here,  as  in  the  case  of  New  York  Life  Insurance  Co.  v.  Fletcher, 
117  U.  S.  519,  6  Sup.  Ct.  837,  29  L.  Ed.  934,  it  would  be  wrong  to 
treat  Cooper,  the  company's  agent,  as  their  agent  to  suggest  the 
answers  which  Biggar  was  to  give  to  the  questions  in  the  proposal. 
Cooper  was  an  agent  to  receive  proposals  for  the  company.  He  may 
have  been  an  agent,  as  Lindley  and  Kay,  L.  JJ.,  put  it  in  Bawden  v. 
London,  Edinburgh  &  Glasgow  Insurance  Co.,  [1892]  2  Q.  B.  534, 
to  put  the  answers  in  form ;  but  I  cannot  imagine  that  the  agent  of  the 
insurance  company  can  be  treated  as  their  agent  to  invent  the  an- 
swers to  the  questions  in  the  proposal  form.  For  that  purpose,  it 
seems  to  me,  if  he  is  allowed  by  the  proposer  to  invent  the  answers  and 
to  send  them  in  as  the  answers  of  the  proposer,  that  the  agent  is  the 
agent,  not  of  the  insurance  company,  but  of  the  proposer. 

I  cannot  put  the  doctrine  better  than  in  the  language  of  the  Su- 
preme Court  in  New  York  Life  Insurance  Co.  v.  Fletcher,  117  U.  S. 
519,  at  pages  532,  533,  6  Sup.  Ct.  837,  at  page  29  L.  Ed.  934,  in  the 
case  referred  to,  where  they  are  citing  from  and  adopting  previous 
decisions  of  the  Supreme  Court.  They  say  (speaking  of  another  case) : 
"The  application  was  signed  without  being  read.  It  Avas  held  that  the 
company  was  not  bound  by  the  policy ;  that  the  power  of  the  agent 
would  not  be  extended  to  an  act  done  by  him  in  fraud  of  the  com- 
pany and  for  the  benefit  of  the  insured,  especially  where  it  was  in  the 
pow^r  of  the  assured  by  reasonable  diligence  to  defeat  the  fraudulent 
intent;  that  the  signing  of  the  application  without  reading  it  or 
hearing  it  read  was  inexcusable  negligence ;  and  that  a  party  is  bound 
to  know  what  he  signs."  Then,  speaking  of  the  agent's  conduct, 
they  say :  "His  conduct  in  this  case  was  a  gross  violation  of  duty,  in 
fraud  of  his  principal,  and  in  the  interest  of  the  other  party.  To  hold 
the  principal  responsible  for  his  acts,  and  assist  in  the  consummation 
of  the  fraud,  would  be  monstrous  injustice.  When  an  agent  is  ap- 
parently acting  for  his  principal,  but  is  really  acting  for  himself  or 
third  persons  and  against  his  principal,  there  is  no  agency  in  respect 


Sec.  4)  ESTOPPEL  525 

to  that  transaction,  at  least  as  between  the  agent  himself,  or  the  per- 
son for  whom  he  is  really  acting,  and  the  principal.  *  *  *  fj^g 
fraud  could  not  be  perpetrated  by  the  agent  alone.  The  aid  of  the 
plaintiff  or  the  insured,  either  as  an  accomplice  or  as  an  instrument, 
was  essential."  Then  they  go  on :  "She  says  that  she  and  her  husband 
signed  the  application  without  reading  it  and  without  its  being  read 
to  them.  That  of  itself  was  inexcusable  negligence.  The  application 
contained  her  agreements  and  representations  in  an  important  con- 
tract. When  she  signed  it  she  was  bound  to  know  what  she  signed. 
The  law  requires  that  the  insured  shall  not  only  in  good  faith  answer 
all  the  interrogatories  correctly,  but  shall  use  reasonable  diligence  to 
see  that  the  answers  are  correctly  written.  It  is  for  his  interest  to  do 
so,  and  the  insurer  has  a  right  to  presume  that  he  will  do  it.  He  has 
it  in  his  power  to  prevent  this  species  of  fraud,  and  the  insurer  has 
not." 

That  doctrine  of  the  Supreme  Court  of  the  United  States  seems 
to  me  to  be  good  sense  and  good  law.  Even  if  those  doctrines  are  not 
to  be  applied  to  their  full  extent,  still  I  cannot  conceive  how  this  policy 
can  be  held  to  be  binding  on  the  company.  The  very  basis  of  the  policy 
is  the  statements  in  the  proposal.  These  statements  are  false  in  sev- 
eral material  respects.  How,  then,  can  the  policy  be  binding  on  the 
company  ?  If  the  plaintiff  is  entitled  to  anything,  I  think  that  the  most 
he  could  ask- for  would  be  that  the  Court  should  say  that  the  contract 
is  void  on  the  ground  of  either  fraud  or  mistake,  with  the  consequence, 
perhaps,  that  he  may  be  entitled  to  recover  back  the  premium  that  he 
paid ;  but  I  cannot  see  how  it  can  be  held  under  these  circumstances 
that  the  company  is  bound  by  the  policy.  I  see  no  equity  against 
the  company  in  this  case — no  equity,  for  instance,  such  as  might 
exist  on  the  ground  of  receipt  of  premium  with  knowledge  of  the 
falsity  of  the  statements.  They  never  knew  of  the  falsity  of  the  state- 
ments, and  they  never  knew  that  the  proposal  form  had  been  filled  in 
with  answers  invented  by  the  person  purporting  to  act  as  their  agent. 
I  think  the  answer  to  the  question  asked  by  the  learned  arbitrator 
must  be  that  the  facts  stated  show  a  defence  in  law. 

Judgment  for  the  company. 


NORTHERN   ASSUR.    CO.    OF   LONDON   v.   GRAND   VIEW 

BUILDING  ASS'N. 

(Supreme  Court  of  the  United  States,  1902.     183  U.  S.  SOS,  22  Sup.  Ct. 
133,  46  L.  Ed.  213.) 

On  Writ  of  Certiorari  to  the  United  States  Circuit  Court  of  Appeals 
for  the  Eighth  Circuit  to  review  a  decision  which  affirmed  a  judgment 
of  the  Circuit  Court  for  the  District  of  Nebraska  in  favor  of  plain- 
tiff in  an  action  on  a  policy  of  fire  insurance.    Reversed. 

The  plaintiff  declared  on  a  policy  of  insurance  for  $2,500  issued  on 


526  WAIVER   AND    ESTOPPEL  (Ch.  8 

December  31,  1806,  by  ibc  (lefendant  company,  which  pohcy  contained 
among  others  tlie  following  provisions :  "This  entire  policy,  unless 
otherwise  provided  by  agreement  indorsed  hereon  or  added  hereto, 
shall  be  void  if  the  insured  now  has  or  shall  hereafter  make  or  pro- 
cure any  other  contract  of  insurance,  whether  valid  or  not,  on  proper- 
ty covered  in  whole  or  in  part  by  this  policy.  *  *  *  This  policy  is 
made  and  accepted  subject  to  the  foregoing  stipulations  and  condi- 
tions, together  with  such  other  provisions,  agreements,  or  conditions 
as  may  be  indorsed  hereon  or  added  hereto,  and  no  officer,  agent,  or 
other  representative  of  this  company  shall  have  power  to  waive  any 
provision  or  condition  of  this  policy  except  such  as  by  the  terms  of  this 
policy  may  be  the  subject  of  agreement  indorsed  herein  or  added 
thereto,  and  as  to  such  provisions  and  conditions  no  officer,  agent,  or 
representative  shall  have  such  power  or  be  deemed  or  held  to  have 
waived  such  provisions  or  conditions  unless  such  waiver,  if  any, 
shall  be  written  upon  or  attached  hereto,  nor  shall  any  privilege  or 
permission  affecting  the  insurance  under  this  policy  exist  or  be  claimed 
by  the  insured  unless  so  written  or  attached." 

Plaintiff's  declaration  further  alleged  that  while  at  the  time  of  the 
issue  of  defendant's  policy  there  was  existing  insurance  on  the  prop- 
erty in  question  to  the  amount  of  $1,500  in  the  Firemen's  Fund  Insur- 
ance Company,  yet  the  plaintiif  before  the  issue  of  the  policy  had 
fully  disclosed  the  fact  of  such  subsisting  insurance  to  defendant's 
recording  agent  at  Lincoln,  Nebraska,  A.  D.  Borgelt,  who  then  had 
full  authority  from  defendant  to  countersign  and  issue  its  policies  and 
accept  fire  insurance  risks  in  its  behalf  and  accept  and  receive  the 
premium  therefor,  and  who  in  fact  accepted  said  risk  and  issued  said 
policy,  and  accepted  and  received  said  premium  as  such  agent  in  be- 
half of  defendant  with  knowledge  beforehand  of  said  concurrent  insur- 
ance, and  with  the  intent  knowingly  to  waive  the  condition  of  said 
policy  that  'it  shall  be  void  if  the  insured  now  has  or  shall  hereafter 
make  or  procure  any  other  contract  of  insurance'  on  the  property 
covered  thereby.  And  by  the  aforesaid  several  acts  and  by  procuring, 
receiving,  accepting,  and  retaining  of  said  insurance  premium  with 
knowledge  of  said  subsisting  concurrent  insurance  the  defendant  has 
waived  the  said  condition  and  is  estopped  to  claim  benefit  thereof, 
and  is  bound  by  its  said  policy  notwithstanding  said  condition. 

The  defendant's  answer  specifically  denied  any  knowledge  of  the 
other  insurance,  alleged  that  the  total  value  of  the  property  had  been 
represented  by  the  insured  to  be  only  $3,500,  and  relied  upon  the 
breach  of  the  conditions  above  quoted. 

The  jury  in  a  special  verdict  found  the  issue  of  the  defendant's 
policy  and  the  existence  of  the  other  insurance  as  above  stated,  the 
destruction  of  the  property  insured  by  fire  on  June  1,  1898,  that  the 
cash  value  of  the  property  at  the  time  of  its  destruction  was  $4,140; 


Sec.  4)  ESTOPPEL  527 

that  at  the  time  of  the  issue  of  the  policy  in  suit  the  existence  of 
the  other  insurance  was  known  to  Borgelt,  agent  of  the  defendant; 
and  that  the  premium  paid  to  defendant  had  been  duly  tendered  to 
and  refused  by  the  plaintiff. 

The  trial  court  entered  judgment  for  the  plaintiff  on  this  verdict, 
and  on  appeal  this  judgment  was  afifirmed  by  the  United  States  Circuit 
Court  of  Appeals  for  the  eighth  circuit.     10  Fed.  77,  41  C.  C.  A.  207. 

Mr.  Justice  Shiras  delivered  the  opinion  of  the  court,  sn  *  *  * 
Over  insurance  by  concurrent  policies  on  the  same  property  tends  to 
cause  carelessness  and  fraud,  and  hence  a  clause  in  the  policies  ren- 
dering them  void  in  case  other  insurance  had  been  or  should  be  made 
upon  the  property  and  not  consented  to  in  writing  by  the  company,  is 
customary  and  reasonable. 

In  the  present  case,  such  a  provision  was  expressly  and  in  unam- 
biguous terms  contained  in  the  policy  sued  on,  and  it  was  shown  in 
the  proofs  of  loss  furnished  by  the  insured,  and  it  was  found  by  the 
jury,  that  there  was  a  policy  in  another  company  outstanding  when 
the  present  one  was  issued.  It  also  was  made  to  appear  that  no  con- 
sent to  such  other  insurance  was  ever  indorsed  on  the  policy  or  added 
thereto. 

Accordingly  it  is  a  necessary  conclusion  that  by  reason  of  the  breach 
of  the  condition  the  policy  became  void  and  of  no  effect,  and  no  recov- 
ery could  be  had  thereon  by  the  insured  unless  the  company  waived 
the  condition.  The  question  before  us  is  therefore  reduced  to  one  of 
waiver.  The  policy  itself  provides  the  method  by  which  waiver  should 
be  made:     [Quoting  provision  given  above.] 

Before  proceeding  to  a  direct  consideration  of  the  question  before 
us,  it  may  be  well  to  inquire  into  the  principles  established  by  the 
authorities  as  applicable  to  such  cases. 

It  is  a  fundamental  rule,  in  courts  both  of  law  and  equity,  that  parol 
contemporaneous  evidence  is  inadmissible  to  contradict  or  vary  the 
terms  of  a  valid  written  instrument.  This  rule  is  thus  expressed  in 
Greenleaf  on  Evidence  (12th  Ed.)  §  275:  "When  parties  have  deliber- 
ately put  their  engagements  into  writing,  in  such  terms  as  import  a 
legal  obligation,  without  any  uncertainty  as  to  the  object  or  extent  of 
such  engagement,  it  is  conclusively  presumed  that  the  whole  engage- 
ment of  the  parties,  and  the  extent  and  manner  of  their  undertaking, 
was  reduced  to  writing;  and  all  oral  testimony  of  a  previous  collo- 
quium between  the  parties,  or  of  conversation  or  declarations  at  the 
time  when  it  was  completed,  or  afterwards,  as  it  would  tend  in  many 
instances  to  substitute  a  new  and  different  contract  for  the  one  which 
was  really  agreed  upon,  to  the  prejudice,  possibly,  of  one  of  the  par- 
ties is  rejected."     *    *    * 

2  5  The  very  lengthy  statement  of  facts  given  in  the  official  report  is  great- 
ly abbreviated,  and  portions  of  the  excessively  long  opinion  are  omitted. 


528  WAIVER    AND    ESTOrPEL  (Cll.  8 

This  rule  has  always  been  followed  and  applied  by  the  English 
courts  in  the  case  of  policies  of  insurance  in  writing.  2*' 

Coming  to  the  decisions  of  our  state  courts,  we  find  that,  while  there 
is  some  contrariety  of  decisions,  the  decided  weight  of  authority  is 
to  the  effect  that  a  policy  of  insurance  in  writing  cannot  be  changed 
cr  altered  by  parol  evidence  of  what  was  said  prior  or  at  the  time  the 
uisurance  was  effected;  that  a  condition  contained  in  the  policy  cannot 
be  waived  by  an  agent,  unless  he  has  express  authority  so  to  do ;  and 
then  only  in  the  mode  prescribed  in  the  policy;  and  that  mere  knowl- 
edge by  the  agent  of  an  existing  policy  of  insurance  will  not  affect  the 
company  unless  it  is  affirmatively  shown  that  such  knowledge  was 
communicated  to  the  company. 

[After  extensive  comment  upon  the  cases  cited  in  the  note  below,  -^ 
and  especially  upon  the  New  York  cases,  the  court  proceeded  as  fol- 
lows :] 

It  is  doubtless  true  that  in  several  later  cases  the  New  York  court  of 
appeals  seems  to  have  departed  from  the  principles  of  the  previous 
cases,  and  to  have  held  that  the  restrictions  inserted  in  the  contract 
upon  the  power  of  an  agent  to  waive  any  condition,  unless  done  in  a 
particular    manner,   cannot   be   deemed  to   apply  to   those   conditions 

2  6  In  support  of  this  undisputed  proposition  the  court  cites  Weston  v. 
Ernes,  1  Taunt.  115  (1808);  Robertson  v.  French,  4  East.  130  (180?.):  Flinn  v. 
Tobin,  1  Moody  &  M.  367  (1829);  Preston  v.  Merceau,  2  W.  Rl.  1249  (1778): 
Pickering  v.  Dowson,  4  Taunt.  779  (1813);  Powell  v.  Edmunds,  12  East,  6 
(1810)  ;  Smith  v.  Jeffryes.  15  Mees.  &  W.  561  (1846) ;  Gale  v.  Lewis.  9  Q.  P.. 
730  (1846) ;  Acey  v.  Fernie,  7  Mees.  &  W.  151  (1S40) ;  and  quotes  at  length 
from  Western  Assurance  Company  v.  DouU,  12  Can.  S.  C.  44G  (1886),  which 
involved  a  claim  of  a  parol  waiver  subsequent  to  the  issue  of  the  policy  in 
suit  made  in  a  manner  clearly  unauthorized. 

2  7  Plere  the  court  makes  an  extensive  quotation  from  Hale  v.  Mechanics' 
Mut.  Fire  Ins.  Co.,  6  Gray  (Mass.)  169,  66  Am.  Dec.  410  (1856),  and  cites 
with  comment  Worcester  Bank  v.  Hartfoi-d  Fire  Ins.  Co.,  11  Cush.  (Mass.) 
265.  59  Am.  Dec.  145  (18.53);  Smith  v.  Niagara  Fire  Ins.  Co.,  60  Vt.  682, 
15  Atl.  353,  1  L.  R.  A.  216.  6  Am.  St.  Rep.  144  (1888) ;  Wilson  v.  Conway  Fire 
Ins.  Co..  4  R.  I.  141  (1856) ;  Cleaver  v.  Traders'  Ins.  Co..  65  Mich.  527,  32 
N.  W.  660,  8  Am.  St.  Rep.  90S  (1887),  and  same  case  in  71  Mich.  414,  39  N. 
W.  571,  15  Am.  St.  Rep.  275  (1888).  All  these  cases  hold  that  an  alleged 
waiver,  made  without  authority  and  subsequently  to  the  issue  of  policy,  is 
not  binding  on  the  insurer.  The  court  further  cited  Sheldon  v.-  Hartford 
Fire  Ins.  Co.,  22  Conn.  235,  58  Am.  Dec.  420  (1853);  Glendale  Woolen  Mfg. 
Co.  V.  Protection  Ins.  Co.,  21  Conn.  19,  37,  54  Am.  Dec.  309  (1851);  IJough 
V.  City  Fire  Ins.  Co.,  29  Conn.  10,  76  Am.  Dec.  581  (1860) ;  and  with  comment 
and  lengthy  quotation  the  following  New  York  cases:  New  York  Ins.  Co. 
V.  Thomas,  3  Johns.  Cas.  (N.  Y.)  1  (1802) ;  Jennings  v.  Chenango  County  Mut. 
Ins.  Co.,  2  Denio  (N.  Y.)  75  (1.846);  Fowler  v.  Metropolitan  Life  Ins.  Co., 
116  N.  Y.  389,  22  N.  E.  576,  5  L.  R.  A.  805  (1889)  ;  Atty.  Gen.  v.  North  America 
Life  Ins.  Co.,  82  N.  Y.  172  (1880);  People  v.  Knickerbocker  Life  Ins.  Co., 
103  N.  Y.  480,  485,  9  N.  E.  35  (1886) ;  Douglas  v.  Knickerbocker  Life  Ins.  Co.. 
83  N.  Y.  492  (1881);  Baumgartel  v.  Providence  Washington  Ins.  Co.,  136  N. 
Y.  547,  32  N.  E.  990  (1893).  None  of  these  cases  properly  involved  a  ques- 
tion of  estoppel  arising  out  of  defendant's  delivery  of  a  policy  known  by 
the  defendant  to  be  void  by  Its  terms,  and  meaningless  unless  the  defendant 
Intends  by  such  misleading  delivery  to  get  the  insured's  premium  money 
without  any  consideration  therefor. 


Sec.  4)  ESTOPPEL  529 

which  relate  to  the  inception  of  the  contract  when  it  appears  that  the 
agent  has  delivered  it  and  received  the  premiums  with  full  knozvledge 
of  the  actual  situation.  To  take  the  benefit  of  a  contract  with  full 
knoidcdge  of  all  the  facts,  and  attempt  afterwards  to  defeat  it,  when 
called  upon  to  perform,  by  asserting  conditions  relating  to  those  facts, 
would  be  to  claim  that  no  contract  was  made,  and  thus  operate  as  a 
fraud  upon  the  other  party.  Robbins  v.  Springfield  F.  &  M.  Ins.  Co., 
149  N.  Y.  484,  44  N.  E.  159;  Wood  v.  American  F.  Ins.  Co.,  149 
N.  Y.  385,  44  N.  E.  80,  52  Am.  St.  Rep.  7ZZ.  But  see  Rohrback  v. 
Germania  F.  Ins.  Co.,  62  N.  Y.  63,  20  Am.  Rep.  451,  and  Owens  v. 
Holland  Purchase  Ins.  Co.,  56  N.  Y.  565-570,  which  are  irreconcilable. 

The  fallacy  of  this  view  is  disclosed  in  the  phrases  we  have  ital- 
icized. It  was  thereby  assumed  that  the  agent  had  full  knowledge  of 
all  the  facts,  that  such  knowledge  must  be  deemed  to  have  been  disclos- 
ed by  the  agent  to  his  principal,  and,  that,  consequently,  it  would  oper- 
ate as  a  fraud  upon  the  assured  to  plead  a  breach  of  the  conditions. 
This  mode  of  reasoning  overlooks  both  the  general  principle  that  a 
written  contract  cannot  be  varied  or  defeated  by  parol  evidence,  and 
the  express  provision  that  no  waiver  shall  be  made  by  the  agent  except 
in  writing  indorsed  on  the  policy.  As  we  shall  hereafter  show  when  we 
come  to  consider  the  meaning  and  legal  purport  of  the  contract  in  suit, 
such  express  provision  was  intended  to  protect  both  parties  from  the 
dangers  involved  in  disregarding  the  rule  of  evidence.  The  mischief 
is  the  same  whether  the  condition  turned  upon  facts  existing  at  and 
before  the  time  when  the  contract  was  made,  or  upon  facts  subse- 
quently taking  place.  28     *     *     * 

It  must  be  conceded  that  it  is  shown,  in  the  able  brief  of  the  de- 
fendant in  error,  that,  in  several  of  the  states,  the  courts  appear  to 
have  departed  from  well-settled  doctrines,  in  respect  both  to  the  in- 
competency of  parol  evidence  to  alter  written  contracts,  and  to  the 
binding  eil'ect  of  stipulations  in  policies  restricting  the  authority  of 
the  company's  agents.  The  nature  of  the  reasoning  on  which  such 
courts  have  proceeded  will  receive  our  consideration  when  we  come 
to  discuss  the  particular  terms  of  the  contract  before  us. 

Leaving,  then,  the  state  courts,  let  us  inquire  what  is  the  voice  of  the 
federal  authorities. 

2  8  The  court  here  quotes  at  great  length  from  Franklin  Fire  Ins.  Co.  v. 
Martin.  40  N.  J.  Law,  5GS,  29  Am.  Rep.  271  (1S7S),  ante,  p.  516,  and  Dewees 
V.  Manhattan  Ins.  Co.,  35  N.  J.  Law,  .S66  (1872),  but  omits  that  part  of  the 
opinion  in  the  former  case  in  which  the  New  Jersey  court  unqualitiedly  re- 
pudiates the  rule  of  the  Supreme  Court  of  the  Tnited  States  as  laid  down  in 
Union  Mutual  Life  Ins.  Co.  v.  Wilkinson,  13  Wall.  222,  20  L.  Ed.  617,  ante, 
p.  506.  The  opinion  then  discusses,  with  quotations,  the  following  Pennsyl- 
vania cases:  Smith  v.  Cash  Mut.  Ins.  Co.,  21  Pa.  320  (1855);  Columbia  Ins. 
Co.  V.  Cooper,  50  Pa.  .331  (1865)  ;  Commonwealth  Mut.  Fire  Ins.  Co.  v.  Hunt- 
zinger,  98  Pa.  41  (1881) ;  Kalnuitz  v.  Northern  Mut.  Ins.  Co.,  186  Pa.  571,  40 
Atl.  816  (1898);  Elliott  v.  Lycoming  County  Ins.  Co.,  66  Pa.  22,  26,  5  Am. 
Rep.  323  (1870). 

Vance  Ins. — 34 


530  WAIVKR    AM)    ESTOl'l'EL  (Cll.  8 

We  do  not  consider  it  necessary  or  ])rofitable  to  examine  in  detail 
the  decisions  of  the  circuit  courts  or  of  the  circuit  courts  of  appeals. 
It  is  sufficient,  for  our  i)resent  purpose,  to  say  that  the  circuit  court 
of  appeals  for  the  seventh  circuit  has  held  consistently  to  the  doc- 
trines on  this  subject  laid  down  by  the  English  and  American  courts 
generally  (United  Firemen's  Ins.  Co.  v.  Thomas,  47  L.  R.  A.  450, 
27  C.  C.  A.  42,  53  U.  S.  App.  517,  82  Fed.  406),  and  that  the  court 
of  appeals  for  the  eighth  circuit,  in  the  present  case,  has,  by  a  majority 
of  its  members,  adopted  and  applied  the  view  that  a  written  contract 
may,  in  an  action  at  law,  be  changed  by  parol  evidence,  and  that  such 
clauses  as  restrict  the  power  of  agents  of  insurance  companies  to  con- 
tract otherwise  than  by  some  writing  should  be  given  effect,  if  at  all, 
as  they  respect  such  modifications  of  a  policy  as  are  made  or  attempted 
to  be  made  after  it  has  been  delivered  and  taken  effect  as  a  valid 
instrument,  and  should  not  be  considered  as  having  relation  to  acts 
done  by  the  company  or  its  agents  at  the  inception  of  the  contract. 
41  C.  C.  A.  207,  101  Fed.  77. 

In  such  divergence  of  decisions,  we  have  deemed  it  proper  to  have 
the  present  case  brought  before  us  by  a  writ  of  certiorari. 

As  to  the  fundamental  rule,  that  written  contracts  cannot  be  modi- 
fied or  changed  by  parol  evidence,  unless  in  cases  where  the  contracts 
are  vitiated  by  fraud  or  mutual  mistake,  we  deem  it  sufficient  to  say 
that  it  has  been  treated  by  this  court  as  invariable  and  salutary.  The 
rule  itself  and  the  reasons  on  which  it  is  based  are  adequately  stated 
in  the  citations  already  given  from  the  standard  works  of  Starkie  and 
Greenleaf. 

Policies  of  fire  insurance  in  writing  have  always  been  held  by  this 
court  to  be  within  the  protection  of  this  rule. 

The  first  case  to  be  examined  is  Carpenter  v.  Providence  Washing- 
ton Ins.  Co.,  16  Pet.  495,  10  L.  Ed.  1044.  The  importance  of  this 
case  is  great,  because,  if  the  conclusion  there  reached  was  sound  when 
expressed,  and  if  it  has  not  been  overruled  by  our  subsequent  deci- 
sions, it  is  decisive  of  the  case  before  us.  -^     *     *     * 

29  The  lengthy  discussion  of  this  case  is  necessarily  omitted.  The  closing 
paragraphs  of  that  part  of  the  opinion  in  Carpenter  v.  Providence  Washing- 
ton Ins.  Co.,  16  Pet.  495,  10  L.  Ed.  1044  (1S42),  quoted  in  the  principal  case, 
with  the  conclusions  drawn  therefrom,  are  as  follows:  "  'The  third  in- 
struction prayed  the  court  to  Instruct  the  jury  that  if  the  Washington  In- 
surance Company  had  notice,  in  fact,  of  the  existence  of  the  policy  in  the 
American  office,  that  "was  in  law  a  compliance  with  the  terms  of  the  policy." 
The  court  refused  to  give  the  instruction  as  prayed,  but  instructed  the  jury 
that  at  law,  whatever  might  be  the  case  in  equity,  mere  parol  notice  of  such 
insurance  was  not,  of  itself,  sufficient  to  comply  with  the  requirements  of 
the  policy  declared  on;  but  that  it  was  necessary,  in  case  of  any  such  prior 
policy,  that  the  same  should  not  only  be  notified  to  the  company,  but  should 
be  mentioned  in  or  indorsed  upon  the  policy ;  otherwise  the  insurance  was 
to  be  void  and  of  no  effect.  We  think  this  instruction  was  perfectly  correct. 
It  merely  expresses  the  very  language  and  sense  of  the  stipulation  of  the 
policy;  and  it  can  never  be  properly  said  that  the  stipulation  in  the  policy 
is  complied  with,  when  there  has  been  no  such  mention  or  indorsement  as 


Sec.  4)  ESTOPPEL  531 

Carpenter  v.  Providence  Washington  Ins.  Co.,  16  Pet.  495,  10  L.  Ed. 
1044,  has  been  frequently  referred  to  as  an  authority  in  subsequent 
cases  on  points  collateral  to  the  one  we  are  now  considering.  Taylor 
V.  Benham,  5  How.  260,  12  L.  Ed.  143;  Russell  v.  Southard,  12  How. 
145,  13  L.  Ed.  929 ;  Gates  v.  First  Nat.  Bank,  100  U.  S.  246,  25  L.  Ed. 
583 ;  Burgess  v.  Seligman,  107  U.  S.  34,  27  L.  Ed.  365,  2  Sup.  Ct.  10. 

In  Phoenix  Mut.  L.  Ins.  Co.  v.  Raddin,  120  U.  S.  183,  189,  30  L. 
Ed.  644,  646,  7  Sup.  Ct.  500,  502,  we  find  Carpenter  v.  Providence 
Washington  Ins.  Co.  cited,  per  Mr.  Justice  Gray,  as  an  authority  for 
the  proposition  that  "the  parties  may  by  their  contract  make  material 
a  fact  that  would  otherwise  be  immaterial,  or  make  immaterial  a  fact 
that  would  otherwise  be  material.  Whether  there  is  other  insurance 
on  the  same  subject,  and  whether  such  insurance  has  been  applied  for 
and  refused,  are  material  facts,  at  least  when  statements  regarding 
them  are  required  by  the  insurers  as  part  of  the  basis  of  the  contract." 

It  is  not  pretended  in  the  opinion  of  the  majority  in  the  circuit  court 
of  appeals  in  the  present  case  that  the  case  of  Carpenter  v.  Providence 
Washington  Ins.  Co.  has  been  modified  or  overruled  by  this  court,  but 
the  cases  relied  on  by  that  court  are  wholly  decisions  of  several  state 
courts  and  of  some  of  the  circuit  courts.  Nor  is  it  claimed  by  the 
learned  counsel  for  the  defendant  in  error  that  the  Carpenter  Case  has 
been  formally  overruled  or  modified  by  this  court.  He,  however,  does 
cite  three  decisions  of  this  court  which,  as  he  views  them,  should 
be  regarded  as  abandoning  the  doctrines  of  that  case,  viz.,  Union  Mut. 
L.  Ins.  Co.  V.  Wilkinson,  13  Wall.  232,  20  L.  Ed.  622;  Eames  v. 
Home  Ins.  Co.,  94  U.  S.  621,  24  L.  Ed.  298,  and  Knickerbocker  L.  Ins. 
Co.  v.  Norton,  96  U.  S.  234,  24  L.  Ed.  689. 

These  cases  must,  therefore,  receive  our  attention.  What,  then, 
was  the  case  of  Union  Mut.  L.  Ins.  Co.  v.  Wilkinson?  That  was  a 
case  where  the  agent  of  a  life  insurance  company  had  inserted  in  the 
application  a  representation  of  the  age  of  the  mother  of  the  assured 
at  the  time  of  her  death,  which  was  untrue,  but  which  the  agent  him- 
self obtained  from  a  third  person  and  inserted  without  the  assent  of 
the  assured.  It  was  held  that  this  untrue  statement  contained  in  the 
application  did  not  invalidate  the  policy;   that  permitting  verbal  testi- 

it  positively  requires,  and  without  wliicli  it  declares  the  policy  shall  hence- 
forth be  void  and  of  no  effect.'  Two  propositions,  then,  are  clearly  estab- 
lished by  this  decision:  (1)  That  where  a  policy  provides  that  notice  shall 
be  given  of  any  prior  or  subsequent  insurance,  otherwise  the  policy  to  be 
void,  such  a  provision  is  reasonal  le  and  constitutes  a  condition,  the  breach 
of  which  will  avoid  the  policy;  (2)  that  where  the  policy  provides  that  notice 
of  prior  or  subsequent  insurance  must  be  given  by  indorsement  upon  the 
policy  or  by  other  writing,  such  provision  is  reasonable  and  one  competent 
for  the  parties  to  agree  upon,  and  constitutes  a  condition,  the  breach  of 
which  will  avoid  the  policy." 

It  should  be  observed  that  the  circumstances  attending  the  making  of  the 
contract  in  Carpenter  v.  Providence  Washington  Ins.  Co.  were  not  such 
as  to  entitle  the  insured  to  equitable  relief,  as  was  decided  in  Carpenter 
V.  Providence  Washington  Ins,  Co.,  4  How.  185,  11  L.  Ed.  931  (1846). 


532  WAIVRIt   AND    ESTOPPEL  (Cll.  8 

mony  to  show  how  this  untrue  statement  found  its  way  into  the  ajipH- 
cation  did  not  contradict  the  written  contract  sued  on,  but  proceeded  on 
the  ground  that  this  statement  was  not  that  of  the  assured.  The  trial 
court  said  to  the  jury  that  if  the  appHcant  did  not  know  at  what  age 
her  mother  died,  and  did  not  state  it,  and  dccHncd  to  state  it,  and  that 
her  age  was  inserted  by  the  agent  upon  statements  made  to  him  by 
others  in  answer  to  inquiries  he  made  of  them,  and  upon  the  strength 
of  his  own  judgment,  based  upon  data  thus  obtained,  it  was  no  defense 
to  the  action  to  show  that  the  agent  was  mistaken. 

The  case,  as  reported,  does  not  disclose  that  the  plaintiff's  testimony 
as  to  the  way  in  which  the  untrue  statement  was  put  in  the  applica- 
tion was  contradicted  or  denied  by  the  company.  It  may  therefore 
be  presumed  that  the  plaintiff's  case,  in  that  respect,  was  made  out  by 
undisputed  evidence.  And  it  would  seem,  such  being  the  state  of 
facts,  that  this  court  had  reason  to  hold  that  the  untrue  statement 
was  not  made  by  the  assured,  and  that  it  would  operate  as  a  fraud 
on  the  plaintiff  if  he  were  not  permitted  to  show  this  fact,  which  was 
not  a  fact  or  statement  contained  in  the  policy  sued  on,  but  an  extrinsic 
fact  or  statement  contained  in  the  application.  The  defense  made 
upon  that  statement  was,  in  legal  effect  a  denial  of  the  execution  of 
the  statement — a  defense  that  can  always  be  sustained  by  parol  evi- 
dence. 

However  this  may  have  been,  we  are  unwilling  to  have  the  case 
regarded  as  one  overthrowing  a  general  rule  of  evidence.  Some  of 
the  remarks  contained  in  the  opinion  might  seem  to  bear  that  inter- 
pretation, but  not  necessarily  so.  ^^ 

That  Mr.  Justice  Miller  did  not  intend,  in  the  case  of  Union  Mut. 
L.  Ins.  Co.  V.  Wilkinson,  to  lay  down  a  new  rule  of  evidence  in  insur- 
ance cases,  is  clearly  shown  in  the  subsequent  case  of  Merchants'  Mut. 
Ins.  Co.  V.  Lyman,  15  Wall.  664,  21  L.  Ed.  246,  where  the  opinion  was 
delivered  by  the  same  learned  justice.  [The  quotation  from  this  case, 
printed  herein  (ante,  p.  314),  is  omitted.] 

Eames  v.  Home  Ins.  Co.,  94  U.  S.  621,  24  L.  Ed.  298,  is  another 
case  relied  on  as  showing  that  the  general  rule  of  evidence  was  not 
applicable  in  insurance  cases.  But  that  was  the  case  of  a  bill  in  equity 
filed  against  an  insurance  company  of  New  York  to  require  said  com- 
pany to  issue  to  the  complainants  a  policy  of  insurance  against  loss  or 
damage  by  fire,  in  pursuance  of  a  contract  for  that  purpose  alleged  to 
have  been  made  with  their  agents  in  Illinois.  It  was  made  to  appear 
that  the  terms  of  a  contract  for  insurance  upon  property  which  was 
destroyed  by  fire  before  the  policy  was  received  had  been  agreed  upon. 

30  "  *  *  *  rjijjg  case  of  Union  Mut.  Life  Ins.  Co.  v.  Willvinson,  and  tlie 
other  cases  in  the  Supreme  Court  of  the  Tnited  States  along  the  same  line, 
were  'distinguished'  in  name,  but  in  fact  were  overruled,  and  the  Wilkinson 
Case  was  almost  in  terms  overruled."  Hill,  C.  J.,  in  People's  Fire  Ins.  Ass'n 
V.  Goyne,  79  Ark.  315,  D6  S.  W.  365,  16  L.  R.  A.  (N.  S.)  IISO,  9  Ann.  Cas.  373 
(1906).  The  case  just  cited  contains  an  interesting  criticism  of  the  principal 
case. 


Sec.  4)  ESTOPPEL  533 

This  agreement  was  manifested  by  an  application  signed  by  the  com- 
plainant, and  in  several  letters  which  had  passed  between  the  local 
agent  and  the  general  agent  of  the  company,  and  between  the  com- 
plainant and  the  local  agent.  The  report  of  the  case  states  that  there 
was  an  agreement  as  to  certain  facts  by  the  attorneys  in  the  cause, 
but  what  those  facts  were  does  not  distinctly  appear  in  the  report. 
However,  all  that  can  be  claimed  for  the  case  is  that  this  court  con- 
sidered, from  the  agreement  as  to  facts  between  the  attorneys,  and 
from  the  application  and  the  several  letters  between  the  agents  and  the 
complainant,  that  a  case  was  made  out  justifying  a  court  of  equity  to 
decree  that  complainant  was  entitled  to  a  policy  of  insurance  to  be 
issued  for  the  amount  and  at  the  premium  shown  by  the  proofs.  What 
was  the  scope  of  the  authority  of  the  agents  who  prepared  the  applica- 
tion and  conducted  the  correspondence  does  not  appear,  but  the  court 
seems  to  have  assumed  that  it  sufficiently  appeared  that  the  agents 
had  authority  to  act  as  they  did.  It  is  not  perceived  that  this  case 
has  any  valid  application  to  the  case  now  before  us,  beyond  apparently 
holding,  with  Union  Mut.  L.  Ins.  Co.  v.  Wilkinson,  in  13  Wall.  232,  20 
L.  Ed.  622,  that  it  may  be  shown  by  parol  that  a  statement  which  pur- 
ports to  have  been  made  by  an  applicant  for  insurance  was  not,  in  point 
of  fact,  his  statement,  but  was  really  that  of  the  agent. ^^     *     *     * 

31  Here  are  omitted  extensive  comments,  with  quotation,  upon  Knicker- 
bocker Life  Ins.  Co.  v.  Norton.  9tj  U.  S.  '2?A.  24  L.  Ed.  TiSO  (1877).  ante.  p.  40(i : 
Globe  Mut.  Life  Ins.  Co.  v.  Wolff,  95  U.  S.  326,  24  L.  Ed.  387  (1877)  ;  and 
New  York  Life  Ins.  Co.  v,  Fletcher,  117  U.  S.  519,  6  Sup.  Ct.  837,  29  L.  Ed. 
934  (1886).  The  syllabus  of  the  last  case,  as  adopted  by  the  court  in  the 
principal  case,  is  as  follows :  "A  person  applied  in  St.  Louis  to  an  agent  of 
a  New  York  insurance  company  for  insurance  on  his  life.  The  agent,  under 
general  instructions,  questioned  him  on  subjects  material  to  the  risk.  He 
made  answers  which,  if  correctly  written  down  and  transmitted  to  the  com- 
pany, would  have  probably  caused  it  to  decline  the  risk.  Tbe  agent,  without 
the  knowledge  of  the  applicant,  wrote  down  false  answers,  concealing  the 
truth,  which  were  signed  by  the  applicant  without  reading,  and  by  the  agent 
transmitted  to  the  company,  and  the  company  thereupon  assumed  the  risk. 
It  was  conditioned  in  the  policy  that  the  answers  were  part  of  it,  and  that 
no  statement  to  the  agent  not  thus  transmitted  should  be  binding  on  his 
principal;  and  a  copy  of  the  answers,  with  these  conditions  conspicuously 
printed  upon  it,  accompanied  the  policy.     Held,  that  the  policy  was  void." 

In  the  Fletcher  Case  the  decision  was  to  a  great  extent  based  upon  a  state- 
ment in  the  application  that  the  rights  of  the  insurer  should  not  be  affected 
by  any  statements  made  to  or  by  the  insurer's  agents  unless  appearing  in 
writing  on  the  application.  As  said  by  Field,  J.  (117  U.  S.  529,  6  Sup.  Ct. 
842,  29  L.  Ed.  934  [18S6]):  "But  the  case  as  presented  by  the  record  is  by 
no  means  as  favorable  to  him  as  we  have  assumed.  It  was  his  duty  to  read 
the  application  he  signed.  He  knew  that  upon  it  the  policy  would  be  issued, 
if  issued  at  all.  It  would  introduce  great  uncertainty  in  all  business  transac- 
tions if  a  party  making  written  proposals  for  a  contract,  with  representations 
to  induce  its  execution,  should  be  allowed  to  show,  after  it  had  been  obtained, 
that  he  did  not  know  the  contents  of  his  proposals,  and  to  enforce  it  notwith- 
standing their  falsity  as  to  matters  essential  to  its  obligation  and  validity. 
Contracts  could  not  be  made,  or  business  fairly  conducted,  if  such  a  rule 
should  prevail;  and  there  is  no  reason  why  it  should  be  applied  merely  to 
contracts  of  insurance.  There  is  nothing  in  their  nature  which  distinguishes 
them  in  this  particular  from  others.  But  here  the  right  is  asserted  to  prove, 
not  only  that  the  assured  did  not  make  the  statements  contained  in  his  an- 


534  WAIVER   AND    ESTOrPEL  (Ch.  8 

What,  then,  are  the  principles  sustained  by  the  authorities,  and  appli- 
cable to  the  case  in  hand  ?    They  may  be  briefly  stated  thus  : 

That  contracts  in  writing,  if  in  unambiguous  terms,  must  be  per- 
mitted to  speak  for  themselves,  and  cannot  by  the  courts,  at  the  in- 
stance of  one  of  the  parties,  be  altered  or  contradicted  by  parol  evi- 
dence, unless  in  case  of  fraud  or  mutual  mistake  of  facts ;  that  this 
principle  is  applicable  to  cases  of  insurance  contracts  as  fully  as  to 
contracts  on  other  subjects;  that  provisions  contained  in  fire  insur- 
ance policies,  that  such  a  policy  shall  be  void  and  of  no  effect  if  other 
insurance  is  placed  on  the  property  in  other  companies,  without  the 
knowledge  and  consent  of  the  company,  are  usual  and  reasonable ;  that 
it  is  reasonable  and  competent  for  the  parties  to  agree  that  such  knowl- 
edge and  consent  shall  be  manifested  in  writing,  either  by  indorse- 
ment upon  the  policy  or  by  other  writing;  that  it  is  competent  and 
reasonable  for  insurance  companies  to  make  it  matter  of  condition  in 
their  policies  that  their  agents  shall  not  be  deemed  to  have  authority 
to  alter  or  contradict  the  express  terms  of  the  policies  as  executed  and 
delivered ;  that  where  fire  insurance  policies  contain  provisions  where- 
by agents  may,  by  writing  indorsed  upon  the  policy  or  by  writing  at- 
tached thereto,  express  the  company's  assent  to  other  insurance,  such 
limited  grant  of  authority  is  the  measure  of  the  agent's  power  in  the 
matter,  and  where  such  limitation  is  expressed  in  the  policy,  executed 
and  accepted,  the  insured  is  presumed,  as  matter  of  law,  to  be  aware 
of  such  limitation ;  that  insurance  companies  may  waive  forfeiture 
caused  by  nonobservance  of  such  conditions ;  that,  where  waiver  is 
relied  on,  the  plaintifif  must  show  that  the  company,  with  knowledge 
of  the  facts  that  occasioned  the  forfeiture,  dispensed  with  the  observ- 
ance of  the  condition ;  that  where  the  waiver  relied  on  is  an  act  of 
an  agent,  it  must  be  shown,  either  that  the  agent  had  express  authority 
from  the  company  to  make  the  waiver,  or  that  the  company  subse- 
quently, with  knowledge  of  the  facts,  ratified  the  action  of  the  agent. 

In  the  light  of  these  principles,  let  us  examine  the  contract  that  was 
made  between  the  parties  to  the  controversy  before  us.  The  contract 
was  in  writing,  and  in  clear  and  unambiguous  terms ;  that  contract 
provided  that  "this  entire  policy,  unless  otherwise  provided  by  agree- 
ment indorsed  hereon  or  added  hereto,  shall  be  void  if  the  insured 
now  has  or  shall  hereafter  make  or  procure,  any  other  contract  of 

swers,  but  that  he  never  read  the  application,  and  to  recover  upon  a  con- 
tract obtained  by  representations  admitted  to  be  false,  just  as  though  they 
were  true.  If  he  had  read  even  the  printed  lines  of  his  application,  he  would 
have  seen  that  it  stipulated  that  the  rights  of  the  company  could  in  no  re- 
spect be  affected  by  his  verbal  statements,  or  by  those  of  its  agents,  unless 
the  same  were  reduced  to  writing  and  forwarded  with  his  application  to  the 
home  office.  The  company,  like  any  other  principal,  could  limit  the  authority 
of  its  agents,  and  thus  bind  all  parties  dealing  with  them  with  knowledge 
of  the  limitation.  It  must  be  presumed  that  he  read  the  application,  and  was 
cognizant  of  the  limitations  therein  expressed." 

It  should  further  be  noted  that  the  facts  in  the  Fletcher  Case  justify  a 
serious  doubt  as  to  the  good  faith  of  the  insured. 


Sec.  4)  ESTOPPEL  535 

insurance,  whether  valid  or  not,  on  property  covered  in  whole  or  in 
part  by  this  policy,"  and  that  "no  officer,  agent,  or  other  representative 
of  this  company  shall  have  power  to  waive  any  provision  or  condition 
of  this  policy,  except  such  as  by  the  terms  of  the  policy  may  be  the 
subject  of  agreement  indorsed  hereon  or  added  hereto,  and,  as  to  such 
provisions  or  conditions,  no  officer,  agent,  or  representative  shall 
have  power  or  be  deemed  or  held  to  have  waived  such  provisions  or 
conditions,  unless  such  waiver,  if  any,  shall  be  written  upon  or  attached 
hereto,  nor  shall  any  privilege  or  permission  affecting  the  insurance 
under  this  policy  exist  or  be  claimed  by  the  insured  unless  so  written 
or  attached." 

Such  being  the  contract,  and  the  property  insured  having  been  de- 
stroyed by  fire  on  June  1,  1898,  and  the  insurance  company  having 
denied  liability  because  informed  that  other  insurance  was  held  by  the 
insured  on  the  same  property,  without  the  knowledge  or  consent  of 
the  company,  this  action  was  brought. 

It  is  not  pretended,  as  we  understand  the  plaintiff's  position,  that  by 
any  language  or  declaration  of  the  agent,  at  the  time  the  policy  was 
delivered  and  the  premium  paid,  he  claimed  to  have  power  to  waive 
any  provision  or  condition  of  the  policy,  nor  that  tlig  plaintiff  was  in- 
duced to  accept  the  policy  by  any  promise  of  the  agent  to  procure  the 
assent  of  the  company  to  permit  the  outstanding  insurance  and  to 
waive  the  condition.  The  plaintiff's  case  stands  solely  on  the  proposi- 
tion that  because  it  is  alleged,  and  the  jury  have  found,  that  the  agent 
had  notice  or  knowledge  of  the  existence  of  insurance  existing  in  an- 
other company  at  the  time  the  policy  in  suit  was  executed  and  accepted, 
and  received  the  premium  called  for  in  the  contract,  thereby  the  insur- 
ance company  is  estopped  from  availing  itself  of  the  protection  of 
the  conditions  contained  in  the  policy.  In  other  words,  the  contention 
is  that  an  agent  with  no  authority  to  dispense  with  or  alter  the  condi- 
tions of  the  policy  could  confer  such  power  upon  himself  by  disregard- 
ing the  limitations  expressed  in  the  contract,  those  limitations  being 
according  to  all  the  authorities  presumably  known  to  be  insured. 

It  was  not  shown  that  the  company,  when  it  received  the  premium, 
knew  of  the  outstanding  insurance,  nor  that,  when  made  aware  of  such 
insurance,  it  elected  to  ratify  the  act  of  its  agent  in  accepting  the 
premium.  On  the  contrary,  all  the  record  discloses  is  that  the  jury 
found  that  the  agent  knew,  when  the  policy  in  the  defendant  company 
was  issued  and  delivered  to  the  plaintiff',  that  there  was  then  subsisting 
fire  insurance  to  the  amount  of  $1,500  in  another  fire  insurance  com- 
pany, and  that  such  knowledge  had  been  communicated  to  the  agent 
by  or  on  behalf  of  the  assured.  There  is  no  finding  that  the  agent 
communicated  to  the  company  or  to  its  general  agent  at  Chicago,  at 
the  time  he  accounted  for  the  premium,  the  fact  that  there  was  exist- 
ing insurance  on  the  property,  and  that  he  had  undertaken  to  waive  the 
applicable  condition.     Indeed,  it  appears  from  the  letter  of  defendant's 


53G  WAIVER    AN'n    ESTOPPHL  (Cll.  '^ 

manager  at  Chicago,  to  whom  the  proofs  of  loss  had  been  sent,  which 
letter  was  put  in  evidence  by  the  plaintiff  and  is  set  forth  in  the  bill  of 
exceptions,  that  the  additional  insurance  held  by  the  j)laintiff  was 
without  the  knowledge  or  consent  of  the  com])any ;  and  it  further 
api)ears,  and  was  found  by  the  jury,  that  immediately  on  the  com- 
pany's being  informed  of  the  fact,  the  amount  of  the  premium  was  ten- 
dered by  the  agents  of  the  company  to  the  insured.  So  that  there  is 
not  the  slightest  ground  for  claiming  that  the  insurance  company, 
with  knowledge  of  the  facts,  either  accepted  or  retained  the  premium. 

The  plaintiff's  case,  at  its  best,  is  based  on  the  alleged  fact  that  the 
agent  had  been  informed,  at  the  time  he  delivered  the  policy  and 
received  the  premium,  that  there  was  other  insurance.  The  only  way 
to  avoid  the  defense  and  escape  from  the  operation  of  the  condition,  is 
to  hold  that  it  is  not  competent  for  fire  insurance  companies  to  pro- 
tect themselves  by  conditions  of  the  kind  contained  in  this  policy.  So 
to  hold  would,  as  we  have  seen,  entirely  subvert  well-settled  principles 
declared  in  the  leading  English  and  American  cases,  and  particularly 
in  those  of  this  court. 

This  case  is  an  illustration  of  the  confusion  and  uncertainty  which 
would  be  occasioned  by  permitting  the  introduction  of  parol  evidence 
to  modify  written  contracts,  and  by  approving  the  conduct  of  agents 
and  persons  applying  for  insurance  in  disregarding  the  express  limita- 
tions put  upon  the  agents  by  the  principal  to  be  effected. 

It  should  not  escape  observation  that  preserving  written  contracts 
from  change  or  alteration  by  verbal  testimony  of  what  took  place  prior 
to  and  at  the  time  the  parties  put  their  agreements  into  that  form,  is 
for  the  benefit  of  both  parties.  In  the  present  case,  if  the  witnesses 
on  whom  the  plaintiff  relied  to  prove  notice  to  the  agent  had  died,  or 
had  forgotten  the  circumstances,  he  would  thus,  if  he  had  depended 
to  prove  his  contract  by  evidence  extrinsic  to  the  written  instrument, 
have  found  himself  unable  to  do  so.  So,  on  the  other  side,  if  the  agent 
had  died,  or  his  memory  had  failed,  the  defendant  company  might 
have  been  at  the  mercy  of  unscrupulous  and  interested  witnesses.  It 
is  not  an  answer  to  say  that  such  difficulties  attend  other  transactions 
and  negotiations,  for  it  is  the  knowledge  of  the  inconveniences  that 
attend  oral  evidence  that  has  led  to  the  custom  of  putting  important 
agreements  in  writing  and  to  the  legal  doctrine  that  protects  them  when 
so  expressed,  and  when  no  fraud  or  mutual  mistake  exists,  from  being 
changed  or  modified  by  the  testimony  of  witnesses  as  to  conversations 
and  negotiations  that  may  never  have  taken  place,  or  the  real  nature 
and  meaning  of  which  may  have  faded  from  recollection. 

Besides  the  importance  of  such  considerations  to  the  parties  imme- 
diately concerned  in  business  transactions,  the  community  at  large 
have  a  deep  interest  in  the  welfare  and  prosperity  of  such  beneficial 
institutions  as  fire  insurance  companies.  It  would  be  very  unfortunate 
if  prudent  men  should  be  deterred  from  investing  capital  in  such  com- 


Sec.  4)  ESTOPPEL  537 

panics  by  having  reason  to  fear  that  conditions  which  have  been  found 
reasonable  and  necessary  to  put  into  poHcies  to  protect  the  companies 
from  faithless  agents  and  from  dishonest  insurers,  are  liable  to  be 
nullified  by  verdicts  based  on  verbal  testimony.  Increased  importance 
should  be  given  to  the  rules  involved  in  this  discussion  by  the  fact 
that,  in  later  times  and  in  most,  if  not  all,  of  the  states,  statutory 
changes  have  opened  the  courts  to  the  testimony  of  the  very  parties? 
who  have  signed  the  written  instrument  in  controversy.^^ 

The  judgment  of  the  Circuit  Court  of  Appeals  is  reversed.  The 
judgment  of  the  Circuit  Court  is  likewise  reversed,  and  the  cause 
remitted  to  that  court  with  directions  to  proceed  in  conformity  with 
this  opinion.^^ 

The  Chief  Justice,  Mr.  Justice  Harlan  and  Mr.  Justice  Pe;ckham 
dissent. 

3  2  The  principal  case  has  been  cited  with  approval  in  Penman  v.  St.  Paul 
Fire  »&  Marine  Ins.  Co.,  216  U.  S.  311,  30  Sup.  Ct.  312.  54  L.  Ed.  493  (1910), 
and  .Etna  Life  Ins.  Co.  v.  Moore,  231  U.  S.  543,  34  Sup.  Ct.  1S6,  58  L.  Ed. 

(1913).     And  see,  in  accord,  Thomas  v.  Commercial  Union   Ins.  Co.,  162 

Mass.  29,  37  N.  E.  672.  44  Am.  St.  Rep.  323  (1894);  Batchelder  v.  Queen  Ins. 
Co.,  135  Mass.  449  (1883). 

In  following  the  rule  laid  down  in  the  principal  case  Mr.  Justice  Hayes, 
speaking  for  the  Supreme  Court  of  Oklahoma,  said:  "This  rule  laid  down 
by  the  Supreme  Court  of  the  Ignited  States  in  Northern  Assurance  Company 
V.  Grand  View  Building  Association,  supra,  183  U.  S.  308,  22  Sup.  Ct.  133,  46 
L.  Ed.  213  [1902],  was  a  controlling  decision  upon  the  trial  court  in  the  case 
at  bar;  and,  while  we  do  not  wish  to  be  understood  as  saying  that  it  is  our 
opinion  that  the  doctrine  announced  in  that  case  is  in  harmony  with  the 
weight  of  authorities  upon  this  question,  or  that  it  is  supported  by  the  bet- 
ter reasoning,  yet  on  account  of  the  fact  that  the  rule  announced  In  said 
case  was  the  law  controlling  the  courts  in  the  Indian  Territory  at  the  time 
of  the  trial  of  the  case  at  bar  we  are  constrained  to  follow  in  this  case  the 
rule  announced  therein,  and  hold  that  the  trial  court  did  not  err  in  refusing 
to  permit  the  inti'oduction  of  oral  testimony  to  show  the  knowledge  of  the 
agent  of  the  company  of  the  existence  of  said  mortgage  at  the  time  of  the 
execution  and  delivery  of  the  policy,  and  that  said  court  did  not  err  in  hold- 
ing that  the  forfeiting  of  said  policy,  if  any  had  occurred,  was  not  waived, 
and  that  the  defendant  company  was  not  estopped  from  pleading  the  same 
as  a  defense  by  reason  of  the  fact  that  the  agent  of  the  company  who  coun- 
tersigned and  delivered  said  policy  had  knowledge  at  the  time  of  the  exist- 
ence of  said  mortgage.  In  applying  the  rule  of  law  adopted  by  the  Supreme 
Court  of  the  United  States  in  said  case  to  the  case  at  bar,  and  in  following 
the  same,  we  do  not  wish  to  be  understood  as  laying  down  a  rule  by  which 
this  court  shall  be  governed  in  the  future  in  passing  upon  this  same  question 
arising  in  cases  originating  since  the  admission  of  the  state  of  Oklahoma 
into  the  Union."  Sullivan  v.  Mercantile  Mutual  Insurance  Companv.  20  Okl. 
460,  94  Pac.  676,  129  Am.  St.  Rep.  761  (1908).  This  passage  is  quoted  with 
approval  in  State  Mutual  Insurance  Company  v.  Craig,  27  Okl.  90,  111  Pac. 
325  (1910). 

3  3  The  subsequent  history  of  this  case  is  interesting.  In  January,  1903, 
the  insured  after  nearly  five  years  spent  in  the  unhappy  effort  to  recover 
in  an  action  at  law  on  the  policy,  instituted  in  a  Nebraska  district  court  an 
equitable  proceeding  asking  that  the  contract  be  reformed,  and  the  defend- 
ant be  compelled  to  pay  under  the  contract  as  reformed.  Having  success- 
fully avoided  the  defendant's  pleas  of  res  adjudicata  and  the  statute  of 
limitations,  the  plaintiff  secured  a  favorable  decree,  which  was  affirmed  by 
the  Supreme  Court  of  Nebraska  in  1905.  73  Neb.  149,  102  N.  W.  246.  That 
court  thus  disposed  of  the  defense  of  res  adjudicata  interposed  by  the  de- 
fendant:    "Is  the  judgment  of  the  federal  court  res  adjudicata,  and  an  estop- 


538  WAIVER    AND    ESTOPPEL  (Ch.  8 

pel  to  the  proseaition  of  this  suit?  Wo  thinit  that,  so  far  as  this  jurisdic- 
tion Is  concerned,  whatovcr  may  be  the  law  elsewhere,  this  court  has  conclu- 
sively answered  this  question  in  the  nej^ative.  When  the  plaintiff  bejjan  the 
fdrnu'r  action,  it  supposed,  as  is  shown  by  testimony  of  its  counsel  preserved 
in  the  record,  and,  moreovei',  was  bound  to  suppose,  not  only  that  an  action 
at  law  on  the  contract,  with  pleading  and  proof  of  oral  waiver  of  the  stipula- 
tion for  forfeiture,  was  a  proper  and  adequate  I'emedy  for  the  rec-overy  of  its 
loss,  but  that,  because  it  was  so,  a  suit  in  equity  to  obtain  a  vain  and  un- 
necessary reformation  of  the  contract  would  not  lie.  Insurance  Co.  v.  Nor- 
wood, 69  Fed.  71,  16  C.  C.  A.  136  (189.5) ;  Home  Fire  Insurance  Company  v. 
Wood,  50  Neb.  3S6,  69  N.  W.  941  (1896).  The  plaintiff  began  its  action  and 
prosecuted  it  to  final  judgment  in  reliance  upon,  and  in  strict  conformity 
with,  these  decisions,  the  former  of  which  was  justified,  as  the  court  pro- 
nouncing it  thought,  by  the  opinion  of  the  Supreme  Court  of  the  United 
States  in  Insurance  Company  v.  Wilkinson,  13  Wall.  233,  20  L.  Ed.  617 
(1871).  To  say  now  that  the  plaintiff  is  estopped  because  it  failed  in  the  first 
instance  to  take  its  cause  into  a  forum  whose  doors  were,  to  all  appearances, 
firmly  and  finally  bolted  and  barred  against  it,  would  not  fall  short  of  a 
mockery  of  justice." 

In  commenting  upon  the  decision  in  the  principal  case,  the  Nebraska  Su- 
preme Court  seemed  to  show  some  resentment,  judging  from  the  somewhat 
unconventional  language  used:  "From  the  final  decision  in  the  former  ac- 
tion, four  out  of  the  nine  .Judges  of  the  United  States  Supreme  Court  dis- 
sented. The  opinion  of  the  majority,  being  an  adherence  to  the  letter  of 
an  antiquated  and  worn-out  technical  formality,  seems  to  us  to  be  an  ironical 
commentary  upon  the  often-repeated  judicial  boast  that  the  law  is  a  progres- 
sive science,  and  that  the  courts  are  continually  adapting  their  processes  and 
proceedings  to  changing  social  and  business  needs  and  customs.  Either  so.  or 
else,  as  we  consider,  the  court  fell  into  a  still  more  grievous  error.  The 
familiar  maxim  that  equity  regards  that  as  having  been  done  which  was 
agreejd  to  be  and  ought  in  good  conscience  to  have  been  done  has  not  for  a 
long  time  been  a  stranger  in  courts  of  law  in  cases  in  which  equitable  mat- 
ters are  properly  in  Issue.  It  is  admitted  on  all  hands  that  the  agent,  Borgelt, 
had  authority  to  bind  his  principal  by  executing  the  desired  written  stipula- 
tion for  concurrent  insurance.  The  greater  includes  the  less.  If  he  had  pow- 
er to  enter  into  the  covenant,  he  also  had  power  to  agree  to  enter  into  it. 
And  if,  for  value,  he  made  such  an  agreement,  and.  through  fraud  or  mistake, 
failed  to  keep  it,  his  failure  is  actionable  both  at  law  and  in  equity.  It  is 
upon  such  failure  that  this  action  is  grounded.  The  parties  did  not  waive 
written  consent  to  concurrent  insurance,  or  attempt  so  to  do,  but,  on  the 
contrary,  agreed  that  it  should  be  given.  It  is  because  of  such  agreement, 
and  because  such  consent  was  mistakenly  or  accidentally  omitted,  that  the 
plaintiff  is  entitled  to  have  the  contract  reformed.  Besides,  the  place  where 
the  contract  was  made,  and  where  by  its  terms  it  was  to  be  performed,  and 
where  the  subject  of  it  was  situated,  is  in  Nebraska.  We  are  at  a  loss  to 
understand  why  the  laws  of  Nebraska,  as  expounded  by  the  highest  court  of 
the  state,  are  not  conclusive  of  its  obligatory  force,  and  of  its  meaning  and 
effect,  if  not  of  the  remedy  appropriate  to  its  enforcement.  It  is  another 
familiar  and  often  quoted  maxim  that  the  law  enters  into  and  becomes  an 
Inseparable  part  of  every  contract.  We  desire  to  be  told  what  law,  other  than 
that  of  Nebraska,  became  thus  incorporated  into  the  contract  in  suit." 

The  industrious  defendant  appealed  from  this  judgment  to  the  Supreme 
Court  of  the  United  States,  claiming  that  the  Nebraska  court  had  not  given 
full  faith  and  credit  to  the  former  judgment  of  the  federal  court.  But  the 
Supreme  Court  gently  refused  to  disturb  the  Nebraska  judgment,  saying  that 
the  plaintiff's  "choice  of  law  was  not  an  election,  but  an  hypothesis."  This 
was  in  November,  1906.     See  203  U.  S.  106,  27  Sup.  Ct.  27,  51  L.  Ed.  109. 


Sec.  4)  ESTorrKL  539 


LEISEN  V.  ST.   PAUL  FIRE  &  MARINE  INS.  CO. 

(Supreme  Court  of  North  Dakota,  1910.     20  N.  D.  316,  127  N.   W.  837, 
30  L.  R.  A.  [N.  S.]  539.) 

FiSK,  J.  This  is  an  action  to  recover  on  an  insurance  policy.  The 
complaint  is  in  the  usual  form,  alleging:  That  in  consideration  of  $51 
paid  by  the  plaintiff  to  defendant  the  latter  issued  its  policy  of  insur- 
ance, a  copy  of  which  is  annexed  to  and  made  a  part  of  the  complaint, 
whereby  defendant  insured  the  plaintiff  against  loss  or  damage  by 
fire  in  the  sum  of  $1,000  on  a  certain  frame  building  situated  on  lots 
9  and  10,  block  21  of  the  village  of  Leonard,  Cass  county,  for  the  term 
of  one  year  from  January  6,  1906.  That  plaintiff  duly  performed  all 
of  the  terms  of  said  contract  of  insurance  on  his  part  to  be  perform- 
ed, and  that  on  January  29,  1906,  said  building  was  totally  destroyed 
by  fire,  which  fire  did  not  occur  by  reason  of  any  of  the  causes  enu- 
merated in  said  policy  exempting  the  insurance  company  from  liabil- 
ity in  case  of  fire  or  loss,  and  that  plaintiff's  loss  by  reason  of  such 
fire  exceeded  the  sum  of  $1,500.  That  the  destruction  by  fire  as  afore- 
said was  complete  and  the  loss  total,  and  that  there  was  no  disagree- 
ment between  the  plaintiff  and  defendant  as  to  the  amount  of  said 
loss,  but  that  shortly  after  defendant  was  notified  of  the  loss  it  denied 
any  liability  under  the  policy  on  the  ground  that  plaintiff's  title  to  the 
property  insured  was  not  truly  stated  in  the  policy  or  the  application 
therefor. 

Plaintiff,  in  his  complaint,  anticipates  the  defense  that  the  policy 
never  attached  or  became  effective  by  reason  of  the  fact  that  plain- 
tiff's title  to  the  property  insured  was  not  that  of  unconditional  and 
sole  ownership,  etc.,  and  in  this  respect  alleges  the  following  facts : 
"That  at  and  during  the  said  month  of  January,  1906,  plaintiff  was  and 
still  is  the  owner  and  holder  of  a  certain  sheriff's  certificate  of  mort- 
gage foreclosure  sale  of  and  upon  the  said  frame  building  and  the 
lot  or  parcel  of  land  on  which  the  same  was  situated,  and  at  the  time 
of  the  destruction  of  such  building  by  fire  hereinafter  referred  to,  there 
was  due  and  unpaid  on  the  said  certificate  of  mortgage  foreclosure  sale 
an  amount  exceeding  the  total  amount  of  such  insurance,  and  that  at 
the  time  of  the  plaintiff's  application  for  the  insurance  aforesaid,  and 
at  the  time  of  the  execution  and  delivery  of  the  policy  aforesaid,  the 
plaintiff'  notified  and  informed  the  defendant  company  and  its  agent 
the  nature  and  character  of  plaintiff's  insurable  interest  in  the  frame 
building  aforesaid,  and  that  plaintiff  was  the  owner  and  holder  of  a 
sheriff's  certificate  of  mortgage  foreclose  sale  as  aforesaid,  but  the  de- 
fendant and  its  said  agent,  though  it  then  and  there  knew  as  aforesaid 
the  character  and  extent  of  plaintiff's  insurable  interest  in  the  frame 
building  and  premises  aforesaid,  carelessly  and  negligently  stated  and 
caused  to  be  stated  in  the  said  policy  of  insurance  and  application 
therefor  that  plaintiff  was  the  owner  in  fee  simple  of  said  premises 


540  WAIVER    AND    KSTOI'TEL  (Ch.  8 

and  the  whole  thereof,  and  thereby  waived  the  conditions  of  said  pol- 
icy of  insurance  exempting  the  defendant  company  from  liability  in 
case  the  plaintiff's  interest  in  the  premises  insured  be  not  truly  stated 
in  such  policy  or  in  the  application  therefor." 

The  policy  is  the  standard  form  adopted  in  this  state,  and  contains, 
among  others,  the  following  stipulations :  "This  entire  policy  shall  be 
void  if  the  insured  has  concealed  or  misrepresented,  in  writing  or  oth- 
erwise, any  material  fact  or  circumstance  concerning  this  insurance  or 
the  subject  thereof;  or  if  the  interest  of  the  insured  in  the  property 
be  not  truly  stated  herein.  *  *  *  This  entire  policy,  unless  other- 
wise provided  by  agreement  indorsed  hereon  or  added  hereto,  shall  be 
void  *  *  *  jf  ti^g  interest  of  the  insured  be  other  than  uncondi- 
tional and  sole  ownership;  or  if  the  subject  of  insurance  be  a  building 
on  ground  not  owned  by  the  insured  in  fee-simple.  *  *  *  This 
policy  is  made  and  accepted  subject  to  the  foregoing  stipulations  and 
conditions,  together  with  such  other  provisions,  agreements  or  condi- 
tions as  may  be  indorsed  hereon  or  added  hereto,  and  no  officer,  agent 
or  other  representative  of  this  company  shall  have  power  to  waive 
any  provision  or  condition  of  this  policy  except  such  as  by  the  terms 
of  this  policy  may  be  the  subject  of  agreement  indorsed  hereon  or  add- 
ed hereto  and  as  to  such  provisions  and  conditions  no  officer,  agent 
or  representative  shall  have  such  power  or  be  deemed  or  held  to  have 
waived  such  provisions  or  conditions  unless  such  waiver,  if  any,  shall 
be  written  upon  or  attached  hereto,  nor  shall  any  privilege  or  permis- 
sion affecting  the  insurance  under  this  policy  exist  or  be  claimed  by 
the  insured  unless  so  written  or  attached." 

A  demurrer  was  interposed  to  the  complaint  upon  the  ground  that 
the  complaint  fails  to  state  facts  sufficient  to  constitute  a  cause  of  ac- 
tion. Such  demurrer  was  overruled,  and  the  appeal  is  from  the  or- 
der overruling  the  same. 

In  brief,  appellant's  contention  on  this  appeal  is  that  under  the 
facts  alleged  in  the  complaint  the  policy  is  and  was  void  at  its  incep- 
tion for  the  reason  that  the  interest  of  the  insured  was  not  that  of 
"unconditional  and  sole  ownership,"  and  the  nature  and  extent  of  his 
interest  in  the  property  was  not  stated  in  nor  indorsed  upon  the  pol- 
icy. In  other  words,  notwithstanding  the  fact  that  plaintiff",  in  apply- 
ing for  the  insurance  and  at  the  time  of  the  execution  and  delivery  of 
the  policy,  expressly  notified  and  informed  defendant  and  its  agent  of 
the  nature  and  character  of  his  interest  in  the  property,  and  that  de- 
fendant with  such  notice  and  knowledge  executed  and  delivered  to 
plaintiff  such  policy  and  collected  the  premium  thereunder,  that  de- 
fendant may,  nevertheless,  urge  that  such  policy  was  void  at  its  incep- 
tion and  no  liability  ever  attached  thereunder;  that  the  doctrine  of 
implied  waiver  and  estoppel  cannot  be  successfully  invoked  because 
the  parties,  by  their  contract,  have  otherwise  stipulated,  and  the  Leg- 
islature by  statute,  in  effect,  otherwise  declared. 

If  appellant's  contention  be  sound,  the  result  would  be  most  harsh 


Sec.  4)  ESTOPPEL  541 

and  inequitable.  We  cannot  countenance  such  a  doctrine  ujiless  im- 
peratively required  so  to  do  by  plainly  established  principles  of  law. 
We  are  entirely  clear  that  we  are  confronted  with  no  such  situation. 
On  the  contrary,  we  are  entirely  clear  that  appellant's  contention  is 
without  support  on  principle  or  reason  and  is  contrary  to  the  over- 
whelming weight  of  authority  in  this  country.  In  support  of  this 
broad  assertion,  we  proceed  to  give  our  reasons,  but  in  the  main  shall 
adopt  the  reasoning  of  other  courts  upon  the  questions  involved. 

We  will  first  notice  the  present  status  of  the  adjudications  of  this 
court  and  its  predecessor,  the  territorial  court,  so  far  as  material  to 
the  question  here  involved.^* 

As  we  shall  hereafter  see,  the  rule  of  the  federal  court  as  announced 
in  Northern  Assurance  Co.  v.  Grand  View  Bldg.  Ass'n,  183  U.  S.  308, 
22  Sup.  Ct.  133,  46  L.  Ed.  213,  is  opposed  to  the  decisions  of  nearly 
every  state  in  the  Union  which  has  had  occasion  to  pass  upon  the 
question,  and  to  the  extent  that  the  opinion  in  Lamb  v.  Insurance  Co. 
approves  the  rule  thus  announced  by  the  federal  court,  the  same  is 
hereby  disapproved. 

We  deem  the  correct  rule  to  be  as  stated  in  the  leading  case  of 
Wood  v.  Insurance  Co.,  149  N.  Y.  382,  44  N.  E.  80,  52  Am.  St.  Rep. 
7Z2>,  as  follows :  "The  restrictions  inserted  in  the  contract  upon  the 
power  of  the  agent  to  waive  any  condition  unless  done  in  a  particular 
manner,  cannot  be  deemed  to  apply  to  those  conditions  which  relate 
to  the  inception  of  the  contract,  when  it  appears  that  the  agent  has  de- 
livered it  and  received  the  premiums  with  full  knowledge  of  the  actual 
situation.  To  take  the  benefit  of  a  contract  with  full  knowledge  of 
all  the  facts  and  attempt  afterwards  to  defeat  it,  when  called  upon  to 
perform,  by  asserting  conditions  relating  to  those  facts,  would  be  to 
claim  that  no  contract  was  made,  and  thus  operate  as  a  fraud  upon  the 
other  party."  That  court  in  a  later  case  also  said :  "The  agent  of  a 
fire  insurance  company  may,  by  issuing  the  policy  with  knowledge  of 
the  facts,  waive  a  condition  that  the  policy  shall  be  void  if  the  prop- 
erty insured  be  incumbered  and  the  nature  of  the  incumbrance  be  not 
indorsed  on  the  policy,  notwithstanding  a  provision  in  the  policy  that 
no  agent  of  the  company  shall  have  power  to  waive  any  such  condi- 
tions, except  by  written  indorsement."  Skinner  v.  Norman,  165  N. 
Y.  565,  59  N.  E.  309,  80  Am.  St.  Rep.  776. 

That  the  rule  of  the  New  York  cases  is  supported  by  the  overwhelm- 
ing weight  of  authority  must  be  conceded.  We  cite  the  following 
cases  supporting  the  above  rule:    Welch  v.  Fire  Ass'n  of  Phil.,  120 

3  4  The  court's  careful  consideration  of  tbe  preceding  Dakota  cases  is  omit- 
ted. The  fact  that  in  Johnson  v.  Dalcota  Fire  &  Marine  Ins.  Co.,  1  N.  D. 
167,  45  N.  W.  799  (1S90),  the  court  had  unequivocally  approved  the  federal 
rule  as  announced  in  N.  Y.  Life  Ins.  Co.  v.  Fletcher,  117  U.  S.  519,  6  Sup. 
Ct.  8.37,  29  L.  Ed.  934  (ISSG),  provetl  somewhat  enibarra.ssing.  as  did  the 
warm  commendation  of  the  opinion  of  the  Supreme  Court  of  the  United 
rotates  in  Northern  Assurance  Co.  v.  Grand  View  Building  Association,  183 
U.  S.  308,  22  Sup.  Ct.  133,  46  L.  Ed.  213  (1902),  found  in  Lamb  v.  Merchants' 
Nat.   Ins.  Co.,  18  N.  D.  253,  119  N.  W.  1048  (1909). 


542  WAIVER   AND    ESTOPPEL  (Ch.  8 

Wis.  456,  98  N.  W.  227 ;  Home  Ins.  Co.  v.  Bank,  88  Tenn.  369,  12 
S.  W.  915;  German  Am.  Ins.  Co.  v.  Yeagley,  163  Ind.  651,  71  N. 
E.  897,  2  Ann.  Cas.  275;  King  v.  Insurance  Co.,  72  Iowa,  310,  33  N. 
W.  690;  McGonigle  v.  Insurance  Co.,  168  Pa.  1,  31  Atl.  868;  Con- 
tinental Fire  Ass'n  v.  Norris,  30  Tex.  Civ.  App.  299,  70  S.  W.  769 ; 
•Continental  Ins.  Co.  v.  Brooks,  131  Ala.  614,  30  South.  876;  In- 
surance Co.  V.  Flemming,  65  Ark.  54,  44  S.  W.  464,  39  L.  R.  A.  789, 
67  Am.  St.  Rep.  900;  Rhode  Island  Underwriters'  Ass'n  v.  Mon- 
arch. 98  Ky.  305,  32  S.  W.  959;  Hartford  Fire  Ins.  Co.  v.  Keating, 
86  Md.  130,  38  Atl.  29,  63  Am.  St.  Rep.  499 ;  Improved-Match  Co. 
V.  Insurance  Co.,  122  Mich.  256,  80  N.  W.  1088;  Home  Ins.  Co.  v. 
Gibson,  72  Miss.  58,  17  South.  13;  Flournoy  v.  Insurance  Co.,  80  Mo. 
App.  655;  Parsons  v.  Insurance  Co.,  132  Mo.  583,  31  S.  W.  117, 
affirmed  in  bank  132  Mo.  583,  34  S.  W.  476;  Benjamin  v.  Insurance 
Co.,  80  App.  Div.  260,  80  N.  Y.  Supp.  256,  affirmed  in  177  N.  Y.  588, 
70  N.  E.  1095;  Grabbs  v.  Insurance  Co.,  125  N.  C.  389,  34  S.  E. 
503;  Gould  v.  Insurance  Co.,  134  Pa.  570,  19  Atl.  793,  19  Am.  St. 
Rep.  717;  Gandy  v.  Insurance  Co.,  52  S.  C.  224,  29  S.  E.  655;  Vir- 
ginia, etc.,  Ins.  Co.  v.  Richmond  Mica  Co.,  102  Va.  429,  46  S.  E.  463, 
102  Am.  St.  Rep.  846 ;  Wagner  v.  Insurance  Co.,  92  Tex.  549,  50  S. 
W.  569;  Bartlett  v.  Fireman's  Ins.  Co.,  17  Iowa,  155,  41  N.  W.  601; 
Medley  v.  Insurance  Co.,  55  W.  Va.  342,  47  S.  E.  101,  2  Ann.  Cas.  99; 
Orient  Ins.  Co.  v.  McKnight,  197  111.  190,  64  N.  E.  339;  German 
Ins.  Co.  v.  Shader,  68  Neb.  1,  93  N.  W.  972,  60  L.  R.  A.  918;  Grand 
View  Bldg.  Ass'n  v.  Northern  Assurance  Co.,  73  Neb.  149,  102  N. 
W.  246. 

Many  of  the  foregoing  cases  were  decided  since  the  Supreme  Court 
of  the  United  States  handed  down  the  Northern  Assurance  Company 
decision,  and  they  expressly  disapprove  the  same.^^     *     *     * 

In  addition  to  the  foregoing  authorities,  we  cite  the  following  very 
recent  cases  holding  to  the  same  effect :  Fosmark  v.  Equitable  Fire 
Association,  23  S.  D.  102,  120  N.  W.  777;  O'Neill  v.  Northern  As- 
surance Co.,  155  Mich.  564,  119  N.  W.  911;  Sharp  v.  Insurance  Co., 
136  Cal.  542,  69  Pac.  253,  615;  Allen  v.  Insurance  Co.,  133  Cal.  29, 
65  Pac.  138;  Eoring  v.  Insurance  Co.,  1  Cal.  App.  186,  81  Pac.  1025; 
Insurance  Co.  v.  Price  (decided  in  1909)  132  Ga.  687,  64  S.  E.  1074; 
Wisotzkey  v.  Insurance  Co.,  112  App.  Div.  599,  98  N.  Y.  Supp.  760; 
Plunkett  V.  Insurance  Co.,  80  S.  C.  407,  61  S.  E.  893 ;  Westchester 
Fire  Ins.  Co.  v.  Ocean  View  Pier  Co.,  106  Va.  633,  56  S.  E.  584; 
Glens  Falls  Ins.  Co.  v.  Michael,  167  Ind.  659,  74  N.  E.  964,  8  L.  R. 
A.  (N.  S.)  708;  People  v.  Goyne,  79  Ark.  315,  96  S.  W.  365,  16  L. 
R.  A.  (N.  S.)  1180,  9  Ann.  Cas.  Z72>\  House  v.  Insurance  Co.,  145 
Iowa,  462,  121  N.  W.  509;  Capital  Fire  Ins.  Co.  v.  Montgomery,  81 
Ark.  508,  99  S.  W.  687 ;  Parsons  v.  Lane,  97  Minn.  98,  106  N.  W. 
485,  4  L.  R.  A.  (N.  S.)  231,  17  Ann.  Cas.  1144;    19  Cyc.  812-814, 

35  A  quotation  from  Welch  v.  Fire  Ass'n,  120  Wis.  456,  98  N.  W.  227  (1904), 
ante,  p.  481,  is  omitted. 


Sec.  4)  ESTOPPEL  543 

and  cases  cited;  16  Am.  &  Eng.  Encyc.  of  L.  (2d  Ed.)  949;  3  Cooley's 
Briefs  on  the  Law  of  Ins.  2650-2655;  Clement,  Fire  Ins.  418;  Os- 
trander  on  Fire  Ins.  §  265  ;  Vance  on  Ins.  pp.  304,  305. 

In  speaking  on  the  question  of  waiver  or  estoppel  under  facts  here 
involved,  Mr.  Vance  says:  "Issue  and  delivery  of  a  policy  with  knowl- 
edge by  the  company  or  its  agent  of  existing  facts  which  by  its  terms 
or  conditions  would  render  it  void  operates  as  a  waiver  or  estoppel 
preventing  the  company  from  claiming  a  forfeiture  by  reason  of  such 
facts.  By  the  weight  of  authority  this  is  true,  although  the  policy 
contains  the  usual  limitation  upon  the  agent's  authority."  Ostrander 
says :  "When  a  person  is  employed  to  solicit  risks  and  take  applica- 
tions to  be  forwarded  to  the  company  for  approval,  but  has  no  au- 
thority to  make  a  complete  or  binding  contract  of  insurance,  and  has 
never  been  held  out  by  his  principal  as  having  such  power,  he  cannot 
waive  any  condition  or  requirement  of  the  policy.  It  has,  however, 
often  been  held  that  the  soliciting  agent  is  competent  to  do  certain 
things  in  respect  to  his  distinctive  duties  that  will  create  estoppel. 
Any  knowledge  communicated  to  him  in  regard  to  the  risks  he  so- 
licits at  the  time  of  such  solicitation  will  be  imputed  to  the  company. 
If  the  facts  imparted  to  the  solicitor  are  of  such  a  character  as  under 
the  terms  of  the  policy  will  cause  an  avoidance,  unless  disclosed,  such 
as  other  insurance,  defective  title,  incumbrances,  etc.,  and  such  facts 
are  by  him  withheld  from  the  company,  the  latter  will  be  estopped 
from  insisting  on  the  failure  of  the  insured  to  give  the  required  no- 
tice as  a  defense  to  an  action  on  the  policy."  Vance  says :  "Again,  a 
second  incident  of  the  relation  of  principal  and  agent  is  that  any  in- 
formation material  to  the  transaction,  either  possessed  by  the  agent  at 
the  time  of  the  transaction  or  acquired  by  him  before  its  completion, 
is  deemed  to  be  the  knowledge  of  the  principal,  as  least  so  far  as  that 
transaction  is  concerned,  even  though  in  fact  the  knowledge  is  not 
communicated  to  the  principal  at  all.  It  is  here  to  be  observed,  and 
the  importance  of  the  principle  is  so  great  that  it  cannot  be  too  strong- 
ly emphasized,  that  these  incidents  of  agency  are  created  by  law  and 
not  by  the  parties.  The  insurer  is  charged  with  the  knowledge  ac- 
quired by  his  agent  in  making  or  negotiating  a  contract  of  insurance, 
not  because  he  has  consented  to  be  so  charged,  nor  because  he  has 
authorized  his  agent  so  to  bind  him,  but  because,  as  a  legal  conse- 
quence of  the  relation  he  sustains  to  the  agent,  the  latter 's  knowledge 
is  imputed  to  him.  It  therefore  follows  that  this  incident,  created  by 
the  law  in  response  to  the  demand  of  public  policy,  irrespective  of 
agreement,  cannot  be  destroyed  or  altered  by  the  agreement  of  the 
parties.  The  parties  cannot,  by  their  contract,  contravene  the  pol- 
icy of  the  law  in  this  instance,  any  more  than  the  husband,  by  contract, 
can  escape  his  duty  to  support  the  wife,  or  the  carrier  can  by  contract 
exempt  himself  from  liability  for  his  negligent  failure  to  carry  safely 
his  passenger.     Those  cases  which  ignore  this  principle  and  regard 


r)14  WAIVER    AND    ESTOPPBL  (Ch.  8 

these  legal  incidents  as  powers  conferred  and  subject  to  limitation  are 
much  to  be  deplored." 

By  the  issuance  and  delivery  of  the  policy  and  the  acceptance  of 
the  premium  with  knowlcd.i^e  of  the  existing  facts  relative  to  ])lain- 
tiff's  interest  in  the  pro[)erty,  the  comi)any,  in  effect,  said  to  the  plain- 
tiff that,  "notwithstanding  the  stipulations  and  conditions  in  the  pol- 
icy to  the  contrary,  we  will  treat  the  same  as  a  valid  and  binding  con- 
tract of  indemnity."  In  other  words,  "We  agree  not  to  urge  such 
conditions  or  sti])ulations  to  defeat  such  policy  in  the  event  plaintiff 
shall  assert  any  rights  thereunder."  The  company  thereby,  in  effect, 
said  to  plaintiff' :  "The  policy  is  a  valid  policy  of  insurance."  It  would 
seem,  therefore,  on  the  plainest  principles  of  equity  and  good  con- 
science, that  the  company  should  be  estopped  by  such  conduct  to  as- 
sert the  contrary.  As  said  32  years  ago  by  Justice  Walker  of  the  Illi- 
nois Supreme  Court:  "This  information  given. to  the  agent  operated 
as  notice  to  the  company,  and,  it  having  accepted  the  premium  and  as- 
sumed the  risk,  it  must  be  held  that  the  company  has  waived  the  con- 
dition, or,  if  not,  it  is  estopped  from  urging  its  breach  as  a  defense. 
To  permit  such  a  defense  would  be  highly  unjust  and  iniquitous.  It 
would  shock  the  sense  of  right  and  fair  dealing  to  permit  money  to 
be  obtained  under  such  assurances,  and  to  permit  the  company  to  say : 
'We  are  not  bound,  and  did  not  intend,  on  our  part,  to  be  bound,  for 
any  loss  that  might  occur.  We  misled  and  deceived  you  into  paying 
the  premium,  and  although  we  did  not  intend  to  be  bound,  and  knew 
we  were  not,  still  we  will  keep  the  premium,  and  you  must  suffer  the 
loss.'  This  is  the  substance  of  the  defense,  and  such  a  defense  cannot 
be  allowed  to  prevail."  St.  Paul  Fire  &  Marine  Ins.  Co.  v.  Wells,  89 
111.  82. 

Appellant's  counsel  lays  stress  upon  the  fact  that  this  is  a  standard 
policy  prescribed  by  statute,  and  that  the  courts  are  therefore  bound  to 
give  it  effect.  Such  argument  has  repeatedly  been  made  and  as  often 
repudiated  by  the  courts  as  unsound.  It  is  firmly  established  that  a 
form  of  policy  of  fire  insurance,  although  prescribed  by  law,  is,  when 
issued  by  the  insurance  company,  none  the  less  a  contract  and  to  be 
construed  as  such  by  the  courts,  and  that,  while  it  may  affect  a  question 
of  pure  waiver,  it  does  not  abrogate  the  doctrine  of  estoppel.  In  ad- 
dition to  the  foregoing  authorities,  see  Clement  on  Fire  Insurance, 
pp.  409,  451,  and  cases  cited.  Moreover,  such  rule  is  crystallized  by 
statute  in  this  state.  Section  6058,  Rev.  Codes  1905,  provides :  "Pol- 
icies of  insurance  in  the  form  prescribed  by  the  last  section  shall  be  in 
all  respects  subject  to  the  same  rules  of  construction  as  to  their  effect 
or  the  waiver  of  any  of  their  provisions  as  if  the  form  thereof  had  not 
been  prescribed." 

It  is  urged  that  by  receiving  and  retaining  the  policy  plaintiff  is 
conclusively  deemed  to  have  acquiesced  in  and  agreed  to  its  terms. 
Such  contention  has  the  support  of  many  authorities  and  no  doubt 
is  sound  when  properly  applied.     Aside  from  the  case  of  Northern 


Sec.  4)  ESTorPEL  545 

Assurance  Company  v.  Grand  View  Building  Association,  183  Q.  S. 
308,  22  Sup.  Ct.  133,  46  L.  Ed.  213,  and  the  few  other  authorities  ad- 
hering to  the  rule  there  announced,  it  is  firmly  settled  that  restrictions 
in  a  policy  on  the  power  of  agents  with  respect  to  waiver  have  no  ap- 
plication to  those  conditions  relating  to  the  inception  of  the  contract. 
3  Cooley's  Brief  on  the  Law  of  Insurance,  pp.  2510.  2511.  Mr.  Cooley 
states  the  reason  for  this  doctrine  to  be  that:  "The  insured  is  not 
bound  by  restrictions  and  stipulations  of  which  he  has  no  knowledge. 
As  an  insurer  cannot  be  charged  with  constructive  notice  of  the  stip- 
ulations in  a  policy  until  he  has  accepted  it,  therefore  a  limitation  in 
a  policy  on  an  agent's  authority  will  not  bind  the  insured  with  ref- 
erence to  matters  occurring  prior  thereto.  Until  an  insured  has  either 
actual  or  constructive  notice  of  the  limitations  on  an  agent's  author- 
ity, he  may  assume  that  the  agent  has  the  authority  indicated  by  the 
apparent  scope  of  his  employment."  At  page  3619  the  same  author 
says :  "Unquestionably,  the  weight  of  authority  supports  the  doctrine 
that  an  insured  cannot  rely  on  waivers  by  parol  prior  to  the  issuing 
of  a  policy.  But  this  rule  does  not  apply  to  implied  waiver  by  the  is- 
suance of  a  policy,  and  receipt  of  the  premiums  thereon,  with  knowd- 
edge  of  matters  vitiating  the  policy  at  its  inception ;  for  a  large  ma- 
jority of  the  cases,  especially  the  more  recent  ones,  support  the  rule 
that  an  insurance  company  will  not  be  permitted  to  defeat  a  recovery 
upon  a  policy  issued  by  it  by  proving  the  existence  of  facts  which 
would  render  it  void,  where  it  had  full  knowledge  of  it  when  the  pol- 
icy was  issued."  As  said  by  the  Georgia  court  in  Insurance  Company 
V.  Carrugi,  41  Ga.  660:  "It  would  be  a  fraud  to  take  a  man's  money, 
with  a  full  knowledge  of  the  facts,  and  then  set  up  that  a  particular 
mode  of  proving  the  fact,  agreed  upon  by  the  parties,  but  not  required 
by  law  had  not  been  resorted  to.  The  receipt  of  the  money  and  the 
issuing  of  the  policy  is  a  waiver  of  the  indorsement;  even  if  it  be  ad- 
mitted that  parties  may,  by  their  contract,  agree  as  to  how  any  par- 
ticular fact  shall  be  proven."  And  in  Insurance  Company  v.  Brodie. 
52  Ark  11,  11  S.  W.  1016,  4  L.  R.  A.  458,  the  court  said:  "The  issue 
of  a  policy  by  an  insurance  company  with  a  full  knowledge  or  notice 
of  all  the  facts  affecting  its  validity  is  tantamount  to  an  assertion  that 
the  policy  is  valid  at  the  time  of  its  delivery  and  is  a  waiver  of  the 
known  ground  of  invalidity."  See,  also,  3  Cooley  on  Ins.  pp.  2632, 
2652,  and  authorities  cited. 

Of  course,  in  order  to  successfully  invoke  the  doctrine  of  estoppel 
against  the  insurer  as  above  stated,  the  insured  must  be  devoid  of 
any  taint  of  fraud  on  his  part.  If  there  is  any  collusion  between  him 
and  the  insurance  company's  agent,  he  cannot  invoke  the  doctrine  of 
implied  waiver  or  estoppel.^*'  If,  however,  the  insured  in  good  faith 
informs  the  agent  of  the  actual  facts  regarding  the  property  insured 

3  6  See  Mudge  v.  Supreme  Court  I.  O.  F.,  149  Mich.  467,  112  N.  W.  1130,  14 
L.  R.  A.  (N.  S.)  279,  119  Am.  St.  Rep.  686  (1907),  post,  p.  567,  and  note. 

Vance  Ins. — 35 


546  WAIVER    AND    ESTOPPEL  (Ch.  8 

and  makes  truthful  answers  to  the  questions  asked  him  by  such  agent, 
we  know  of  no  sound  reason  why  the  insurance  company  should  be 
permitted,  in  a  court  of  law,  to  urge  in  avoidance  of  the  poHcy  that 
answers  or  representations  inserted  in  the  application  or  policy  by  the 
agent,  either  through  mistake,  carelessness,  or  fraud,  avoid  such  pol- 
icy and  exonerate  the  company  from  all  liability  thereunder.  The 
few  courts  holding  to  the  contrary  base  their  decisions  upon  the  un- 
tenable ground  that  to  permit  plaintiff  to  prove  facts  contrary  to  the 
written  statements  in  the  application  and  policy  would  violate  the  rule 
against  the  admission  of  parol  testimony  tending  to  vary  the  written 
contract.  But,  as  will  be  seen  by  the  foregoing  authorities,  the  courts, 
with  but  a  few  exceptions,  hold  "that  to  apply  the  doctrine  as  to  parol 
testimony  with  the  strictness  demanded  by  the  insurer  would  be  to 
make  a  rule  of  evidence  adopted  as  a  protection  against  fraud  an  in- 
strument of  the  very  fraud  it  was  intended  to  prevent."  3  Cooley  on 
Insurance,  2565,  2566,  and  cases  cited. 

For  a  correct  statement  of  the  rule  regarding  the  subjects  of  waiver 
and  estoppel  as  applied  to  the  standard  form  of  policy  such  as  the  one 
in  the  case  at  bar,  see  Clement  on  Fire  Ins.,  pp.  405,  448,  and  cases 
cited.  At  pages  415  and  416  the  rule  is  stated  as  follows:  "The  stip- 
ulation in  a  policy  that  no  agent  or  other  representative  shall  have 
power  to  waive  any  condition  may  be  effective  as  against  an  alleged 
waiver  by  agreement  or  contract  with  an  agent  or  representative,  but 
has  no  application  when  the  law  declares  a  waiver  by  estoppel  because 
of  the  acts  of  the  company  through  its  agent  or  representative.  Such 
estoppels  do  not  rest  upon  the  power  or  lack  of  power  of  the  agent 
to  change  the  provisions  of  the  policy  or  waive  any  of  its  agreements, 
but  arise  in  law  because  of  the  acts  of  the  company  through  its  agent 
acting  in  the  scope  of  his  apparent  power  as  its  representative.  Re- 
strictions in  the  policy  upon  power  of  agents  to  waive  its  conditions, 
unless  done  in  a  particular  manner,  do  not  apply  to  those  conditions 
which  relate  to  the  inception  of  the  contract  when  it  appears  that 
company's  agent  delivered  it  and  received  the  premium  with  full 
knowledge  of  the  actual  situation." 

The  above  rule  is  supported  by  the  great  weight  of  authority.  We 
shall  not  attempt  here  to  cite  the  many  cases.  They  are  collated  in 
the  opinion  of  Mr.  Justice  Corson  in  the  recent  case  from  South  Da- 
kota. Fosmark  v.  Equitable  Fire  Ass'n,  23  S.  D.  102,  120  N.  W. 
777 .  Particular  attention  is  called  to  the  case  of  People's  Fire  Ins. 
Ass'n  v.  Goyne,  79  Ark.  315,  96  S.  W.  365,  16  L.  R.  A.  (N.  S.)  1180, 
9  Ann.  Cas.  Z7Z,  from  which  we  quote  the  following:  "A  fire  insur- 
ance company  may  be  estopped  by  the  conduct  of  its  agent,  acting 
within  the  apparent  scope  of  his  authority,  from  availing  itself  of  a 
false  answer  to  a  material  question,  or  of  a  breach  of  warranty,  or  of 
a  violation  of  the  provisions  of  the  application  or  policy,  notwithstand- 
ing clauses  in  the  application  or  policy  to  the  effect  that  the  company 
shall  not  be  bound  by  any  such  conduct  or  representaton  of  its  agent; 


Sec.  4)  ESTOPPEL  547 

and  such  estoppel  or  waiver  may  be  proved  by  parol  evidence,  though 
the  policy  or  application  contains  clauses  to  the  effect  that  no  waiver 
shall  be  effective  unless  indorsed  in  writing  on  the  policy  at  the  home 
office  of  the  company." 

Appellant's  counsel  strenuously  contends,  in  effect,  that  by  force 
of  certain  statutory  provisions  in  this  state  the  rule  of  implied  waiver 
or  estoppel  cannot  be  invoked.  The  particular  sections  of  the  statute 
relied  on  are  sections  5952  to  5956  and  5960  and  5961,  Rev.  Codes 
1905.  These  sections  merely  deal  with  the  subject  of  warranties  in 
relation  to  insurance  contracts  and  the  effect  of  a  breach  thereof.  It 
is  a  sufficient  answer  to  such  contention  to  say  that  in  our  opinion 
it  was  not  the  legislative  intent,  by  the  enactment  thereof,  to  do  away 
with  the  well-settled  and  most  equitable  rule  of  implied  waiver  and 
estoppel  in  pais.  It  is  inconceivable  that  it  could  have  been  the  legis- 
lative intent  to  enable  insurance  companies,  in  effect,  to  take  advan- 
tage of  their  own  mistakes,  carelessness,  or  fraud,  or  that  of  their 
agents ;  in  other  words,  to  repudiate  all  liability  on  account  of  a  state 
of  facts,  involving  misrepresentations,  for  which  the  company  or  its 
agent  is  alone  to  blame.  Although  like  statutory  provisions  exist  in 
California  and  South  Dakota,  the  decisions  in  those  states  do  not  sup- 
port counsel's  contention.  On  the  contrary,  the  courts  of  both  states 
most  emphatically  recognize  and  enforce  the  doctrine  of  implied  waiv- 
er and  estoppel  as  announced  so  generally  by  nearly  all  courts  in  this 
country. 

Counsel's  criticism  of  certain  of  the  New  York  cases  shows  that 
he  apparently  fails  to  distinguish  between  a  waiver  and  an  estoppel, 
and  also  fails  to  distinguish  between  conditions  or  warranties  which 
are  precedent  and  those  which  are  subsequent  to  the  formation  of  the 
contract. 

Our  conclusion  leads  to  an  affirmance  of  the  order  appealed  from. 
All  concur,  except  Spalding,  J.,  dissenting.  ^'^ 

3T  The  dissenting  opinion  of  Spalding,  J.,  is  omitted.  In  addition  to  tlie 
auttiorities  cited  in  tlie  principal  case  as  expressly  disapproving  Northern 
Assurance  Co.  v.  Gi'and  View  Building  Association,  supra,  may  be  added 
Pearlstine  v.  Phoenix  Ins.  Co..  74  S,  C.  246,  54  S.  E.  372  (1906). 


548  WAIVEU    AND    ESTOPPEL  (Cll.  8 


SECTION   5.— WAIVER   AND   EwSTOPPEL  AvS   AFFECTED 
BY  LIMITATIONS  UPON  THE  AUTHOR- 
ITY    OF    THE    AGENT 


KAUSAL  V.  MINNESOTA  FARMERS'  MUT.  FIRE 
INS.  ASS'N. 

(Supreme  Court  of  Minnesota,  1883.     31  Minn.  17,  IG  N.  W.  430,  47 

Am.  Rep.  770.) 

Appeal  from  an  order  of  the  district  court,  Hennepin  county. 

MiTcHivTj,,  J.  1.  On  principle,  as  well  as  from  considerations  of 
public  policy,  agents  of  insurance  companies  authorized  to  pro- 
cure applications  for  insurance,  and  to  forward  them  to  the  com- 
panies for  acceptance,  must  be  deemed  the  agents  of  the  insurers 
and  not  of  the  insured  in  all  that  they  do  in  preparing  the  applica- 
tions, or  in  any  representations  they  may  make  to  the  insured  as 
to  the  character  or  effect  of  the  statements  therein  contained.  This 
rule  is  rendered  necessary  by  the  manner  in  which  business  is 
now  usually  done  by  the  insurers.  They  supply  these  agents  with 
printed  blanks,  stimulate  them  by  the  promise  of  liberal  commis- 
sions, and  then  send  them  abroad  in  the  community  to  solicit 
insurance.  The  companies  employ  them  for  that  purpose,  and  the 
public  regard  them  as  the  agents  of  the  companies  in  the  matter 
of  preparing  and  filling  up  these  applications, — a  fact  which  the 
companies  perfectly  understand.  The  parties  who  are  induced 
by  these  agents  to  make  applications  for  insurance  rarely  know 
anything  about  the  general  officers  of  the  company,  or  its  constitu- 
tion and  by-laws,  but  look  to  the  agent  as  its  full  and  complete 
representative  in  all  that  is  said  or  done  in  regard  to  the  applica- 
tion. And  in  view  of  the  apparent  authority  with  which  the  com- 
panies clothe  these  solicitors,  they  have  a  perfect  right  to  con- 
sider them  such.  Hence,  where  an  agent  to  procure  and  forward 
applications  for  insurance,  either  by  his  direction  or  direct  act, 
makes  out  an  application  incorrectly,  notwithstanding  all  the  facts 
are  correctly  stated  to  him  by  the  applicant,  the  error  is  chargeable 
to  the  insurer  and  not  to  the  insured.  Ins.  Co.  v.  Mahone,  21  Wall. 
152,  22  L.  Ed.  593;  Ins.  Co.  v.  Wilkinson,  13  Wall.  222,  20  L.  Ed. 
617;  Malleable  Iron  Works  v.  Ins.  Co.,  25  Conn.  465;  Hough  v. 
Ins.  Co.,  29  Conn.  10,  76  Am.  Dec.  581 ;  Woodbury  Savings  Bank, 
etc.,  Ass'n  v.  Ins.  Co.,  31  Conn.  517;  Miner  v.  Ins.  Co.,  27  Wis. 
693,  9  Am.  Rep.  479;  Winans  v.  Ins.  Co.,  38  Wis.  342;  Rowley 
V.  Ins.  Co.,  36  N.  Y.  550;  Brandup  v.  Ins.  Co.,  27  Minn.  393,  7 
N.  W.  735;  2  Amer.  Lead.  Cas.  (5th  Ed.)  917  et  seq;  Wood, 
Ins.  c.  12;    May,  Ins.  §  120. 


Sec.  5)  LIMITATIONS    UPON    AUTHORITY    OF    AGKNT  549 

2.  After  the  courts  had  generally  established  this  doctrine,  many 
of  the  insurance  companies,  in  order  to  obviate  it,  adopted  the  in- 
genious device  of  inserting  a  provision  in  the  policy  that  the  appli- 
cation, by  whomsoever  made,  whether  by  the  agent  of  the  com- 
pany or  any  other  person,  shall  be  deemed  the  act  of  the  insured 
and  not  of  the  insurer.  Rut,  as  has  been  well  remarked  by  another 
court,  "there  is  no  magic  in  mere  words  to  change  the  real  into 
the  unreal.  A  device  of  words  cannot  be  imposed  upon  a  court  in 
place  of  an  actuality  of  fact."  If  corporations  are  astute  in  con- 
triving such  provisions,  courts  will  take  care  that  they  shall  not 
be  used  as  instruments  of  fraud  or  injustice.  It  would  be  a  stretch 
of  legal  principles  to  hold  that  a  person  dealing  with  an  agent,  ap- 
parently clothed  with  authority  to  act  for  his  principal  in  the  mat- 
ter in  hand,  could  be  affected  by  notice,  given  after  the  negotia- 
tions were  completed,  that  the  party  with  whom  he  had  dealt 
should  be  deemed  transformed  from  the  agent  of  one  party  into 
the  agent  of  the  other.  To  be  efficacious,  such  notice  should  be 
given  before  the  negotiations  are  completed.  The  application  pre- 
cedes the  policy,  and  the  insured  cannot  be  presumed  to  know  that 
any  such  provision  will  be  inserted  in  the  latter.  To  hold  that  by 
a  stipulation,  unknown  to  the  insured  at  the  time  he  made  the 
application,  and  when  he  relied  upon  the  fact  that  the  agent  was 
acting  for  the  company,  he  could  be  held  responsible  for  the  mis- 
takes of  such  agent,  would  be  to  impose  burdens  upon  the  insured 
which  he  never  anticipated.  Hence  we  think  that  if  the  agent 
was  the  agent  of  the  company  in  the  matter  of  making  out  and 
receiving  the  application,  he  cannot  be  converted  into  the  agent 
of  the  insured  by  merely  calling  him  such  in  the  policy  subsequent- 
ly issued.  Neither  can  any  mere  form  of  words  wipe  out  the  fact 
that  the  insured  truthfully  informed  the  insurer,  through  its  agent, 
of  all  matters  pertaining  to  the  application  at  the  time  it  was 
made.  We  are  aware  that  in  so  holding  we  are  placing  ourselves 
in  conflict  with  the  views  of  some  eminent  courts.  But  the  con- 
clusion we  have  reached  is  not  without  authority  to  sustain  it, 
and  is,  as  we  believe,  sound  in  principle,  and  in  accordance  with 
public  policy.  Wood,  Ins.  §  139;  May,  Ins.  §  140;  Com.  Ins. 
Co.  V.  Ives,  56  111.  402;  Cans  v.  St.  Paul  F.  &  M.  Ins.  Co.,  43 
Wis.  108,  28  Am.  Rep.  535 ;  Columbia  Ins.  Co.  v.  Cooper,  50  Pa. 
331. 

3.  It  is  contended  by  respondent  that  there  is  a  distinction  in 
this  regard  between  "stock"  and  "mutual"  insurance  companies; 
that  the  difference  in  the  character  of  the  companies  makes  a 
difference  in  the  relative  duties  of  the  applicant  and  the  company, 
and  the  authority  of  the  agents  employed ;  that  in  the  case  of 
a  mutual  company  the  application  is  in  effect  not  merely  for  in- 
surance, but  for  admission  to  membership, — the  applicant  himself 
becoming  a  member  of  the  company  upon  the  issue  of  the  policy. 


550  "WAIVER  AND  ESTOPPEL  (Ch.  8 

By  some  courts  a  distinction  in  this  respect  is  made  between 
the  two  classes  of  companies.  This  distinction  is  usually  based 
upon  the  ground  that  the  stipulations  held  binding  upon  the  in- 
sured are  contained  in  the  charter  or  by-laws  of  the  company, 
and  that  a  person  applying  for  membership  is  conclusively  bound 
by  the  terms  of  such  charter  and  by-laws.  Such  is  not  this  case, 
for  the  stipulations  claimed  to  bind  the  insured  are  only  in  the 
policy.  But,  so  far  as  concerns  the  questions  now  under  con- 
sideration, we  fail  to  see  any  distinction  between  the  two  kinds 
of  companies,  and  we  feel  confident  that  the  average  applicant  for 
insurance  is  rarely  aware  of  any.  It  is  true  that  in  the  case  of  a  mu- 
tual company  the  insured  becomes  in  theory  a  member  of  the  com- 
pany upon  the  issue  of  the  policy.  But  in  applying  and  contracting 
for  insurance  the  applicant  and  the  company  are  as  much  two  dis- 
tinct persons  as  in  the  case  of  a  stock  company,  and  we  see  no  rea- 
son for  holding  the  agent  who  takes  the  application  any  less  the 
agent  of  the  insurer  in  the  one  case  than  in  the  other.  The  member- 
ship does  not  begin  until  the  policy  is  issued.  As  to  all  previous 
negotiations  the  agent  acts  only  for  the  company.  Columbia  Ins. 
Co.  v.  Cooper,  supra;   May,  Ins.  §  139  et  seq.^^ 

38  Agent  Taking  Application  Agent  of  Insurer. — By  the  weicht  of  au- 
thority an  agent  of  the  insurer  who  fills  out  and  receives  the  application  of 
the  insured  is  the  insurer's  agent,  so  that  the  insurer  is  charged  with  knowl- 
edge acquired  by  the  agent  and  may  be  estopped  thereby.  See  Continental 
Life  Ins.  Co.  v.  Pearce,  39  Kan.  396,  18  Pac.  291,  7  Am.  St.  Rep.  557  (1888) ; 
American  Life  Ins.  Co.  v.  Mahone,  21  Wall.  152,  22  L.  Ed.  593  (1874) ;  Deitz 
V.  Insurance  Co.,  31  W.  Va.  851,  8  S.  E.  616,  13  Am.  St.  Rep.  909  (1888); 
Grattan  v.  Insurance  Co.,  80  N.  Y.  281,  36  Am.  Rep.  617  (1880);  Germania 
Fire  Ins.  Co.  v.  Hick,  125  111.  361,  17  N.  E.  792,  8  Am.  St.  Rep.  384  (1888) ; 
Hagan  v.  Insurance  Co.,  81  Iowa,  ,321,  46  N.  W.  1114,  25  Am.  St.  Rep.  493 
(1890").  Contra:  Reed  v.  Insurance  Co.,  17  R.  I.  785,  24  Atl.  833,  18  L.  R.  A. 
496  (1892) ;  Biggar  v.  Rock  Life  Assurance  Co.,  [1902]  1  K.  B.  516,  apparently 
contra  to  the  previous  cases  of  Bawdeu  v.  London,  Edinburgh  &  Glasgow 
Assur.  Co.,  [1892]  2  Q.  B.  534,  and  In  re  Universal  Non-Tariff  Fire  Assur. 
Co.,  L.  R.  19  Eq.  485  (1873).  It  is  also  generally  held  that  even  a  stipula- 
tion in  the  policy  or  application  that  the  one  making  out  the  application 
shall  be  the  agent  of  the  insured  is  not  sufficient  to  alter  his  character  when 
he  is  in  fact  the  agent  of  the  insurer.  See  Stemaman  v.  Metropolitan  Life 
Ins.  Co.,  170  N.  Y.  13,  62  N.  E.  763,  57  L.  R.  A.  318,  88  Am.  St.  Rep.  625 
(1902) ;  Howe  v.  Provident  Fund  Soc,  7  Ind.  App.  586,  34  N.  E.  830  (1903) ; 
Robinson  v.  U.  S.  Benevolent  Society,  132  Mich.  695,  94  N.  W.  211,  102  Am. 
St.  Rep.  4.36  (1903);  Royal  Neighbors  of  America  v.  Roman,  177  111.  27,  52 
N.  E.  264,  69  Am.  St.  Rep.  201  (1898);  Endowment  Rank  K.  of  P.  v.  Cogbill, 
99  Tenn.  28,  41  S.  W.  340  (1897);  Knights  of  Pythias  v.  Withers,  177  U.  S. 
260,  20  Sup.  Ct.  611,  44  L.  Ed.  762  (1900).  Contra:  Masonic  Life  Ass'n  v. 
Robinson,  149  Ky.  80,  147  S.  W.  882,  41  L.  R.  A.  (N.  S.)  505  .(1912). 

The  case  of  Sternaman  v.  Metropolitan  Life  Ins.  Co.,  supra,  substantially 
overruled  the  rule  of  Rohrbach  v.  Germania  Fire  Ins.  Co.,  62  N.  Y.  47,  20 
Am.  Rep.  451  (1875).  In  this  case  it  was  said  by  Folger,  J.:  "It  is  hereupon 
urged  by  the  plaintiff  that  the  errors  and  omissions  were  those  of  the  de- 
fendant. But  the  plaintiff  and  defendant  have,  in  the  policy,  the  contract 
between  them,  expressly  agreed  that  Brand  should  be  deemed  the  agent  of 
the  plaintiff  and  not  of  the  defendant,  under  any  circumstances  whatever. 
*  *  *  I  am  aware  that  often  the  companies  are  made  the  victims  of  dis- 
honest and  designing  persons,  but  I  cannot  agree  that  the  remedy  for  that 


Sec.  5)  LIMITATIONS    UPON    AUTHORITY   OlF    AGENT  551 

4.  Verbal  testimony  is  competent  to  show  that  the  application 
was  filled  up  by  the  agent  of  the  company,  and  that  the  facts 
were  fully  and  correctly  stated  to  him,  but  that  he,  without  the 
knowledge  of  the  insured,  misstated  them  in  the  application.  This 
was  not  in  violation  of  the  rule  that  verbal  testimony  is  not  ad- 
missible to  vary  a  written  contract.  It  proceeds  upon  the  ground 
that  the  contents  of  the  paper  was  not  his  statement,  though  sign- 
ed by  him,  and  that  the  insured  company,  by  the  acts  of  their  agent 
in  the  matter,  are  estopped  to  set  up  that  it  is  the  representation 
of  the  insured.  Insurance  Co.  v.  Wilkinson,  supra;  May,  Ins. 
§  143,  and  cases  cited,  note  3. 

5.  It  appears  that  the  property  covered  by  the  policy  was  the 
several  property  of  William  Kausal  whereas  the  policy  is  a  joint 
one  to  him  and  his  wife,  as  if  upon  the  joint  property  of  the  two. 
On  this  ground  it  is  claimed  that  there  can  be  no  recovery,  because 
a  joint  policy  to  two  does  not  cover  the  several  property  of  either. 
Had  plaintiff  taken  out  this  policy  without  disclosing  the  real 
nature  of  their  interest  in  the  property,  there  might  be  something 
in  this  suggestion.  But  according  to  the  offers  of  plaintiffs,  which 
must  here  be  taken  as  the  facts,  the  wife  was  the  owner  of  an 
undivided  three-fourths,  and  in  the  actual  possession  of  the  whole 
of  the  land  upon  which  the  house  and  other  personal  property 
covered  by  the  policy  was  situate.  The  husband  erected  the  house 
with  his  own  money,  under  a  license  from  and  an  agreement  with 
his  wife  that  he  might  do  so,  and  should  have  the  right  to  remove 
it  at  pleasure.  At  the  time  the  application  for  insurance  was  made, 
defendant's  agent,  authorized  to  take  such  applications,  was  per- 
sonally present  on  the  premises,  and  was  first  fully  informed  by 
the  plaintiffs  of  all  these  facts,  and  then  himself  wrote  out  the 
application,  and  told  William  Kausal  that  it  was  correct;  that 
William  Kausal  then  signed  it,  and  also  signed  his  wife's  name 
thereto,  upon  the  statement  and  representation  of  the  agent  that 

is  to  refuse  to  be  bound  by  tbe  acts  of  agents  of  their  own  selection  when 
dealing  with  simple  and  unlettered  men.  If  there  should  be  less  greediness 
for  business,  and  such  care  in  the  selection  and  appointment  of  agents  as 
would  insure  the  confidence  of  the  companies  in  their  capability,  discretion 
and  integrity,  it  would  not  need  that  there  be  laid  upon  unwise  policy-holders 
an  agreement  to  take  the  burden  of  the  opposite  qualities  in  those  put  for- 
ward to  them  as  actors  for  the  insurers.  But  we  must  take  the  contracts  of 
the  parties  as  we  find  them,  and  enforce  them  as  they  read.  By  the  one 
before  us  the  plaintiff  has  no  fettered  himself  as  to  be  unable  to  retain,  as 
the  case  now  stands,  the  real  essence  of  his  agreement.  Though  he  has  frank- 
ly and  fully  laid  before  the  actor  between  him  and  the  defendant  all  the  facts 
and  circumstances  of  the  case,  he  is  made  responsible  for  error  in  legal  con- 
clusions which  he  never  formed,  and  which  were  arrived  at  by  one  in  whom 
he  trusted  and  whom  he  supposed  to  stand  in  the  place  of  the  defendant." 

In  many  states  statutes  declare  that  the  agent  taking  the  application  shall 
be  deemed  the  agent  of  the  insurer  and  not  of  the  insured.  See  Continental 
Life  Ins.  Co.  v.  Chamberlain,  1.32  U.  S.  304,  10  Sup.  Ct.  87,  33  L.  Ed.  341 
(1889),  construing  the  Iowa  statute.  See  other  cases  in  note,  107  Am.  St. 
Rep.  124.     See  Vance  on  Insurance,  330;  41  L.  R.  A.  (N.  S.)  505,  note. 


552  WAIVER    AND    ESTOPPEL  (Ch.  S 

such  was  the  proper  mode  of  making  the  application.  In  short,  it 
appears  that  the  agent,  after  being  informed  that  it  was  the  indi- 
vidual property  of  the  husband,  although  situated  on  the  land  of 
the  wife,  directed  the  making  of  a  joint  application,  and  upon  such 
application  the  defendant  issued  a  joint  ])olicy,  insuring  the  two 
against  loss  by  the  destruction  of  the  property  by  fire,  and  that 
the  plaintiffs,  relying  upon  the  representations  of  the  agent  that 
this  was,  under  the  circumstances,  the  proper  course,  made  the 
application  in  this  form,  and  accepted  the  joint  policy. 

On  this  state  of  facts,  if  the  policy  does  not  cover  the  loss  it  is 
the  fault  of  the  defendant  and  not  of  the  plaintiff.  It  seems  clear 
that  plaintiffs  are  not  without  remedy.  We  are  not  ])repared  to 
say  that  William  Kausal  alone  might  not  have  maintained  an  ac- 
tion, at  least  upon  asking  to  have  the  policy  reformed;  but  we 
see  no  good  reason  why,  under  the  facts  of  this  case,  the  two 
plaintiffs  to  whom  the  policy  was  issued  cannot  maintain  a  joint 
action.  The  policy  is  not  a  wagering  policy,  because,  between 
the  two  plaintiff's,  title  to  the  whole  of  the  property  was  in  the 
beneficiaries  to  whom  the  policy  ran,  and  it  can  make  no  difference 
to  the  defendant  in  what  way  their  interests  are  apportioned,  or 
whether  it  all  belongs  to  one.  It  brings  in  no  new  party  to  the 
contract;  and  by  issuing  the  policy  to  the  two,  the  defendant 
admits  that  both  are  proper  persons  to  insure.  It  was  entirely 
competent  for  all  parties  to  treat  this  as  joint  property  for  the 
purposes  of  insurance,  and  that  the  loss,  if  any,  should  be  payable 
to  the  two  plaintiffs.  This  is,  in  effect,  just  what  they  have  done, 
and  what  defendant  not  only  assented  to,  but  advised  and  directed. 
If  the  husband,  who  owned  the  property,  assented  to  this,  and 
if  the  defendant,  with  full  knowledge  of  all  the  facts,  agreed  to 
it,  we  fail  to  see  what  principle,  either  of  law  or  justice,  is  violated 
by  enforcing  the  contract  just  as  the  parties  have  made  it.  Peck 
V.  New  London  Co.  Mut.  Ins.  Co.,  22  Conn.  575 ;  Castner  v. 
Farmers'  Mut.  Ins.  Co.,  46  Mich.  15,  8  N.  W.  554. 

Order  reversed. 


PFIESTER  V.  MISSOURI  STATE  UFE  INS.  CO. 

(Supreme  Court  of  Kansas,  1911.    85  Kan.  97,  116  Pac.  245.) 

Action  by  Adam  Pfiester  against  the  Missouri  State  Life  Insur- 
ance Company.  Judgment  for  plaintiff,  and  defendant  appeals. 
Affirmed. 

BuRCH,  J.  The  defendant  issued  a  policy  of  insurance  on  the  life 
of  Jacob  Pfiester,  payable  to  the  plaintiff,  Adam  Pfiester.  The 
application  was  taken  on  June  14,  1907,  by  an  agent  whose  writ- 
ten authority  was  limited  to  negotiating  for  applications,  trans- 
mitting applications  to   the   defendant  for  approval  or   rejection, 


Sec.  5)  LIMITATIONS    UPON    AUTHORITY    OF    AGENT  553 

and  collecting  the  initial  premium.  The  application  was  signed 
by  the  insured,  and  he  asked  that  the  policy  be  dated  May  5th.  It 
was  provided  that  no  statements  or  answers  made  to  or  received 
by  any  person,  or  to  the  company,  should  be  binding  on  the  com- 
pany, unless  such  statements  or  answers  were  reduced  to  writing 
and  made  a  part  of  the  application.  It  also  provided  that  the  appli- 
cation and  policy  when  issued  should  constitute  the  entire  con- 
tract, which  could  be  varied  only  by  the  president  or  secretary  of 
the  company,  in  writing.  It  further  provided  as  follows :  "That 
the  insurance  hereby  applied  for  shall  not  take  effect  unless  the 
premium  is  paid  and  the  policy  delivered  to  and  accepted  by 
me  during  my  lifetime  and  good  health,  and  that  then  the  first 
insurance  or  policy  year  shall  end  on  the  first  anniversary  of  the 
date  of  this  application,  or,  in  any  event,  on  such  date  as  may  be 
fixed  by  the  company  in  the  policy." 

The  premium  for  the  first  policy  year  was  paid  when  the  appli- 
cation was  taken.  The  policy  which  was  issued  was  dated  June 
26,  1907.  It  fixed  the  first  policy  year  as  ending  on  May  4,  1908, 
and  provided  that  it  would  be  continued  in  force  on  the  payment 
of  the  annual  premium  on  the  4th  of  May  in  each  year,  with  a  grace 
period  of  30  days  after  the  due  date.  When  the  application  was 
taken,  it  was  agreed  between  the  defendant's  agent  and  the  insured 
that  annual  premiums  should  be  paid  on  June  14th,  the  anniver- 
sary of  the  application,  with  a  grace  period  of  30  days  following 
the  due  date.  Through  the  agent's  oversight  or  fault,  the  agree- 
ment was  not  inserted  in  the  application,  or  otherwise  submitted 
to  the  defendant.  The  premium  for  1908  was  paid  on  June  12th. 
The  insured  died  on  June  19th,  and  the  policy  was  found  among 
his  effects.  The  defendant  denied  liability,  because  the  premium 
for  1908  was  not  paid  within  30  days  after  May  4th.  The  bene- 
ficiary, as  plaintiff,  brought  an  action  to  reform  the  policy  ac- 
cording to  the  agreement,  and  to  recover  upon  the  policy  as  re- 
formed. 

The  plaintiff  gave  the  following  account  of  the  negotiations 
with  the  defendant's  agent:  "He  went  ahead  then  and  told  us 
about  what  a  good  company  it  was  and  all,  and  led  us  up  to  the 
present  time,  and  told  us  about  the  standing  of  the  company  that 
he  represented,  and  tried  to  persuade  my  brother  to  take  out 
insurance.  *  *  *  He  told  about  the  company,  and  then  want- 
ed to  insure,  and  then  my  brother  said  that  he  could  not  take  this 
policy  out,  and  he  asked  me  if  I  would  not  take  it  out  for  my 
brother,  and  we  went  ahead  and  talked,  and  I  says  to  him,  'I  am 
not  in  any  shape  to  take  this  out,  unless  you  make  this  policy  so 
I  can  pay  it  after  harvest,'  and  he  said,  'all  right ;  we  can  fix 
it.'  He  says  the  company  allows  30  days;  that  was  June  14th. 
He  says  they  allow  30  days  on  their  policy.  'Well,'  I  says,  'if 
you  can  fix  it  like  that — if  I  pay  you  for  this  policy — it  will  be 


554  WAIVER    AND    ESTOPPEL  (Ch.  8 

due  June  14th,  a  year?'  'Yes,'  he  said,  'would  be  due  June 
14th,  a  year.'"  Under  these  circumstances  the  insurance  was 
taken. 

The  agent  explained  why  the  policy  was  dated  back  as  follows: 
"In  the  first  discussion  of  insurance,  Jacob  Pfiester  gave  his  age 
as  30  years,  and  in  the  course  of  our  discussion  of  the  insurance  I, 
of  course  asked  him  the  month  of  his  birth,  and,  finding  out  the 
month  of  his  birth,  I  saw  he  had  passed  the  six-months  dividing 
line,  so  called  by  insurance  agents.  I  explained  to  him  then  that 
we  could  make  a  request  to  the  company  to  date  back  the  policy  to 
May  5th,  and  give  him  the  rate  at  30,  his  last  birthday,  and  there- 
fore that  would  give  him  a  lower  rate,  and  would  mature  the 
policy  that  much  earlier  at  the  end  of  20  years."  The  agent  further 
testified  that  it  was  customary  to  date  policies  back  30  or  60  days. 

Judgment  was  rendered  for  the  plaintiff,  and  the  defendant  ap- 
peals. 

The  contention  of  the  defendant  is  that  the  evidence  of  the 
plaintiff  relating  to  the  date  upon  which  premiums  were  to  be- 
come due  was  incompetent,  because  it  tended  to  contradict  the 
written  contract.  The  first  purpose  which  the  plaintiff  sought  to 
accomplish  was  the  reformation  of  the  contract.  Insurance  con- 
tracts are  the  subject  of  reformation  the  same  as  any  other  kind, 
and  in  all  suits  for  reformation  the  true  contract  may  be  estab- 
lished by  parol  evidence,  whenever  it  is  the  result  of  oral  negotia- 
tions. These  principles  are  elementary.  The  defendant  argues 
further,  however,  that,  since  its  agent's  authority  was  limited  to 
the  taking  and  transmittal  of  applications,  he  could  not  make  a 
binding  contract  that  premiums  should  fall  due  on  June  14th ;  that 
no  application  requesting  that  premiums  fall  due  on  that  date  was 
ever  submitted  to  or  approved  by  the  defendant,  and  consequently 
that  the  judgment  of  the  court  in  effect  makes  a  contract,  instead 
of  reforms  one. 

There  are  two  principal  lines  of  decisions  on  the  subject  indi- 
cated, with  a  third  inclining  now  toward  one  and  now  toward  the 
other.  According  to  one  view,  the  applicant  and  the  insurer  are 
treated  as  if  the  negotiations  were  of  ordinary  bargain  and  sale, 
in  a  field  where  both  stand  on  the  same  footing.  The  applicant 
frames  and  signs,  upon  his  own  judgment  and  at  his  own  risk,  an 
order  or  request  for  an  article  called  a  policy.  This  order  is  taken 
and  transmitted  by  an  intermediary  commissioned,  equipped,  and 
paid  by  the  insurer,  but  the  insurer  may  by  force  of  mere  words 
destroy  the  relation  of  agency  between  itself  and  the  intermediary, 
and  cast  all  the  consequences  of  his  mistakes  and  misfeasances 
upon  the  applicant.  Upon  receipt  of  the  order,  the  insurer  fills  it 
by  forwarding  an  elaborate  and  intricate  document,  which  the 
applicant   takes   according  to   the   rule   of  caveat  emptor.     If   the 


Sec.  5)  LIMITATION'S    UPON    AUTHORITY    OF    AGENT  555 

terms  of  the  policy  do  not  correspond  to  the  application,  a  new 
proposition  is  tendered,  which  the  applicant  must  detect,  scru- 
tinize, and  reject,  or  forever  hold  his  peace.  At  every  step  the  ap- 
plicant is  held  rigorously  to  the  maxim,  "Vigilantibus  et  non  dor- 
mientibus  jura  subveniunt."  Meanwhile  the  insurer  has  the  appli- 
cant's money. 

The  other  principal  theory  of  the  formation  of  the  insurance 
contract  is  based  upon  facts.  Everybody  knows  what  the  facts 
are.  The  insurance  company  sends  out  its  agents  for  the  purpose 
of  procuring  insurance.  They  are  usually  experts  in  the  business, 
and  are  frequently  paid  large  bonuses  for  securing  extra  large 
volumes  of  insurance.  Few  persons  solicited  to. take  policies  un- 
derstand the  subject  of  insurance  or  the  rules  of  law  governing 
the  negotiations,  and  they  have  no  voice  in  dictating  the  terms 
of  what  is  called  the  contract.  They  are  clear  upon  two  or  three 
points  which  the  agent  promises  to  protect,  and  for  everything 
else  they  must  sign  ready-made  applications  and  accept  ready- 
made  policies  carefully  concocted  to  conserve  the  interests  of  the 
company.  The  agent  in  fact  prepares  the  contract  when  he  writes 
the  application,  because  the  policy,  which  the  applicant  does  not 
see  until  delivered  and  does  not  sign,  follows  an  acceptance  of  the 
application  as  a  matter  of  course.  In  writing  the  application,  the 
agent  does  what  the  company  sent  him  out  to  do.  He  negotiates 
for  the  company,  asks  questions  for  the  company,  writes  down 
answers  for  the  company,  and  makes  the  return  for  the  company. 
It  is  not  carelessness  or  imprudence  in  fact,  as  people  in  general 
understand  those  terms,  for  the  applicant  to  take  it  for  granted 
that  the  agent  will  accurately  and  truthfully  set  down  the  result 
of  the  negotiations.  If  he  fail  to  do  so,  good  sense  and  common 
justice  regard  the  company  as  responsible,  and  not  the  insurer. 
The  subject,  therefore,  is  sui  generis,  and  the  rules  of  a  legal  sys- 
tem devised  to  govern  the  formation  of  ordinary  contracts  between 
man  and  man  cannot  be  mechanically  applied  to  it.  It  is  not 
necessary  to  review  the  decisions  in  which  the  foregoing  conflicting 
views  are  maintained.  This  court  favors  the  one  which  is  least 
artificial  and  best  conforms  to  the  facts. 

In  the  case  of  Continental  Ins.  Co.  v.  Pearce,  39  Kan.  396,  18 
Pac.  291,  7  Am.  St.  Rep.  557,  the  opinion  reads:  'Tn  taking  this 
application  for  insurance,  was  J.  A.  Beals  the  agent  of  plaintiff 
or  of  defendant?  It  is  claimed  that  by  reason  of  the  stipulation 
on  its  face,  which  provided  that  all  statements,  answers  and  descrip- 
tions were  the  acts  of  the  plaintiff,  that  whatever  part  Beals  may 
have  taken  in  making  and  filling  it  out  was  as  his  agent.  It  must 
be  conceded  that  plaintiff  did  not  seek  Beals  for  this  work;  did 
not  even  ask  him  to  do  it,  and  paid  him  nothing  therefor;  did  not 
even  suspect  that  at  that  time  he  was  his  agent,  but  did  believe 
that  he  was  an  insurance  agent,  looking  after  the  interests  of  the 


556  WAIVER    AND    ESTOPPEL  (Ch.  8 

company  whose  advantages  he  was  advocating  to  plaintiff.  He 
was  canvassing  for  business  for  the  defendant;  had  made  several 
trips  to  plaintiff's  house,  before  he  saw  him,  to  insure  it,  and, 
against  plaintiff's  preference,  finally  induced  him  to  insure  in  this 
company.  He  was  supplied  with  its  blanks,  and  was  employed 
and  paid  by  it.  This  application  was  practically  the  work  of  Beals, 
though  the  stipulation  on  the  face  thereof  provides  that  the  an- 
swers and  statements  were  made  by  plaintiff,  or  his  authority, 
thus  attempting  to  make  the  agent  of  the  company  the  agent 
of  the  assured.  The  ordinary  instructions  of  companies  to  their 
agents,  and  their  dealings  with  them,  are  too  well  known  for  us 
to  shut  our  eyes  to  the  manner  in  which  their  work  is  carried  on. 
This  is  but  a  form  of  words  to  attempt  to  create  on  paper  an 
agency,  which  in  fact  never  existed.  It  is  an  attempt  of  the  com- 
pany, not  to  restrict  the  powers  of  its  own  agent,  but  an  effort  to 
do  away  with  that  relation  altogether  by  mere  words,  and  to 
make  him  in  the  same  manner  the  agent  of  the  assured,  when  in 
fact  such  relation  never  existed.  Insurance  Co.  v.  Myers,  55  Miss. 
479  [30  Am.  Rep.  521].  We  do  not  believe  the  entire  nature  and 
order  of  this  well-established  relation  can  be  so  completely  sub- 
verted by  this  ingenious  device  of  words.  The  real  fact,  as  it  ex- 
isted, cannot  be  hidden  in  this  manner;  much  less  can  it  be  de- 
stroyed, and  something  that  did  not  in  reality  exist  be  placed  in 
its  stead.  The  substance  is  superior  to  the  mere  drapery  of  words 
with  which  one  party  wishes  to  bring  into  existence  and  clothe 
an  unreal  authority."  ^^  39  Kan.  at  page  401,  18  Pac.  at  page  294 
(7  Am.  St.  Rep.  557). 

39  See  Johnson  v.  ^tna  Ins.  Co.,  123  Ga.  404,  51  S.  E.  339,  107  Am.  St. 
Rep.  92  (1905),  and  the  numerous  cases  cited  in  the  note  In  107  Am.  St.  Rep. 
99,  106,  et  seq. 

Limitations  upon  Agent's  Power  to  Estop  Company, — Many  insurance 
companies  include  in  the  application  which  the  insured  is  required  to  sign 
a  stipulation,  not  only  that  the  agent  taking  the  application  has  no  authority 
to  waive  any  provision  of  the  policy,  but  also  that  the  insurer  shall  not  be 
charged  with  knowledge  of  oral  statements  made  by  the  agent  to  the  in- 
sured, in  connection  with  filling  out  the  application.  As  said  by  the  court 
in  Parno  v.  Insurance  Co.,  114  Iowa,  132,  86  N.  W.  210  (1901),  such  a  stipula- 
tion "amounts  to  no  more  than  a  declaration  by  a  party  that  he  will  not 
be  liable  for  the  fraud  of  his  agent  committed  while  acting  within  the  scope 
of  his  authority,  and  such  a   declaration   would  be  futile." 

It  would  seem  clear  that  a  person  cannot,  by  denying  the  settled  rule  of 
law  that  the  principal  is  charged  with  knowledge  acquired  by  his  agent  in 
the  course  of  his  employment,  contract  against  the  operation  of  an  estoppel. 
See  Howe  v.  Provident  Fund  Society,  7  Ind.  App.  586,  34  N.  E.  830  (1893)  ; 
Sternaman  v.  Insurance  Co.,  170  N.  Y.  13,  62  N.  E.  763,  57  L.  R.  A.  318,  88 
Am.  St.  Rep.  625  (1902) ;  South  Atlantic  Insurance  Co.  v.  Hurt,  115  Va.  398, 
79  S.  E.  401  (1913);  Modlin  v.  Insurance  Co.,  151  N.  C.  35,  65  S.  E.  605  (1909) ; 
Note,  107  Am.  St.  Rep.  108.  But  the  Supreme  Court  of  the  United  States 
firmly  persists  in  the  rule,  laid  down  in  New  York  Life  Ins.  Co.  v.  Fletcher, 
117  U.  S.  519,  6  Sup.  Ct.  837,  29  L.  Ed.  934  (1886),  that  such  a  stipulation 
was  binding  upon  the  insured,  who  could  not  claim  an  estoppel  by  reason 
of  information  given  to  an  agent  with  powers  so  limited.  See  .Etna  Life  Ins. 
Co.  V.  Moore,  231  U.  S.  543,  34  Sup.  Ct.  186,  58  L.  Ed. (1913).     See,  to  the 


Sec.  o)  LIMITATIONS    UPON    AUTHORITY    OF    AGENT  557 

In  the  case  of  Sullivan  v.  Phenix  Ins.  Co.,  34  Kan.  170,  8  Pac. 
112,  it  was  held  that  an  insurance  company  cannot  shirk  responsi- 
bility for  any  mistake  or  fraud  committed  by  its  agent  during  the 
preliminary  negotiations  on  its  behalf  by  stipulating  that  he  is 
the  agent  of  the  assured.  Such  a  stipulation  involves  a  legal  con- 
tradiction and  is  invalid. 

In  the  case  of  Insurance  Co.  v.  Gray,  44  Kan.  731,  25  Pac.  197, 
the  first  paragraph  of  the  syllabus  reads  as  follows :  "An  agent 
authorized  to  take  applications  for  insurance  should  be  regarded 
to  be  acting  within  the  scope  of  his  authority  where  he  fills  up  the 
blank  application  of  insurance ;  and,  if,  by  his  fault  or  negligence, 
it  contains  a  misstatement  not  authorized  by  the  instructions  of 
the  party  who  signed  it,  the  wrong  should  be  imputed  to  the  com- 
pany, and  not  to  the  assured." 

In  the  case  of  Insurance  Co.  v.  Davis,  59  Kan.  521,  526,  53  Pac. 
856,  858,  the  opinion  reads :  "There  was  proof  to  the  efifect  that 
the  agent  of  the  company  who  filled  out  the  application  for  the 
policy  was  informed  by  Davis  that  he  already  held  an  accident 
policy  in  the  Travelers'  Insurance  Company,  but  for  some  reason 
that  fact  was  omitted  from  the  application.  It  is  well  settled  that, 
where  the  agent  of  an  insurance  company  who  fills  out  an  applica- 
tion for  insurance  is  duly  informed  as  to  facts  and  fails  to  state 

same  effect,  Kibbe  v.  Hamilton  Mut.  Ins.  Co.,  11  Gray  (Mass.)  163  (1S58)  ; 
Ryan  v.  World  INIut.  Life  Ins.  Co.,  41  Conn.  168,  19  Am.  Rep.  490  (1874)  ; 
Diniick  v.  Metropolitan  Life  Ins.  Co.,  69  N.  J.  Law,  384,  55  Atl.  291  (1903). 

Yet  strangely  enough,  in  the  light  of  New  York  Life  Ins.  Co.  v.  Fletcher, 
supra,  it  was  held  in  Continental  Life  Ins.  Co.  v.  Chambei-lain,  1.32  U.  S. 
304,  10  Sup.  Ct.  87,  33  L.  P:d.  341  (1889),  that  because  of  an  Iowa  statute  ap- 
plicable to  the  case,  making  the  agent  taking  the  application  the  agent  of 
the  insurer  rather  than  of  the  insured,  the  company  was  estopped  by  knowl- 
edge communicated  to  the  agent;  and  this  in  the  face  of  the  following  sweep- 
ing limitation  in  the  application:  "And  it  is  hereby  further  covenanted  and 
agreed  that  no  statements  or  representations  made  or  given  to  the  person 
soliciting  this  application  for  a  policy  of  insurance  or  to  any  other  person 
shall  be  binding  on  the  said  company,  unless  such  statements  or  representa- 
tions be  in  writing  in  this  application  when  the  said  application  is  received 
by  the  officers  of  the  said  company  at  the  home  office  of  the  said  company, 
in  Hartford,  Conn." 

Mr.  Justice  Harlan,  speaking  for  the  court  said:  "By  force  of  the  statute, 
he  was  the  agent  of  the  company  in  soliciting  and  procuring  the  application. 
He  could  not,  by  any  act  of  his,  shake  off  the  character  of  agent  for  the  com- 
pany. Nor  could  the  company  by  any  provision  in  the  application  or  policy 
convert  him  into  an  agent  of  the  assured.  If  it  could,  then  the  object  of  the 
statute  would  be  defeated.  In  his  capacity  as  agent  of  the  insurance  com- 
pany, he  filled  up  the  application, — something  that  he  was  not  bound  to  do, 
but  which  service,  if  he  chose  to  render  it,  was  within  the  scope  of  his  au- 
thority as  agent.  If  it  be  said  that,  by  reason  of  his  signing  the  applica- 
tion, after  it  had  been  prepared,  Stevens  is  to  be  held  as  having  stipulated 
that  the  company  should  not  be  bound  by  his  verbal  statements  and  repre- 
sentations to  its  agent,  he  did  not  agree  that  the  writing  of  the  answers  to 
questions  contained  in  the  application  should  be  deemed  wholly  his  act,  and 
not,  in  any  sense,  the  act  of  the  company,  by  its  authorized  agent.  His  act 
in  writing  the  answer,  which  is  alleged  to  be  untrue,  was,  under  the  circum- 
stances, the  act  of  the  company.     If  he  had  applied  in  person,  at  the  home 


558  WAIVER   AND    ESTOPPEL  (Ch.  8 

them  in  the  application,  the  actual  knowledge  of  the  agent  will  be 
held  to  be  the  knowledge  of  the  company." 

In  the  case  of  Insurance  Co.  v.  Bank,  60  Kan.  630,  637,  57  Pac. 
524,  526,  the  opinion  reads:  "In  the  case  at  bar  the  agent  was 
bound  to  write  the  answers  to  the  questions  in  the  application 
as  dictated  by  the  insured,  and  the  latter  was  not  called  upon  to 
assume  that  a  fraud  was  being  practiced  upon  him,  nor  can  he  be 
charged  with  negligence  in  believing  that  the  agent  was  acting 
in  good  faith.  Although  Rammelsberg  might  have  received  from 
the  insurance  company  the  policy  with  the  written  application  at- 
tached thereto,  yet  he  had  a  right  to  assume  that  the  answers 
made  by  him  were  correctly  written,  and  cannot  be  chargeable 
with  negligence  for  his  failure  to  be  suspicious,  or  for  too  much 
confidence  in  the  good  faith  of  the  agent  in  carrying  out  his  di- 
rections." 

In  the  case  of  Insurance  Co.  v.  Darrin,  80  Kan.  578,  103  Pac. 
87,  it  was  held  that  the  insured  has  the  right  to  assume  that  the 
policy  he  receives  is  prepared  in  accordance  with  his  application; 
that  it  is  the  duty  of  the  insurer  so  to  prepare  it ;  and  that  the 
fact  that  the  insured  does  not  read  the  policy  until  after  a  loss  has 
occurred  will  not  defeat  recovery. 

The  attitude  of  this  court  toward  the  subject  under  considera- 
tion is  further  disclosed  in  numerous  other  decisions  of  like  char- 
acter. 

ofBce,  for  insurance,  stating  in  response  to  the  question  as  to  other  insurance 
the  same  facts  communicated  by  him  to  Boak,  and  the  company,  by  its  prin- 
cipal officer,  having  authority  in  the  premises,  liad  then  written  the  answer, 
'No  other,'  telling  the  applicant  that  such  was  the  proper  answer  to  be 
made,  it  could  not  be  doubted  that  the  company  would  be  estopped  to  say 
that  insurance  in  co-operative  societies  was  insurance  of  the  kind  to  which 
the  question  referred,  and  about  which  it  desired  information  before  con- 
summating the  contract.  The  same  result  must  follow  where  negotiations 
for  insurance  are  had,  under  like  circumstances,  between  the  assured  and  one 
who  in  fact,  and  by  force  of  the  law  of  the  state  where  such  negotiations 
take  place,  is  the  agent  of  the  company,  and  not,  in  any  sense,  an  agent  of 
the   applicant." 

In  general,  an  insiirance  company  may  limit  the  apparent  powers  of  its 
agents,  as  any  other  principal  may,  by  stipulation  properly  brought  to  the 
knowledge  of  a  third  person  dealing  with  it.  So  the  company  may  not  only 
limit  the  extent  of  the  agent's  activity,  but  it  may  also  limit  the  manner 
in  which  an  act  shall  be  done.  For  example,  the  agent  may  be  authorized 
to  waive  provisions  of  the  policy  only  in  writing.  See  Porter  v.  Home  Friend- 
ly Soc.,  114  Ga.  937,  41  S.  E.  45  (1902) ;  Gould  v.  Dwelling  House  Ins.  Co.,  90 
Mich.  302,  51  N.  W.  455  (1892) ;  Id.,  90  Mich.  308,  52  N.  W.  754  (1892)  ;  Quin- 
tan V.  Providence  Washington  Ins.  Co.,  133  N.  Y.  356,  31  N.  E.  31,  28  Am.  St. 
Rep.  645  (1892).  A  stipulation,  however,  which  seeks  to  deprive  all  the  offi- 
cers or  agents  of  the  corporation  of  authority  to  act,  cannot  be  effectual, 
since  a  corporation  can  act  only  through  its  agents,  and  the  powers  given  it 
by  law  cannot  be  taken  away  by  limitations  attempted  to  be  imposed  by  such 
agents  upon  their  own  powers.  See  the  excellent  opinion  of  Dickinson,  J.,  in 
Lamberton  v.  Connecticut  Fire  Ins.  Co.,  39  Minn.  129.  39  N.  W.  76,  1  L.  R. 
A,  222  (1888);  Westchester  Fire  Ins.  Co.  v.  Earle,  33  Mich.  143  (1876);  Renier 
V.  Dwelling-House  Ins.  Co.,  74  Wis.  89,  42  N.  W.  208  (1889).  For  a  collection 
of  the  cases,  see  note,  107  Am.  St.  Rep.  101. 


Sec.  5)  LIMITATIONS    UPON    AUTHORITY    OF    AGENT  559 

In  this  case  the  agent  had  authority  to  negotiate,  write,  and 
transmit  the  application.  For  those  purposes  he  had  all  the  pow- 
er the  company  itself  possessed,  and  agreements  made  with  him 
as  to  what  the  terms  of  the  application  should  be  were  made  with 
the  company.  It  was  the  agent's  duty  to  frame  the  application 
according  to  the  agreement  with  the  plaintiff,  and  his  neglect  to  do 
so  was  the  neglect  of  the  company.  His  knowledge  of  the  agree- 
ment was  the  knowledge  of  his  principal,  and  consequently  for  all 
purposes  of  the  law  the  defendant  knew  the  true  terms  of  the  ap- 
plication. With  such  knowledge  it  accepted  and  approved  the 
application,  received  and  retained  the  first  year's  premium,  and 
issued  the  policy.  This  made  a  binding  contract  of  insurance,  in- 
correctly evidenced,  however,  through  the  defendant's  fault. 
True,  on  the  face  of  the  policy,  and  under  the  provision  of  the 
application  quoted  above  relating  to  the  force  of  statements  not  in 
writing,  the  defendant  did  not  appear  to  be  liable.  But  the  de- 
fendant cannot  take  advantage  of  its  own  wrong  and  successfully 
oppose  the  right  of  the  plaintiff  to  have  the  agreement  relating  to 
the  date  when  the  annual  premium  should  fall  due  written  into  the 
application,  and  to  have  the  policy  reformed  accordingly.  On  the 
policy  reformed  to  state  truthfully  the  contract  actually  made,  the 
defendant  is  liable. 

If  the  insured,  or  the  plaintiff,  had  discovered  the  omission  from 
the  application  and  the  error  in  the  policy,  it  would  have  been 
his  duty  to  call  them  to  the  attention  of  the  company,  and  have  the 
necessary  corrections  made.  Delay  would  have  indicated  acquies- 
cence, and  if  sufficiently  prolonged  might  have  affected  the  right 
to  the  equitable  remedy  of  reformation.  But  there  is  no  evidence 
that  the  mistakes  were  discovered  until  the  policy  had  matured 
by  the  death  of  the  insured.  Meanwhile  the  plaintiff'  and  the  in- 
sured were  not  negligent  in  failing  to  examine  the  application  or 
the  policy,  and  were  justified  in  supposing  that  they  had  been 
written  as  contemplated. 

There  was  evidence  to  the  effect  that  the  agent  made  no  agree- 
ment fixing  June  14th  as  the  date  when  premiums  should  fall  due, 
but  the  district  court  has  resolved  the  question  of  fact  in  favor 
of  the  plaintiff  upon  the  evidence  quoted  above,  which  this  court 
regards  as  sufficient. 

The  judgment  of  the  district  court  is  affirmed.  All  the  Justices 
concurring.*** 

*o  See  McMaster  v.  New  York  Life  Ins.  Co.,  ISS  V.  S.  25,  22  Sup.  Ct.  10, 
46  L.  Ed.  64  (1901).  and  Straniback  v.  Fidelity  Mut.  Ins.  Co.,  94  Minn.  281, 
102  N.  W.  731  (1905),  in  which  similar  results  on  analogous  states  of  facts 
wei'e  readied  on  a  very  different  theory.  But  it  seems  that  the  coui-ts  are 
disposed  to  give  full  effect  to  the  antedating  of  the  policy  in  oi'der  to  avoid  a 
forfeiture.  Thus,  when  a  policy  dated  May  22d.  but  actually  issued  on  July 
6th,  was  to  be  avoided  if  the  insured  committed  suicide  within  one  year 
after  the  "issuance"  of  the  policy,  it  was  held  that  the  period  specified  ran 


560  WAIVER    AND    ESTOPPEL  (Ch.  8 


SECTION  6.— WHAT  CONSTITUTES  WAIVER  AND 
ESTOPPEL 


GIBSON  ELECTRIC  CO.  v.  LIVERPOOL  &  LONDON  & 
GLOBE  INS.  CO. 

(Court  of  Appeals  of  New  York,  1899.     159  N.  Y.  418,  54  N.  E.  23.) 

Action  by  Gibson  Electric  Company  against  the  Liverpool  &  Lon- 
don &  Globe  Insurance  Company.  From  a  judgment  of  the  trial  court 
dismissing  plaintiff's  complaint,  plaintiff  appealed  to  the  appellate  di- 
vision of  the  supreme  court,  where  the  judgment  was  affirmed  (46 
N.  Y.  Supp.  1092).  From  the  judgment  of  affirmance,  plaintiff  ap- 
pealed.   Affirmed. 

Martin,  J.  This  action  was  upon  a  standard  policy  of  fire  insur- 
ance, whereby  the  defendant  insured  the  plaintiff's  buildings,  engines, 
machinery,  goods,  and  other  property  described  therein  for  the  period 
of  one  year  from  November  23,  1890.  Among  others,  the  policy  con- 
tained provisions  to  the  effect  that  the  company  should  not  be  liable 
beyond  the  actual  cash  value  of  the  property  insured  at  the  time  any 
loss  or  damage  should  occur ;  that  the  loss  or  damage  should  be  as- 
certained or  estimated  according  to  such  actual  cash  value;  that  such 
ascertainment  or  estimate  should  be  made  by  the  insured  and  the  de- 
fendant, or,  if  they  differed,  by  appraisers,  as  therein  provided;  and 
that  the  entire  policy,  unless  otherwise  provided  by  agreement  indorsed 
thereon  or  added  thereto,  should  be  void  if,  with  the  knowledge  of  the 
insured,  foreclosure  proceedings  were  commenced,  or  notice  was  giv- 
en of  the  sale  of  any  property  covered  by  the  policy  by  virtue  of  any 
mortgage  or  trust  deed.  The  policy  also  included  the  usual  provi- 
sions requiring  all  the  property  remaining  after  the  fire  to  be  exhib- 
ited ;  that  the  assured  should  submit  to  examination  under  oath,  and 
produce  for  examination  all  books  of  account,  bills,  invoices,  and  oth- 
er vouchers,  or  certified  copies  thereof ;  and  that,  when  there  was  a 
disagreement  as  to  the  amount  of  any  loss,  it  should  be  ascertained  by 
two  competent  and  disinterested  appraisers,  each  party  to  select  one, 
the  two  chosen  to  select  a  competent  and  disinterested  umpire,  the 
award  of  any  two  to  determine  the  loss,  and  the  parties  to  pay  the  ap- 
praiser respectively  selected  by  them,  and  to  bear  equally  the  expenses 
of  the  appraisal  and  umpire.  It  also  provided  that  the  company  should 
not  be  held  to  have  waived  any  provision  or  condition  of  the  policy, 
or  any  forfeiture  thereof,  by  any  requirement,  act,  or  proceeding  on 
its  part  relating  to  the  appraisal  or  to  any  examination  therein  pro- 
vided for, 

from  May  22(1,  so  that  the  insurer  was  liable  when  the  insured  committed 
suicide  on  June  12th  following.  Anderson  v.  Mut.  Life  Ins.  Co.,  164  Cal. 
712,   130  Pac.   726  (1913). 


Sec.  G)  WHAT    CONSTITUTES    WAIVER    AND    ESTOPPEL  561 

When  the. policy  was  issued,  the  premises  were  incumbered  by  a 
mortgage  held  by  Job  R.  Furman,  who,  upon  his  refusal  to  join  as 
plaintifif,  was  made  a  defendant  in  this  action.     On  the  14th  of  April, 

1891,  Furman  commenced  an  action  to  foreclose  his  mortgage,  which 
was  prosecuted  to  judgment,  and  upon  the  31st  day  of  October  the 
property  was  advertised  for  sale.  That  judgment  was,  however,  sub- 
sequently set  aside,  a  trial  was  had,  and  a  final  judgment  entered  dis- 
missing the  complaint  in  that  action.     But  subsequently,  and  in  July, 

1892,  a  second  action  was  brought,  which  resulted  in  a  judgment  fore- 
closing the  mortgage,  and  directing  a  sale  of  the  property.  A  sale  was 
had  on  December  3,  1892,  and,  the  sum  realized  being  insufficient  to 
pay  the  amount  due  upon  the  mortgage,  a  judgment  for  the  deficiency 
was  entered  December  28,  1892.  Upon  the  occurrence  of  the  fire,  no- 
tice was  promptly  given  to  the  defendant,  and  soon  after  an  agreement 
for  submission  to  appraisers  of  the  amount  of  the  plaintiff's  loss  was 
executed  by  the  parties,  and  appraisers  were  appointed.  At  that  time 
the  defendant  had  no  notice  of  the  action  to  foreclose  the  mortgage, 
and  received  none  until  the  4th  of  November,  1891.  It  was  then  no- 
tified by  the  attorneys  for  the  defendant  Furman,  to  whom  the  defend- 
ant wrote  on  the  next  day,  "The  entire  matter  is  now  in  the  hands 
of  our  adjuster,  who  will  give  the  same  due  attention  in  accordance 
with  the  terms  and  provisions  of  the  policy."  When  the  company  as- 
certained that  an  action  of  foreclosure  had  been  commenced,  the  ad- 
justment of  the  loss  by  the  appraisers  was  still  pending,  and  was  not 
concluded  until  a  month  afterwards. 

The  record  discloses  that  during  the  time  the  appraisal  was  in  prog- 
ress the  defendant  examined  the  plaintiff's  books,  bills,  and  vouchers, 
and  that  the  plaintifif's  president  was  required  to  and  did  incur  some 
expenses  in  the  conduct  of  the  appraisal,  and  subsequently  paid  one 
of  the  appraisers  $35.  It  does  not,  however,  clearly  appear  whether 
the  'examination  of  the  plaintifif's  books  or  the  acts  performed  by  the 
plaintifif's  president  were  after  or  before  the  time  when  the  defendant 
learned  of  the  foreclosure  action.  Upon  the  16th  of  December,  when 
the  appraisal  was  concluded,  and  the  award  made,  the  plaintifif  execut- 
ed and  delivered  to  the  defendant  proofs  of  loss,  which  were  retained 
by  it.  Upon  the  next  day  it  acknowledged  receipt  of  the  proofs,  and 
seems  to  have  claimed  that  the  policy  was  void.  All  we  have  found  in 
the  record  to  show  what  the  company  did  when  the  proofs  of  loss  were 
received  is  contained  in  the  evidence  of  the  witness  Gibson,  who  tes- 
tified to  having  received  a  letter  from  the  defendant  on  December  17th, 
acknowledging  the  receipt  of  the  proofs  of  loss,  and  making  the  com- 
ment that  the  policy  was  void.  The  record  discloses  that,  while  the 
defendant  became  aware  of  the  pendency  of  the  foreclosure  action 
on  the  4th  of  November,  and  the  proceedings  before  the  appraisers 
were  not  concluded  until  the  4th  of  the  following  December,  yet  it 
made  no  objections  to  the  award  or  to  the  continuance  of  the  appraisal, 
Vance  Ins. — 36 


562  WAIVER   AND    ESTOPPEL  (Ch.  8 

nor  did  it  in  any  way  claim  to  the  i)laintifif  that  it  was  not  liable  upon 
the  policy  until  after  the  16th  of  that  month,  when  the  proofs  of  loss 
were  served. 

The  trial  court  dismissed  the  complaint  upon  the  ground  that  the 
policy  was  void  by  reason  of  the  commencement  of  the  action  to  fore- 
close the  mortgage  upon  the  premises.  The  appellate  division  affirmed 
the  judgment  of  the  trial  court  upon  the  same  ground,  and  also  held 
that  the  omission  of  the  insurance  company  to  disaffirm  the  adjust- 
ment after  knowledge  of  the  forfeiture  of  the  policy  did  not  consti- 
tute a  waiver  of  such  forfeiture.  This  is  based  upon  the  provision  in 
the  policy  that  the  company  should  not  be  held  to  have  waived  any 
condition  or  forfeiture  by  any  requirement,  act,  or  proceeding  on  its 
part  relating  to  the  appraisal  or  to  the  examination  provided  for,  and 
also  upon  the  ground  that  the  appraisal  agreement  contained  a  provi- 
sion that  such  appointment  and  submission  were  without  reference  to 
any  other  questions  or  matters  of  difference  within  the  terms  and  con- 
ditions of  insurance,  and  were  of  binding  effect  only  so  far  as  the  ac- 
tual cash  value  of  the  loss  and  damage  to  the  property  was  concerned. 
It  also  decided  that  the  facts  relied  upon  to  show  a  waiver  by  the  de- 
fendant, which  consisted  of  trouble  and  expense  connected  with  the 
appraisal,  the  furnishing  of  proofs  of  loss,  the  examination  of  the 
plaintiff's  books  and  papers,  and  paying  the  appraisers,  were  all  con- 
nected with  the  appraisal,  and  were  covered  by  the  provision  of  the 
policy  relating  to  that  subject. 

The  appellant,  however,  to  sustain  its  appeal,  takes  the  broad  ground 
that,  when  the  defendant  permitted  the  adjustment  to  proceed  after 
knowledge  of  the  forfeiture,  it  waived  the  forfeiture,  and  the  policy 
was  fully  reinstated.  This  contention  rests  upon  the  proposition  that 
the  acts  of  the  company  were  in  affirmation  of  the  policy,  and  it  could 
not  affirm  the  policy  and  at  the  same  time  deny  its  validity ;  in  other 
words,  it  could  not  recognize  the  policy  as  an  existing  contract  for  the 
purposes  of  appraisal,  for  the  examination  of  books  and  papers  and  the 
examination  of  parties,  and  still  repudiate  it  upon  the  ground  that 
it  was  forfeited  by  reason  of  the  action  to  foreclose  the  mortgage.  It 
claims  that  when  the  company  acquired  knowledge  of  the  foreclosure, 
and  hence  the  condition  of  the  policy  was  broken,  and  it  deliberately 
recognized  its  existence  for  the  purpose  of  appraisal,  it  constituted  a 
reaffirmance  of  the  contract,  and  it  continued. 

The  case  of  Titus  v.  Insurance  Co.,  81  N.  Y.  410,  is  relied  upon 
by  the  plaintiff,  and  claimed  to  be  decisive  of  this  question.  In  that 
case  it  was  asserted  that  the  policy  was  void  by  reason  of  the  fore- 
closure of  a  mortgage  upon  the  property  insured.  The  defendant,  aft- 
er it  had  notice  of  the  proceeding,  required  the  insured  to  appear,  and 
be  examined,  and  the  court  held  that  the  insurance  company  had  the 
right  to  make  the  examination  only  under  the  policy,  and  by  exercis- 
ing that  right  it  recognized  its  validity,  subjected  the  insured  to  trou- 
ble and  expense,  and  thus  waived  the  forfeiture  occasioned  by  the  fore- 


Sec.  6)  WHAT    CONSTITUTES    WAIVER    AND    ESTOPPEL  56S 

closure.  The  policy  in  that  case  provided  that  the  use  of  general 
terms,  or  language  less  than  a  distinct,  specific  agreement,  clearly  ex- 
pressed and  indorsed  on  the  policy,  should  not  be  construed  as  a  waiv- 
er of  any  printed  or  written  condition  or  restriction  therein.  It  is 
said  that  that  provision  is  as  broad  and  comprehensive  as  the  condi- 
tion in  the  standard  policy,  and  hence  that  that  case  is  an  authority 
sustaining  the  plaintiff's  contention. 

The  question  as  to  what  constitutes  a  waiver  of  a  forfeiture  under 
the  provisions  of  a  fire  insurance  policy  has  often  been  considered  by 
this  court.  Thus,  in  Weed  v.  Insurance  Co.,  116  N.  Y.  106,  22  N. 
E.  229,  it  was  decided  that,  to  establish  a  waiver  of  a  forfeiture  in  a 
policy  of  insurance,  the  proof  must  show  a  distinct  recognition  of  the 
validity  of  the  policy  after  a  knowledge  of  the  forfeiture  by  the  per- 
son by  whom  it  is  claimed  such  forfeiture  was  waived.  In  Roby  v. 
Insurance  Co.,  120  N.  Y.  510,  518,  24  N.  E.  810,  it  was  declared  that 
where,  after  knowledge  of  the  forfeiture  of  a  policy,  the  insurer  rec- 
ognizes its  continued  validity,  does  acts  based  thereon,  and  requires 
the  insured,  by  virtue  thereof,  to  do  some  act  or  incur  some  trouble 
or  expense,  the  forfeiture  is,  as  a  matter  of  law,  waived,  and  the  waiv- 
er need  not  be  based  upon  any  new  agreement,  or  upon  estoppel.  In 
that  case  it  was  said  that :  "The  policy  in  question  was  void  or  valid 
as  a  whole.  If  any  part  was  valid,  it  was  all  valid.  The  defendant 
could  not  enforce  any  part  without  practically  admitting  that  it  was 
operative  in  all  its  parts."  Pratt  v.  Insurance  Co.,  130  N.  Y.  206,  29 
N.  E.  117,  is  to  the  effect  that  where  the  agents  or  committee  of  an 
insurance  company,  after  being  apprised  of  facts  affecting  the  policy, 
asked  the  insured  to  fill  out  the  blank  proofs  of  loss  which  they  gave 
him,  called  for  his  books,  required  him  to  furnish  information,  which 
they  knew  involved  trouble  and  loss  of  time  for  him  to  obtain,  it  was 
a  ratification  of  the  policy,  and  a  waiver  of  the  forfeiture.  It  wa? 
decided  in  Armstrong  v.  Insurance  Co.,  130  N.  Y.  560,  29  N.  E.  991 
that,  while  a  waiver  of  a  condition  of  forfeiture  contained  in  a  policy 
of  insurance  need  not  be  based  upon  a  technical  estoppel,  yet,  in  the 
absence  of  an  express  waiver,  some  of  the  elements  of  an  estoppel 
must  exist,  and  that  the  insured  must  have  been  misled  by  some  action 
of  the  company,  or  it  must  have  done  something,  after  knowledge  of 
a  breach  of  the  condition,  which  could  only  be  done  by  virtue  of  the 
policy,  or  have  required  something  from  the  assured  which  he  was 
bound  to  do  only  at  the  request  of  the  company  under  a  valid  policy, 
or  have  exercised  a  right  which  it  had  only  by  virtue  of  such  policy. 
In  that  case  it  was  held,  as  it  was  in  the  Titus  Case,  that  a  waiver 
could  not  be  inferred  from  mere  silence,  but  would  require  some  af- 
firmative action  on  the  part  of  the  insurer  which  indicated  that  it  in- 
tended to  waive  the  result  of  the  plaintiff's  breach.  Bishop  v.  Insur- 
ance Co.,  130  N.  Y.  488,  29  N.  E.  844,  is  to  the  effect  that  a  company 
issuing  a  policy  containing  a  provision  that  it  shall  not  be  modified  or 
changed  except  in  writing  signed  by  it  may,  by  its  conduct,  estop  itself 


564  WAIVER    AND    ESTOl'TEL  (Ch.  8 

from  enforcing  the  provision  against  a  party  who  has  acted  in  reli- 
ance upon  such  conduct.  Again,  in  Ronald  v.  Association,  132  N.  Y. 
378,  30  N.  E.  739,  it  was,  in  effect,  said  that,  in  the  absence  of  any 
agreement,  a  waiver  of  forfeiture  of  a  policy  results  only  from  nego- 
tiations or  transactions  with  the  insured,  by  which  the  insurer,  after 
knowledge  of  the  forfeiture,  recognizes  the  continued  existence  of  the 
I)olicy,  or  does  acts  based  thereon,  or  requires  the  insured,  by  virtue 
thereof,  to  do  some  act,  or  incur  some  expense  or  trouble.  Quinlan  v. 
Insurance  Co.,  133  N.  Y.  356,  31  N.  E.  31,  28  Am.  St.  Rep.  645,  is, 
in  many  respects,  similar  to  the  case  at  bar.  In  that  case  the  policy 
contained  the  same  provisions  as  the  policy  in  suit  relating  to  proceed- 
ings to  foreclose  a  mortgage,  and  also  as  to  the  power  of  an  agent  to 
waive  any  of  the  conditions  or  provisions  of  the  policy,  and  it  was 
held  that  the  provisions  in  a  policy  to  the  effect  that  no  representative 
of  the  company  should  have  power  to  waive  any  condition  or  provi- 
sion except  by  writing  indorsed  upon  the  policy  were  valid,  and  that 
the  condition  that  such  waiver  was  to  be  written  upon  the  policy  was 
of  the  essence  of  the  authority  of  the  agent  to  act,  and  that  a  consent 
or  act  not  so  indorsed  was  void ;  citing  Walsh  v.  Insurance  Co.,  73 
N.  Y.  10;  Marvin  v.  Insurance  Co.,  85  N.  Y.  278,  39  Am.  Rep.  657. 
Of  that  case  it  may  be  said,  however,  that  it  was  held  that  the  agent 
had  no  authority  whatever  to  bind  the  company,  in  writing  or  other- 
wise, or  to  waive  any  condition  of  the  policy.  In  Kiernan  v.  Insur- 
ance Co.,  150  N.  Y.  i90,  44  N.  E.  698,  it  was  held  that,  when  an  ap- 
praisal of  the  loss  under  a  fire  insurance  policy  is  proper  in  any  event, 
the  fact  that  one  was  had  at  the  request  of  the  company  has  no  bear- 
ing upon  the  question  of  forfeiture.  The  question  of  waiver  was  also 
considered  in  Van  Tassel  v.  Insurance  Co.,  151  N.  Y.  130,  45  N.  E.  365, 
where  it  was,  in  effect,  held  that,  in  the  absence  of  a  subsequent  waiv- 
er, the  rights  of  the  insured  are  to  be  determined  as  of  the  date  of  the 
fire,  and  that  to  establish  a  waiver  a  preponderance  of  evidence  is 
requisite.  In  Walker  v.  Insurance  Co.,  156  N.  Y.  628,  51  N.  E.  392, 
where  an  insurer,  after  having  made  a  contract  of  fire  insurance,  in 
ignorance  of  the  existence  of  a  chattel  mortgage  which  rendered  the 
insurance  voidable,  learned  of  the  existence  of  the  mortgage,  and  there- 
after treated  the  policy  as  valid,  and  put  the  insured  to  trouble  or  ex- 
pense on  account  thereof,  it  was  held  that  those  acts  were  evidence 
from  which  the  jury  might  find  a  waiver  of  a  forfeiture.  This  court 
has  several  times  held  that  the  provisions  in  a  standard  policy,  re- 
stricting the  power  of  an  agent  to  waive  any  of  its  conditions  except 
in  a  particular  manner,  cannot  be  deemed  to  apply  to  the  conditions 
which  relate  to  the  inception  of  the  contract,  where  the  agent  delivered 
it  and  received  the  premium  with  a  knowledge  of  the  true  situation. 
Wood  V.  Insurance  Co.,  149  N.  Y.  382,  44  N.  E.  80,  52  Am.  St.  Rep. 
733. 

Although  the  decisions  of  this  court  of  which  we  have  made  this 
brief  review  seem  to  warrant  the  conclusion  that  an  insurer,  even  un- 


Sec.  G)  WHAT    CONSTITUTES    WAIVER    AND    ESTOPPEL  565 

der  the  provisions  of  a  standard  policy,  may  estop  itself  from  claim- 
ing, or  may  waive,  a  forfeiture  under  its  conditions  by  its  acts  and  the 
reciuirements  it  makes  of  the  insured  after  knowledge  of  the  forfei- 
ture, still  the  circumstances  and  acts  which  are  recjuired  to  consti- 
tute such  an  estoppel  or  waiver  seem  to  be  quite  firmly  established. 
Thus,  in  the  absence  of  an  express  waiver,  at  least  some  of  the  ele- 
ments of  an  estoppel  must  exist.  The  insured  must  have  been  misled 
by  some  act  of  the  insurer,  or  it  must,  after  knowledge  of  the  breach, 
have  done  something  which  could  only  be  done  by  virtue  of  the  policy, 
or  have  required  something  of  the  assured  which  he  was  bound  to  do 
only  under  a  valid  policy,  or  have  exercised  a  right  which  it  had  only 
by  virtue  of  such  policy.  Such  an  estoppel  or  waiver  must  be  estab- 
lished by  the  person  claiming  it  by  a  preponderance  of  evidence,  and 
neither  an  estoppel  nor  a  waiver  of  the  breach  of  a  condition  after 
forfeiture,  by  reason  thereof,  can  be  inferred  from  mere  silence  or 
inaction. 

Applying  these  principles  to  the  case  under  consideration,  it  becomes 
manifest  that  the  plaintiff's  appeal  cannot  prevail.  The  most  that  the 
plaintiff  has  established  by  the  proof  is  that  for  a  month  or  more  after 
the  defendant  became  aware  of  the  fact  that  the  policy  was  forfeited 
by  the  commencement  of  the  foreclosure  action,  and  until  the  proofs 
of  loss  were  furnished,  the  defendant  simply  remained  silent  and  inac- 
tive. Upon  receiving  the  proofs,  however,  the  defendant  immediate- 
ly notified  the  plaintiff  that  its  policy  had  been  forfeited,  and  was 
void,  and  since  that  time  it  has  performed  no  act  inconsistent  with 
that  claim.  The  plaintiff  has  in  no  way  been  misled  by  any  act  or 
statement  of  the  defendant.  It  has  done  nothing  under  the  policy,  has 
exercised  no  right  by  virtue  of  it,  nor  has  it  required  the  plaintiff  to 
perform  any  act  which  it  was  required  by  the  policy  to  perform.  The 
most  that  can  be  said  as  to  the  continuance  of  the  appraisal  is  that 
the  defendant  did  nothing,  and  whatever  was  done  by  the  plaintiff  was 
voluntary. 

Under  these  circumstances  we  have  no  doubt  as  to  the  correctness 
of  the  decisions  below,  and  hence  the  judgment  should  be  affirmed, 
with  costs.    All  concur.    Judgment  affirmed.*^ 

41  As  indicated  in  the  principal  case,  there  is  much  confusion  in  the  case 
law  as  to  whether  a  waiver,  express  or  implied,  requires  the  support  of  a 
consideration ;  manifestly  such  consideration  may  be  by  way  of  benefit  to 
the  one  waivins.  or  of  detriment  to  the  other  party — that  is,  estoppel.  As 
said  by  Mar.shall.  J.,  in  Pabst  Brewing  Co.  v.  Milwauke.e.  126  Wis.  110,  116, 
105  N.  W.  563  (1905):  "The  efforts  of  courts  and  text-writers  to  harmonize 
the  situations  to  which  the  principle  of  waiver  has  been  applied  with  the 
idea  that  some  element  of  estoppel  or  some  consideration  is  necessary  to 
support  the  defense  has  led  to  many  interesting  discussions  and  the  assign- 
ment of  reasons  much  too  shadowy  to  be  appreciated  by  minds  generally,  if 
at  all.  It  must  be  conceded  that  in  many  cases  where  the  defense  of  waiver 
has  prevailed  no  element  of  estoppel  can  be  pointed  to.  If  it  were  otherwise, 
many  instances  of  supposed  waiver  would  be  misnamed,  the  proper  designa- 
tion of  the  defense  being  estoppel.  It  may  be  that  the  theory  advanced  by  a 
learned  writer  is  correct,  that  in  every  case  where  the  law  of  waiver  is  ap- 


566  WAIVER    AND    ESTOPPEL  (Ch.  8 

plicnble,  and  there  Is  no  element  of  estoppel,  there  is  one  of  considcrution, 
in  tlio  broad  sense  of  the  term  as  applicable  to  contracts.  A  consideration 
essential  to  a  contract  is  satisfied  by  a  disadvantage'  to  the  promisee  as  well 
as  by  a  benefit  to  him.  1  Parsons  on  Contracts  (!)th  Ed.)  §  4(57.  So  waiver 
may  perhaps  be  viewed  as  involving  a  consideration  and  snpported  on  that 
theory.  In  every  case  whei-e  the  waivee  asserts  as  a  defense  submission  by 
the  waiver,  the  former  would  be  prejudiced  if  the  latter  were  allowed  to  suc- 
cessfully change  his  position.  TjS  Cent.  Law  ,T.,  204.  It  would  seem  that  the 
more  .satisfactory  ground  to  support  the  doctrine  of  waiver  on  is  that  it  is 
a  rule  of  judicial  policy — the  legal  outgrowth  of  judicial  abhorrence,  so  to 
speak,  of  a  per.son's  taking  inconsistent  positions  and  gaining  advantages 
thereby  through  the  aid  of  courts." 

Undoubtedly  thex'e  is  much  authority  in  support  of  the  following  state- 
ment found  in  the  opinion  of  Sharpe,  J.,  in  Alabama  State  Mutvial  Assurance 
Co.  V.  Long  Clothing  &  Shoe  Co.,  123  Ala.  667,  675,  26  South.  655  (1809) :  "A 
waiver  may  be  founded  upon  an  estoppel,  but  it  is  not  so  necessarily.  Though 
the  conduct  of  the  insurer  may  not  have  actually  misled  the  insured  to  his 
prejudice,  or  into  an  altered  position,  yet  if,  after  knowledge  of  all  the  facts, 
its  conduct  has  been  such  as  to  reasonably  imply  a  pui-pose  not  to  insist 
upon  a  forfeiture,  the  law  leaning  against  forfeitures  will  apply  the  peculiar 
doctrine  of  waiver  invented  probably  to  prevent  them,  and  will  hold  the  in- 
surer irrevocably  bound  as  by  an  election  to  treat  the  contract  as  if  no  cause 
of  forfeiture  had  occurred." 

Some  of  the  cases  go  so  far  as  to  impose  upon  the  insurer,  who  has  knowl- 
edge of  an  existing  cause  of  forfeiture,  the  duty  of  affirmative  action  indi- 
cating an  intention  to  enforce  the  forfeiture,  such  as  notice  to  the  insured 
that  the  insurance  is  no  longer  in  force,  or  the  cancellation  of  the  policy. 
Thus  mere  inaction  on  the  part  of  an  insurer  knowing  of  a  breach  of  con- 
dition constitutes  a  waiver  of  the  forfeiture.  Thus  in  Kelly  v.  People's  Nat. 
Fire  Ins.  Co.,  262  111.  158,  104  N.  E.  188  (1914),  the  agent  of  the  insurer  was 
notified  that  foreclosure  proceedings  had  been  begun  against  the  insured, 
which  fact,  by  the  terms  of  the  policy,  avoided  the  insurance.  The  agent  did 
nothing.  It  was  held  that  by  such  indiscreet  inaction  the  insurer  had  waived 
the  forfeiture.  The  court  said:  "Where  there  is  a  stipulation  that  a  policy 
shall  become  void  upon  the  happening  of  some  subsequent  event,  and  the  in- 
surer has  notice  that  the  event  has  occurred,  but  does  not  cancel  the  policy, 
the  provision  is  waived  and  the  policy  remains  in  force.  That  rule  was  ap- 
plied in  North  British  &  Mercantile  Ins.  Co.  v.  Steiger,  124  111.  81,  16  N.  E. 
95  (1888),  where  the  policy  provided  that  it  should  become  void  if  certain  sub- 
sequent conditions  therein  mentioned  should  exist,  and  it  was  held  that,  if 
the  insurance  company,  with  knowledge  on  the  part  of  its  agent  of  the  ex- 
istence of  such  a  condition,  did  not  cancel  the  policy,  it  did  not  become  void. 
There  was  an  instruction  which  stated  that  rule,  based  on  the  hypothesis 
that  the  insurance  agent  had  notice  of  the  foreclosure  suit  and  that  there 
was  a  failure  to  cancel  the  policy,  and  the  instruction  was  correct." 

See,  in  accord,  Kelly  v.  People's  Nat.  Fire  Ins.  Co.,  262  111.  158,""  104  N.  E. 
188  (1914);  British-America  Assurance  Co.  v.  Bradford,  60  Kan.  82,  55  Pac. 
335  (1898);  12  Harv.  Law  Rev.  508,  and  note.  The  weight  of  authority  is, 
however,  opposed  to  such  a  view  and  in  accord  with  the  principal  case. 
See  Home  Fire  Ins.  Co.  v.  Wilson  (Ark.)  1.59  S.  W.  1113  (191.3);  Coppoletti 
V.  Citizens'  Ins.  Co.,  123  Minn.  325,  143  N.  W.  787  (1913).  See  note  in  16 
Harv.  Law.  Rev.  217. 


Sec,  6)  WHAT    CONSTITUTES    WAIVER    AND    ESTOPPEL  567 


MUDGE  V.  SUPREME  COURT,  I.  O.  F. 

(Supreme  Court  of  Michigan,   1907.     149  Mich.  467,  112  N.   W.  1130,  14  L. 
R.  A.  [N.  S.]  279,  119  Am.  St.  Rep.  686.) 

Action  by  Elizabeth  Mudge  against  the  Supreme  Court,  Independent 
Order  of  Foresters.  Judgment  for  defendant,  and  plaintiff  brings 
error.    Affirmed. 

Hooker,  J.  The  plaintiff  in  this  cause  is  a  widow  and  beneficiary 
in  a  fraternal  benefit  certificate.  Her  action  is  brought  to  recover  the 
amount  thereof,  and  is  predicated  upon  the  death  of  her  husband.  The 
defense  is  reduced  to  one  claim,  viz.,  that  the  deceased  made  an  inten- 
tionally false  answer  in  his  medical  examination  to  the  question, 
"Have  you  ever  had  the  disease  of  insanity?"  Upon  the  trial  the 
learned  circuit  judge  was  of  the  opinion  that  the  undisputed  testimony 
established  this  defense,  and  he  therefore  directed  a  verdict  for  the 
defendant,  and  afterwards  denied  a  motion  for  new  trial.  The  plain- 
tiff has  appealed. 

The  undisputed  testimony  shows  that  the  insured  had  previously 
been  insane,  and  confined  in  the  asylum  as  insane,  for  three  months, 
upon  an  adjudication  by  the  probate  court  that  he  was  insane,  based 
upon  an  application,  sworn  to  and  filed  by  this  plaintiff,  stating  that 
he  was  insane.  It  also  shows  that  he  had  delusions,  and  that  he  had 
attempted  suicide  twice.  It  appeared  with  equal  conclusiveness  that 
he  knew  that  he  had  been  confined  and  treated  as  insane,  and  there 
was  no  testimony  that  he  stated  these  facts  to  the  agent  or  examining 
physicians,  and  was  not  a  party  to  the  insertion  of  the  false  answer 
in  the  application  or  report  of  the  examining  physician.  On  the  con- 
trary, it  was  shown  that  his  answers  were  faithfully  recorded.  There 
is  no  occasion  to  allude  to  the  attempted  discrimination  between  "in- 
sanity" and  the  disease  of  insanity  under  the  facts  in  this  case.  Hence 
we  find  that  upon  the  record  the  judge  was  warranted  in  saying  that 
the  proof  established  the  insured's  insanity  and  his  knowledge  of  and 
fraudulent  concealment  of  the  same.  There  can  be  no  question  that 
this  was  sufficient  to  deprive  his  beneficiary  of  the  right  to  recover,  un- 
less the  company  was  estopped  to  assert  the  claim  by  reason  of  the 
alleged  knowledge  of  its  agents  or  by  a  waiver. 

It  is  contended  that  there  was  evidence  tending  to  show  that  both 
the  agent  who  took  the  application  and  the  physician  who  made  the 
examination  knew  at  that  time  that  the  insured  had  been  insane,  and 
that  his  answers  were  false,  and  that  this  was  the  knowledge  of  the 
defendant,  and  is  sufficient  to  estop  it  from  denying  the  truth  of  the 
answer.  Were  this  a  case  where  the  insured  had  made  no  misrepre- 
sentation in  his  answer,  and  was  excusably  ignorant  of  fraudulent  con- 
duct on  the  part  of  the  company's  agent  in  inserting  an  answer  differ- 
ent from  that  given,  there  might  be  reason  for  this  claim. 

In  this  case  the  most  that  plaintiff's  counsel  could  possibly  contend 


5()8  WAIVER   AND    ESTOITEL  (Ch.  8 

is  that  by  collusion  between  the  applicant  and  defendant's  agent 
they  made  a  false  answer,  and  now  seek  to  hold  the  company  by  mak- 
ing a  "sword  instead  of  a  shield"  out  of  the  salutary  rule  that  the 
knowledge  of  the  agent  is  notice  to  the  principal.  Good  faith  is  always 
essential  to  an  estoppel.  In  Insurance  Co.  v.  Gilbert,  27  Mich.  429, 
where  the  insured  answered  truly,  but  the  agent  inserted  a  false  state- 
ment, with  his  knowledge,  stating  that  it  was  right,  and  the  insured 
signed,  honestly  believing  that  it  was  right,  this  court  in  reversing  the 
judgment  said:  "The  very  form  and  obvious  purpose  of  the  applica- 
tion, with  the  consideration  contained  in  it,  showed  that  the  statements 
it  contained  were  to  be  understood  as  made  by  the  applicant  and  upon 
his  responsibility,  as  the  basis  of  the  contract  of  insurance  he  ex- 
pected to  obtain.  Although  a  person  ignorant  of  the  meaning  of  special 
provisions  used  in  such  papers  or  in  the  policy,  or  of  the  sense  attached 
to  them  by  the  insurers,  or  of  the  particular  rules  or  manner  of  doing 
business,  has  a  right  to  rely  on  the  instructions  and  assurances  of  the 
agent  of  such  insurers,  and  upon  his  acts  in  reference  to  such  matters, 
in  filling  out  the  application,  yet  he  cannot,  therefore,  escape  the  re- 
sponsibility for  the  statement  of  facts  which  he  inserts  himself  in 
the  application,  or  permits  the  agent  to  insert  as  his,  upon  which  he  is 
just  as  well  informed  as  the  agent  himself." 

In  the  case  of  Insurance  Co.  v.  Reed,  84  Mich.  532,  47  N.  W.  1108, 
13  L.  R.  A.  349,  the  court  said  that,  "if  the  insured  had  no  information 
of  the  agent's  misrepresentation,  the  company  could  not  take  advantage 
of  the  wrong  of  its  agents  and  avoid  the  policy,  but  that  it  would 
have  been  otherwise,  had  the  insured  conspired  with  the  agent,  or  had 
the  insured,  being  fully  informed  of  the  representation  made  and  the 
contents  of  the  application,  neglected  to  bring  it  to  the  attention  of  the 
company."  In  the  recent  case  of  Ketcham  v.  Accident  Association, 
117  Mich.  521,  7(y  N.  W.  5,  Mr.  Justice  Moore  said,  with  the  approval 
of  the  full  bench,  that  "it  is  urged  that,  as  the  agent  knew  the  an- 
swers were  not  true,  his  knowledge  was  the  knowledge  of  the  com- 
pany, and,  having  issued  the  policy,  the  company  was  bound.  The 
courts  have  always  been  anxious  to  take  care  of  the  rights  of  the  in- 
sured, when  the  applicant  has  relied  upon  the  agent's  informing  the 
company  of  what  had  been  truthfully  told  to  him  about  the  character 
of  the  risk;  but  the  courts  never  have  said  the  company  is  bound 
by  statements  contained  in  an  application  when  not  only  the  agent,  but 
the  insured,  knows  they  are  untrue  and  calculated  to  deceive,  and  the 
application  is  to  be  forwarded  to  the  company  as  the  basis  of  its 
action.  To  so  hold  would  put  these  organizations  completely  at  the 
mercy  of  dishonest  and  unscrupulous  agents." 

In  the  case  of  Maier  v.  Association,  47  U.  S.  App.  329,  24  C.  C.  A. 
243,  78  Fed.  570,  Mr.  Justice  Harlan  used  the  following  vigorous  lan- 
guage :  "It  was  said  on  the  argument  that  the  company  should  not 
be  permitted  to  take  advantage  of  the  misconduct  or  wrong  of  its  own 


Sec.  6)  WHAT    CONSTITUTES    WAIVER    AND    ESTOPl'EL  569 

lagent;  but  the  law  did  not  prohibit  the  company  from  taking  such 
'precautions  as  were  reasonable  and  necessary  to  protect  itself  from 
the  frauds  and  negligence  of  its  agents.  If  the  printed  application 
used  by  it  had  not  informed  the  applicant  that  he  was  to  be  responsi- 
ble for  the  truth  of  his  answers  to  questions,  and  if  the  want  of  truth 
in  such  answers  was  wholly  due  to  negligence,  ignorance,  or  fraud  of 
the  soliciting  agent,  a  different  question  would  be  presented ;  but  here 
the  assured  was  distinctly  notified  by  the  application  that  he  was  to  be 
held  as  warranting  the  truth  of  his  statements,  'by  whomsoever  writ- 
ten.' Such  was  the  contract  between  the  parties,  and  there  is  no  rea- 
son in  law  or  public  policy  why  its  terms  should  not  be  respected  and 
enforced  in  an  action  on  the  written  contract.  It  is  the  impression 
with  some  that  the  courts  may  in  their  discretion  relieve  parties  from 
the  obligations  of  their  contract,  whenever  it  can  be  seen  that  they 
have  acted  heedlessly  or  carelessly  in  making  them ;  but  it  is  too  often 
forgotten  that,  in  giving  relief  under  such  circumstances  to  one  party, 
the  courts  make  and  enforce  a  contract  which  the  other  party  did 
not  make  or  intend  to  make.  As  the  assured  stipulated  that  his  state- 
ments, which  were  the  foundation  of  the  application,  were  true,  by 
whomsoever  such  statements  were  written,  and  as  the  contract  of 
insurance  was  consummated  on  that  basis,  the  court  cannot,  in  an  ac^ 
tion  upon  the  contract  disregard  the  express  agreement  between  the 
parties  and  hold  the  company  liable  if  the  statements  of  the  assured, 
at  least  touching  matters  material  to  the  risk,  are  found  to  be  untrue." 
In  Insurance  Co.  v.  Fletcher,  117  U.  S.  519,  6  Sup.  Ct.  837,  29  L.  Ed. 
934,  Mr.  Justice  Field  said:  "A  curious  result  is  the  outcome  of  the 
instruction.  If  the  agents  committed  no  fraud,  the  plaintiff  cannot 
recover,  for  the  answers  reported  are  not  true;  but,  if  they  did  com- 
mit the  imputed  fraud,  he  may  recover,  although  upon  the  answers 
given,  if  truly  reported,  no  policy  would  have  been  issued.  Such 
anomalous  conclusions  cannot  be  maintained." 

There  are  many  decisions  elsewhere  which  refuse  to  apply  the  rule 
of  estoppel  in  cases  of  this  kind.  3  Cooley's  Briefs  in  Ins.  Cases, 
2569;  Welsh  v.  London  Ins.  Corp.,  151  Pa.  607,  25  Atl.  142,  31 
Am.  St.  Rep.  786;  Insurance  Co.  v.  Fromm,  100  Pa.  347;  Insurance 
Co.  V.  Smith,  92  Fed.  503,  34  C.  C.  A.  506;  Clemans  v.  Sup.  Assemb., 
131  N.  Y.  485,  30  N.  E.  496,  16  L.  R.  A.  33;  Boyle  v.  N.  M.  Ben., 
95  Wis.  318,  70  N.  W.  351;  Prov.  Soc.  v.  Llewellyn,  58  Fed.  940, 
7  C.  C.  A.  581. 

The  case  of  Perry  v.  Mut.  Life  Co.,  143  Mich.  295,  106  N.  W.  860, 
and  147  Mich.  645,  111  N.  W.  195,  is  said  to  establish  for  this  state 
a  different  rule  and  to  have  overruled  the  three  cases  quoted  from. 
Upon  its  first  hearing  that  case  might  have  turned  either  on  the  ques- 
tion of  waiver  or  of  the  substantial  truth  of  the  answer;  it  appearing 
that  there  was  evidence  that  defendant's  agent  knew  the  insured's 
character  when  he  wrote  the  policy,  and  the  company's  superintendent 


570  WAIVER   AND    ESTOPPEL  (Ch.  8 

afterwards  collected  premiums  with  knowledge  of  her  occupation. 
We  held  there  that  unless  the  warranty  that  she  was  a  housewife 
was  substantially  true,  or  its  truth  waived,  the  policy  was  void,  and 
that  these  were  questions  for  the  jury.  It  is  a  legitimate  conclusion 
that,  although  she  maintained  a  bawdyhouse,  which  the  court  said  was 
incontestably  proved,  it  did  not  necessarily  follow  that  her  statement 
that  she  was  a  housewife  and  had  not  been  in  any  other  occupation 
for  two  years  was  not  substantially  true.  One  of  the  definitions  of 
housewife,  viz.,  "a  female  manager  of  domestic  affairs,"  was  quoted 
in  the  opinion.  Upon  a  second  trial  the  claim  that  defendant's  super- 
intendent collected  premiums  was  eliminated  upon  this  question.  The 
learned  circuit  judge  instructed  the  jury  that  "it  does  not  seem  to 
me  that  it  is  a  conclusive  question,  because  I  think  if  the  money  was 
paid — if  the  agent  at  the  time  he  took  this  application  knew  of  her 
character,  and  they  gave  her  occupation  as  housewife,  instead  of  prosti- 
tute, that  I  still  think  the  company  would  be  liable,  and  in  this  case  I 
do  not  think  the  question  is  a  conclusive  question."  This  was  sus- 
tained. 

It  cannot  be  denied  that  this  gives  plausibility  to  the  claim  that 
defendants  make,  viz.,  that,  although  both  insured  and  agent  knew 
of  her  disreputable  character  and  the  omission  to  state  it,  the  knowl- 
edge of  the  agent  estopped  the  defendant.  It  should  be  considered, 
however,  in  the  light  of  the  previous  opinion,  viz.,  that  her  answer 
might  be  found  substantially  true ;  i.  e.,  that  she  was  a  housewife,  and 
that  she  had  not  engaged  in  other  occupations  within  two  years.  This 
part  of  the  charge  related  to  the  question  of  waiver,  which  the  court 
held  was  not  the  only  question  in  the  case.  If  he  had  used  the  word 
"might,"  instead  of  "would,"  the  decision  would  not  have  the  sig- 
nificance contended  for,  and  it  is  quite  probable  that  this  language  may 
have  been  qualified  by  other  portions  of  the  charge  relating  to  the  other 
question  in  the  case.  Counsel  pertinently  suggest  that  no  allusion  was 
made  to  the  cases  quoted  from.  They  could  not  well  have  been  over- 
looked, and  would  not  have  been  ignored,  had  there  been  an  intention 
to  overrule  them. 

Counsel  have  raised  the  further  point  that  the  defense  should  have 
been  held  to  have  failed  for  another  reason.  The  by-laws  formed  a 
part  of  the  contract,  and  were  not  offered  in  evidence  by  the  defend- 
ant. The  policy  and  the  physician's  examination  were  sufficient  to 
show  the  breach  of  contract,  and,  if  plaintiff's  counsel  had  claimed  that 
the  by-laws  would  have  shown  the  contrary,  they  would  doubtless  have 
produced  them.  To  reverse  the  judgment  upon  this  ground  would 
be  to  do  so  for  a  very  technical  reason,  or  upon  a  presumption  that 
the  by-laws  nullified  the  express  provisions  of  the  policy. 

The  plaintiff  has  failed  to  show  any  error,  and  the  judgment  is 
affirmed.*^ 

4  2  The  doctrine  of  estoppel  as  applied  to  insurance  contracts  being  equita- 
ble in  its  nature,  it  would  seem  manifest  that  actual  knowledge  of  the  in- 


Sec.  6)  WHAT    CONSTITUTES    WAIVER   AND    ESTOPPEL  571 

sured  of  the  false  statements  inserted  in  the  policy  by  the  ajrent,  or  oolUision 
between  the  insured  and  the  agent  to  defraud  the  insurer,  would  defeat  the 
insured's  claim  to  an  estoppel  as  against  the  insurer.  See  New  York  Life 
Ins.  Co.  V.  Fletcher,  117  U.  S.  51'J,  G  Sup.  Ct.  8:^7,  29  L.  VA.  934  (1886); 
Blooming  Grove  Mut.  Fire  Ins.  Co.  v.  McAnerney.  102  Pa.  335,  48  Am.  Rep. 
209  (1883) ;  Centennial  Mut.  Life  Ins.  Ass'n  v.  I'arkam,  80  Tex.  518,  16  S. 
W.  316  (1891)  ;  Forwood  v.  I'rudential  Ins.  Co.,  117  Md.  254,  83  Atl.  169 
(1912) ;  Haapa  v.  Metropolitan  Life  Ins.  Co.,  150  Midi.  467,  114  N.  W.  380, 
16  L.  R.  A.  (N.  S.)  1165  (1907);  note  in  14  L.  R.  A.  (N.  S.)  279.  But  in  Sun 
Life  Ins.  Co.  v.  Phillips  (Tex.  Civ.  App.)  70  S.  W.  603  (1902),  and  in  ^tna 
Life  Ins.  Co.  v.  Bockting,  39  Ind.  App.  586,  79  N.  E.  524  (1906),  it  was  held 
that  if  the  agent  had  knowledge  of  the  falsity  of  the  statements  the  fact 
that  the  insured  knew  of  the  existence  of  such  false  statements  would  not  de- 
feat recovery. 

The  reason  for  this  view  is  well  expressed  in  Reserve  Loan  Life  Ills.  Co. 
V.  Boreing,  157  Ky.  730,  163  S.  W.  1085,  1087  (1914).  The  company  claimed 
a  forfeiture  of  the  policy  because  of  the  false  statements  made  by  the  insured 
as  to  his  indulgence  in  alcoholic  drink.  The  court  said:  "Here  the  company 
might  have  relied  on  the  truthfulness  of  the  answers  contained  in  applica- 
tion. It  did  not  do  so.  It  sought  information  from  another  source.  That 
information  brought  home  to  it  knowledge  of  the  very  facts  on  which  it  is 
now  sought  to  defeat  the  policy.  Instead  of  rejecting  the  application,  it 
issued  the  policy  and  accepted  the  premium.  L'nder  these  circumstances,  it 
is  estopped  to  rely  on  the  falsity  of  the  answers  contained  in  the  applica- 
tion. Masonic  Life  Insurance  Co.  v.  Robinson,  149  Ky.  80,  147  S.  W.  882, 
41  L.  R.  A.   (N.  S.)  505  (1912)." 

For  a  collection  of  the  authorities,  see  Vance  Ins.,  p.  370,  note  64,  and  p. 
326,  note  103;  14  L.  R.  A.  (N.  S.)  279,  note;  16  L.  R.  A.   (N.  S.)  1249,  note. 


172  EIGHTS    UNDER    THE    CONTRACT  (Cll.  9' 

CHAPTER  IX 
RIGHTS  UNDER  THE  CONTRACT 


SECTION  1.— FIRE  INSURANCE 
I.  Bailor  and  Baii^e^ 


SYMMERS  V.  CARROLL. 

(Court  of  Appeals  of  New  York,  1913.     207  N.  Y.  632,  101  N.  E.  G98,  47 
L.   R.   A.    [N.   S.]   196.) 

CuddEback,  J.  This  action  was  brought  by  the  plaintiff,  in  his 
own  behalf  and  in  behalf  of  all  others  similarly  situated.  Prior  to 
December  16,  1904,  John  H.  Starin,  the  defendants'  testator,  was  the 
owner  of  a  steamboat  used  by  him  in  carrying  merchandise  and  pas- 
sengers from  the  city  of  New  York,  in  this  state,  to  the  city  of  New 
Haven,  in  the  state  of  Connecticut.  On  the  day  mentioned  the  boat 
left  New  York,  bound  for  New  Haven,  with  a  cargo  of  general  mer- 
chandise, which  included  merchandise  owned  and  shipped  by  the  plain- 
tiff's assignors,  with  the  freight  charges  paid  or  agreed  to  be  paid 
thereon.  While  the  steamboat  was  on  Long  Island  Sound  in  the  course 
of  the  voyage,  it  was  burned  to  the  water's  edge,  and  the  cargo  was 
totally  destroyed.  By  a  decree  of  the  Unite(^  States  District  Court, 
made  under  the  federal  statutes,  it  has  been  adjudged  that  Starin  was 
not  liable  for  the  loss  or  damage  growing  out  of  the  destruction  "by 
fire  of  the  merchandise  on  the  vessel. 

Before  the  voyage  on  which  the  fire  occurred,  Starin  had  procured 
from  the  Home  Insurance  Company  a  policy  of  insurance  on  the 
cargo  which  reads  in  part  as  follows :  "The  Home  Insurance  Com- 
pany, New  York,  by  this  policy  of  insurance  *  *  *  does  insure 
John  H.  Starin  as  freighter,  forwarder,  bailee,  common  carrier  or  for 
account  of  whom  it  may  concern,  loss  if  any  payable  to  him  or  order, 
to  the  amount  of  $20,000,  on  goods,  wares  and  merchandise,"  against 
loss  by  fire  while  on  board  the  vessel  so  destroyed. 

After  the  fire  Starin  collected  the  amount- of  the  insurance,  $20,000, 
but  refused  to  pay  over  to  the  plaintiff's  assignors  any  part  thereof, 
though  he  had  paid  a  portion  of  the  moneys  received  to  the  owners 
of  other  parts  of  the  cargo  lost.  The  complaint  also  alleges  that  the 
plaintiff  has  no  knowledge  as  to  the  exact  value  of  the  merchandise 
destroyed  by  the  fire,  nor  as  to  the  identity  of  the  owners,  but  that  such 
owners  are  very  numerous,  and  the  action  is  brought  for  their  benefit,' 


Sec.  1)  FIRE    INSURANCE  573 

as  well  as  for  the  benefit  of  the  plaintiff.  The  demand  for  relief  is 
that  the  defendants  account  for  the  insurance  moneys  collected  by 
Starin,  and  pay  over  to  the  plaintiff  and  the  other  persons  entitled  to 
share  therein  their  proportionate  parts  thereof. 

To  the  complaint  setting  forth  these  facts  the  defendants  demurred, 
upon  the  ground  that  it  does  not  state  facts  sufficient  to  constitute  a 
cause  of  action.  The  demurrer  was  overruled  by  the  court  at  vSpecial 
Term,  and  an  interlocutory  judgment  to  that  effect  was  entered,  with 
leave  to  the  defendants  to  amend  on  the  usual  terms.  The  Appellate 
Division  affirmed  the  interlocutory  judgment,  and  in  affirming  the  same 
certified  that  a  question  of  law  had  arisen  in  the  case  which  in  its 
opinion  ought  to  be  reviewed  by  the  Court  of  Appeals.  The  question 
accordingly  certified  is :  "Does  the  complaint  state  facts  sufficient  to 
constitute  a  cause  of  action?" 

The  argument  of  the  defendants  is  that  Starin  had  the  right  as  com- 
mon carrier  to  insure  the  cargo  for  his  own  benefit,  and  that  he  had 
the  right  to  collect  and  retain  the  amount  of  the  loss,  irrespective  of 
the  question  whether  he  was  liable  to  the  owners  of  the  cargo  for  the 
damages  which  they  had  sustained.  The  plaintiff  cites  Phoenix  Ins. 
Co.  V.  Erie  &  Western  Transportation  Co.,  117  U.  S.  312,  6  Sup.  Ct. 
750,  29  L.  Ed.  873 ;  Baxter  v.  Hartford  Fire  Ins.  Co.  (C.  C.)  12  Fed. 
481,  and  Munich  Assurance  Co.  v.  Dodwell,  128  Fed.  410,  63  C.  C.  A. 
152. 

These  were  all  cases  wherein  the  common  carrier  had  been  relieved 
by  the  shipper  from  liability  for  loss  occasioned  by  fire.  It  was  held 
that,  although  relieved  from  such  responsibiHty,  the  carrier  remained 
liable  for  his  negligence,  and  therefore  his  right  to  collect  the  insur- 
ance moneys  was  not  to  be  determined,  after  the  loss,  by  inquiry 
whether  he  was  in  fact  liable  to  the  owners  of  the  cargo.  He  could 
insure  himself  against  his  own  negligence,  and  against  the  necessity  of 
entering  into  any  inquiry  as  to  his  negligence.  Here  the  shippers  did 
not  release  the  carrier  from  liability  for  loss  by  fire,  and  the  cases  cited 
do  not  apply. 

It  is  also  the  law  that  a  common  carrier  can,  if  he  so  desires,  insure 
the  goods  left  in  his  charge,  not  only  for  his  own  benefit  but  for  the 
benefit  of  the  owners  as  well.  Waring  v.  Indemnity  Fire  Ins.  Co.,  45 
N.  Y.  606,  6  Am.  Rep.  146;  Hagan  v.  Scottish  Ins.  Co.,  186  U.  S. 
423,  22  Sup.  Ct.  862,  46  L.  Ed.  1229 ;  Pennef  eather  v.  Baltimore  Steam 
Packet  Co.  (C.  C.)  58  Fed.  481 ;  Home  Ins.  Co.  v.  Minneapolis,  St. 
Paul,  etc.,  R.  R.  Co.,  71  Minn.  296,  74  N.  W.  140. 

In  Waring  v.  Indemnity  Fire  Ins.  Co.,  supra,  the  policy  of  insurance 
covered  oil  owned  by  the  plaintiff,  "or  held  in  trust  on  commssion,  or 
sold,  but  not  removed,  contained  in  bonded  warehouse."  It  was  held 
after  loss  that  the  plaintiff  could  recover  for  himself  and  for  the 
benefit  of  a  vendee  for  oil  sold,  but  not  removed  from  the  warehouse. 
Judge  Folger  said:  "It  is  laid  down  in  broad  terms  that  one  may,  in 
his  own  name,  insure  the  property  of  another  for  the  benefit  of  the 


574  RIGHTS    UNDER   THE    CONTRACT  (Ch.  9 

owner  without  his  previous  authority  or  sanction,  and  that  it  will  inure 
to  the  benefit  of  the  owner  upon  a  subsequent  adoption  of  it,  even 
after  a  loss  has  occurred."    45  N.  Y.  611,  6  Am.  Rep.  146. 

In  Hagan  v.  Scottish  Ins.  Co.,  supra,  the  defendant  insured  the 
plaintiff  Hagan  "on  account  of  whom  it  may  concern,"  against  loss 
by  fire  on  a  tug,  her  hull,  etc.  The  plaintiff  subsequently  sold  a  one- 
half  interest  in  the  tug  to  Martin.  After  a  loss  it  was  held  that  the 
plaintiff  could  recover  on  the  policy.  The  court  said :  "The  words  'on 
account  of  whom  it  may  concern'  do  not  refer  to  those  interested  in 
the  policy  simply  at  the  time  it  was  taken  out.  The  terms  refer  to 
the  future.  It  is  not  a  question  of  the  persons  concerned  when  it  is 
taken  out,  but  of  those  who  may  be  concerned  when  the  loss  may  occur, 
and  who  were  within  the  contemplation  of  him  who  took  out  the  insur- 
ance at  the  time  he  did  so.  It  is  on  account  of  those  who  in  the  future, 
at  the  time  of  the  happening  of  a  loss,  have  the  insurable  interest  and 
in  regard  to  whom  the  policy  will  be  applied.  We  think  this  the  com- 
mon-sense interpretation  of  the  language  used,  and  that  it  is  justified 
and  required  by  the  authorities.  *  *  *  "  135  jj^  §_  433^  22  Sup. 
Ct.  866,  46  L.  Ed.  1229. 

When  the  carrier  receives  the  proceeds  of  the  policy  of  insurance 
for  account  of  whom  it  may  concern,  he  holds  the  money  as  trustee 
for  those  concerned. 

No  particular  words  are  necessary  to  create  a  trust.  Trust  relations 
will  be  implied,  when  it  appears  that  such  was  the  intention  of  the 
parties,  and  when  the  nature  of  the  transaction  is  such  as  to  justify  or 
require  it.    Hoffman  House  v.  Foote,  172  N.  Y.  348,  65  N.  E.  169. 

A  person  with  whom  or  in  whose  name  a  contract  is  made  for  the 
benefit  of  another  is  a  trustee  of  an  express  trust,  within  the  meaning 
of  the  provision  of  the  Code  of  Civil  Procedure  (section  449).  It 
was  so  held  in  Duncan  v.  China  Mutual  Ins.  Co.,  129  N.  Y.  237,  29 
N.  E.  76,  which  was  an  action  on  a  policy  of  insurance  issued  by  the 
defendant  to  the  plaintiff  on  account  of  whom  it  may  concern. 

Starin  in  this  case,  having  been  relieved  by  the  decree  of  the  federal 
courts  from  all  liability  to  the  owners  of  the  cargo  for  their  loss  by  fire, 
could  not  collect  the  amount  of  the  loss  on  their  property  beyond  the 
extent  of  his  charges,  except  as  trustee.  It  is  held  in  Home  Ins.  Co. 
V.  Minneapolis,  St.  Paul,  etc.,  R.  R.  Co.,  supra,  that  though  a  carrier 
has  no  pecuniary  interest  in  the  goods  in  his  possession,  and  is  not 
liable  for  their  loss  by  fire,  he  may  insure  them  as  "his  own  or  held 
in  trust  by  him,"  and  in  case  of  loss  may  recover  in  his  own  name, 
holding  all  in  excess  of  his  own  claim  in  trust  for  the  shipper. 

If  Starin  held  the  insurance  moneys  as  trustee,  then  the  owners  of 
the  cargo  here  represented  by  the  plaintiff  had  the  right  to  call  him 
to  account,  and  it  was  his  duty  to  state  his  account  and  prove  the  items 
of  his  loss.  Kliger  v.  Rosenfeld,  120  App.  Div.  396,  105  N.  Y.  Supp. 
214.    It  was  his  further  duty,  after  paying  himself,  to  divide  what  re- 


Sec.  1)  FIRE    INSURANCE  575 

maiiied  of  the  insurance  money  among  the  owners  of  the  cargo  ac- 
cording to  their  respective  rights  and  interest. 

It  is  held  in  Pennefeather  v.  BaUimore  Steam  Packet  Co.,  supra,  that 
where  a  carrier  secures  insurance  on  goods  belonging  to  numerous 
owners  for  their  benefit  as  well  as  his  own,  and,  the  goods  being  de- 
stroyed, collects  the  entire  amount  of  the  insurance,  equity  has  juris- 
diction, on  the  ground  of  avoiding  a  multiplicity  of  suits  and  the 
difiiculty  of  making  a  proper  apportionment,  of  a  suit  by  some  of  the 
owners  for  the  benefit  of  all  who  might  join  to  recover  their  propor- 
tional interests  therein. 

Within  the  doctrine  of  the  cases  cited  it  was  not  necessary  to  allege 
in  the  complaint,  as  the  defendant  contends,  that  there  was  any  pre- 
vious contract  or  arrangement  between  the  carrier  and  the  shippers 
that  he  should  procure  insurance  on  their  account,  or  that  they  should 
pay  any  part  of  the  insurance  premium.  It  is  sufficient  if  he  intended 
to  insure  their  interests  in  the  cargo  for  their  benefit,  and  such  intention 
is  established  by  the  words  in  the  policy  "for  account  of  whom  it  may 
concern."  Furthermore,  it  was  not  necessary  to  allege  that  the  car- 
rier's loss  did  not  absorb  the  whole  amount  of  the  insurance  moneys, 
as  the  fact,  whatever  it  may  be,  would  be  brought  out  on  an  accounting. 

It  does  not  appear  from  the  complaint  that  any  of  the  shippers  had 
taken  out  insurance  for  their  own  benefit,  or  that  the  policy  issued  to 
the  carrier  contained  any  provisions  that  would  be  applicable  if  there 
was  other  insurance  on  the  cargo.  If  there  was  other  insurance  ob- 
tained by  any  individual  shipper,  that  might  affect  the  amount  of  his 
recovery.  These  matters  would  also  be  a  proper  subject  of  inquiry 
on  the  accounting,  with  all  other  facts  touching  the  rights  of  any  of 
the  parties  to  share  in  the  insurance  moneys. 

The  question  certified  should  be  answered  in  the  affirmative,  and 
the  order  appealed  from  affirmed,  with  costs. ^ 

Culle;n,  C.  J.,  and  Gray,  Werndr,  Collin,  and  MillKR,  JJ., 
concur.     Hiscock,  J,,  absent. 

Order  affirmed. 

1  As  to  the  rights  of  bailor  and  bailee  in  insurance  taken  out  by  the  latter, 
see  11  Harvard  Law  Rev.  512,  .520;   4  Cooley,  Briefs  on   Insurance,  3692. 


576  RIGHTS    UNDER    THE    CONTRACT  (Ch.  9 


II.  Assignor  and  Assigne:i5 


SADLERS'  CO.  V.   BADCOCK. 

(TTiffh  Court  of  Chancery,  1743.     2  Atk.  554,  20  Eng.  Reprint,  730.) 
See  ante,  p.  40,  for  a  report  of  the  case.^ 


DAVIS  V.  BREMER  COUNTY   FARMERS'  AIUT.   FIRE 

INS.  ASS'N. 

(Supreme  Court  of  Iowa,  1912.     154  Iowa,  326,  134  N.  W.  860.) 

Action  to  recover  for  a  loss  by  fire,  alleged  to  be  covered  by  a 
policy  of  insurance  in  the  defendant  company.  The  court  sustain- 
ed a  demurrer  to  the  petition,  and  on  the  election  of  plaintiff  to 
stand  on  his  pleading,  judgment  was  rendered  for  the  defendant, 
from  which  the  plaintiff  appeals.    Affirmed. 

McClain,  G.  J.  On<May  22,  1908,  the  defendant  company  executed 
to  Mrs.  William  Blume  its  policy  of  insurance  against  loss  or 
damage  by  fire  to  her  dwelling  house  and  farm  buildings  in  the 
sum  of  $800.  On  or  about  the  26th  day  of  October,  in  the  same 
year,  Mrs.  Blume  sold  and  conveyed  the  real  estate  on  which 
such  buildings  were  situated  to  this  plaintiff,  said  conveyance  be- 
ing by  warranty  deed,  and  at  the  same  time,  and  as  part  of  the 
consideration  of  the  purchase  of  the  property  by  plaintiff,  "it  was 
understood  and  agreed  that  he  should  succeed  to  and  become  the 
owner  of  said  policy  of  insurance  and  all  the  rights,  interest,  and 
privileges  thereunder,  and  that  plaintiff  is  now  the  owner  and 
holder  thereof."  The  by-laws  of  the  defendant  company,  which 
are  by  reference  made  a  part  of  the  contract  of  insurance,  contain 
the  following  article: 

"Sec.  18. — The  holders  of  unexpired  policies  are  liable  for  all  as- 
sessments. Any  member  desiring  his  policy  cancelled  must  re- 
turn it  with  the  request  to  cancel  to  the  secretary  of  the  associa- 

2  Assignment  of  Maeine  Policies. — It  has  long  been  settled  that  in  ac- 
cordance with  the  custom  of  merchants,  contracts  of  marine  insurance  are 
assignable  without  the  consent  of  the  insurer.  Wakefield  v.  Martin,  3  Mass. 
558  (1799) ;  Swan  v.  Maritime  Ins.  Co.,  [1907]  1  K.  B.  116.  The  connnon-law 
doctrine  was  affirmed  in  England  in  the  JNIarine  Insurance  Act  (6  Edw.  VII, 
c.  41)  §§  50,  51.     See  Arnould  on  Marine  Insurance,  §  174. 

But  in  the  leading  case  of  Powles  v.  Innes,  11  M.  &  W.  10  (184.3),  it  was 
held  that  the  mere  transfer  of  the  ship  insured  did  not  carry  with  it  the 
policy  of  insurance  upon  the  vessel.  There  must  have  been  an  assignment, 
or  an  agreement  to  assign  at  the  time  of  the  transfer  of  the  property.  To 
the  same  effect  is  North  of  England  Co.  v.  Archangel  Maritime  Ins.  Co.,  L. 
R.  10  Q.  B.  249  (1875). 


Sec.  1)  FIRE    INSURANCE  577 

tion,  who  will  be  governed  by  article  XII  of  the  articles  of  incor- 
poration. Any  member  disposing  of  property  insured  must  have 
his  policy  either  cancelled  or  transferred;  if  a  transfer  is  desired, 
both  seller  and  purchaser  should  appear  at  the  office  of  secretary 
or  assistant  secretary,  that  the  transfer  be  properly  made  upon 
register  and  policy." 

The  only  written  or  formal  assignment  from  Mrs.  Blume  to 
plaintiff  was  the  printed  form  of  assignment  on  the  back  of  the 
policy,  filled  out  to  read  as  follows :  "Transfer. — Sumner,  Iowa. 
Trans.  Nov.  13-08.  Burnt  Nov.  9-08.  For  the  consideration  of 
the  payment  of  present  dues  I  hereby  transfer  the  within  policy 
to  W.  E.  Davis.  [Signed.]  Mrs.  Wm.  Blume.  In  the  presence  of 
J.  A.  Lease,  Assistant  Secretary." 

It  does  not  appear  that,  prior  to  this  formal  assignment,  the 
policy  had  been  delivered  to  plaintiff;  but  it  does  appear  "that, 
on  account  of  the  absence  of  the  assistant  secretary,  the  formal 
transfer  of  the  policy  was  not  indorsed  thereon  until  on  or  about 
the  13th  day  of  November,  1908,  at  which  time  said  policy  was 
presented  to  the  said  assistant  secretary,"  and  that  information 
was  then  given  him  of  the  purchase  of  the  property  by  plaintiff 
and  the  assignment  of  the  policy  to  him,  and  that  "thereupon  the 
said  assistant  secretary  duly  indorsed  and  consented  to  the  trans- 
fer thereof,  thereby  ratifying  and  confirming  the  assignment  and 
transfer  of  said  policy  of  insurance  to  said  plaintiff."  On  Novem- 
ber 9,  1908,  there  was  a  complete  destruction  of  the  buildings  by 
fire,  and  on  the  next  day  the  plaintiff'  sent  to  the  defendant  com- 
pany certain  alleged  proofs  of  loss,  in  which  he  described  him- 
self as  owner  and  holder  of  the  policy  by  assignment  and  delivery 
to  him  by  Mrs.  Blume  on  October  26,  1908. 

The  foregoing  are  the  material  facts  as  alleged  in  the  petition, 
which  must  be  treated  as  true  in  passing  upon  the  demurrer,  which 
sufficiently  raises  the  questions  whether  the  absolute  sale  and 
conveyance  of  the  property  by  Mrs.  Blume  to  the  plaintiff,  prior  to 
the  fire,  by  terminating  her  insurable  interest,  terminated,  also,  her 
right  to  recover  under  the  policy,  and  whether,  by  the  alleged 
agreement  of  assignment  at  the  time  of  the  conveyance,  and  by  the 
formal  assignment  after  loss,  plaintiff  acquired  any  right  to  re- 
cover under  the  policy.  The  sufficiency  of  the  proofs  of  loss  is 
also  put  in  issue  by  the  demurrer. 

1.  If  any  one  proposition  can  be  regarded  as  having  been  defi- 
nitely settled  by  early  adjudications,  and  as  having  remained 
definitely  settled,  notwithstanding  constant  modifications  of  the 
law  on  the  subject  of  fire  insurance  by  changes  of  view  on  the 
part  of  courts  and  of  policy  on  the  part  of  Legislatures,  it  is  the 
proposition,  made  up  of  three  distinct  elements  working  together 
to  one  result,  that  the  purchaser  of  the  absolute  title  and  right  to 
Vance  Ins. — 37 


578  RIGHTS  UNDER  THE   CONTRACT  (Ch.  9 

property  covered  by  a  fire  insurance  policy  is  not  entitled  to  the 
indemnity  provided  for  in  the  policy  on  account  of  a  damage  to  or 
destruction  of  the  property  subsequent  to  the  transfer,  unless, 
by  the  consent  of  the  insurer,  the  policy  has  been  assigned  to  the 
purchaser  by  the  former  owner.  The  three  elementary  principles 
of  fire  insurance  which,  working  together,  bring  about  this  inevi- 
table result  are,  first,  that  a  policy  of  fire  insurance  is  a  contract 
of  indemnity,  and  if,  at  the  time  of  loss,  the  holder  of  the  policy 
has  no  right,  title,  or  interest  to  or  in  the  property  insured  he  can- 
not recover  anything  under  his  contract  of  insurance,  for  the  dam- 
age to  or  destruction  of  the  property  results  in  no  injury  to  him; 
second,  that  the  purchaser  of  the  property,  taking  it  prior  to  the 
loss,  is  not  a  party  to  any  contract  of  insurance  between  the  for- 
mer owner  and  the  insurer,  and  therefore  is  not  entitled  to  recover 
under  such  contract ;  and,  third,  that  the  contract  of  fire  insur- 
ance, being  personal  in  its  nature,  cannot  be  transferred  by  the 
insured  to  another,  save  in  accordance  with  provisions  of  the 
contract  itself,  involving  the  express  or  implied  assent  of  the  in- 
surer, or  a  valid  contract  of  the  insurer  that  it  shall  become  lia- 
ble to  the  new  owner.  These  elementary  propositions  are  not  de- 
pendent on  any  stipulations,  conditions,  or  limitations  of  the  con- 
tract itself,  but  result  from  the  very  nature  of  the  contract, 
though,  of  course,  they  may  be  superseded  or  waived  by  provi- 
sions in  the  contract,  or  by  a  new  valid  contract  or  agreement  sub- 
sequently made. 

In  support  of  the  general  proposition  involved,  it  is  sufficient 
to  cite  a  few  authorities,  with  the  suggestion  that,  so  far  as  they 
sustain  these  elementary  principles,  they  have  remained  unques- 
tioned in  any  cases  to  which  our  attention  has  been  called,  or  of 
which  we  have  any  knowledge :  ^tna  Fire  Ins.  Co.  v.  Tyler, 
16  Wend.  (N.  Y.)  385,  30  Am.  Dec.  90;  Lane  v.  Maine  Mut.  F. 
Ins.  Co.,  12  Me.  44,  28  Am.  Dec.  150;  Morrison's  Adm'r  v.  Ten- 
nessee M.  &  F.  Ins.  Co.,  18  Mo.  262,  59  Am.  Dec.  299;  Mutual 
Protection  Ins.  Co.  v.  Hamilton,  5  Sneed  (Tenn.)  269;  Ayres 
V.  Hartford  F.  Ins.  Co.,  17  Iowa,  176,  85  Am.  Dec.  553 ;  Simeral  v. 
Dubuque  Mut.  F.  Ins.  Co.,  18  Iowa,  319;  White  v.  Robbins,  21 
Minn.  370;  New  England  Loan  &  Trust  Co.  v.  Kenneally,  38 
Neb.  895,  57  N.  W.  759;  Insurance  Co.  of  N.  America  v.  Martin, 
151  Ind.  209,  222,  51  N.  E.  361 ;  Lett  v.  Guardian  F.  Ins.  Co., 
125  N.  Y.  82,  25  N.  E.  1088;  1  May,  Insurance  (4th  Ed.)  §  264, 
19  Cyc.  583,  591,  633;  13  Am.  &  Eng.  Enc.  (2d  Ed.)  100,  184. 
Unless,  therefore,  something  may  be  found  in  the  provisions  of 
the  contract  authorizing  the  substitution  of  plaintiff  for  Mrs. 
Blunie,  or  some  consent  to  such  substitution  on  the  part  of  the 
defendant  is  made  to  appear,  then  plaintiff  cannot  recover. 

2.  Plaintiff  relies,  first,  on  an  agreement  between  him  and  his 
grantor,  Mrs.  Blume,  the  insured,  entered  into  as  a  part  considera- 


Sec.  1)  FIRE    INSURANCE  579 

tion  of  the  purchase  of  the  property,  that  plaintiff  should  suc- 
ceed to  and  become  the  owner  of  the  policy  of  insurance  and  of 
all  the  rights,  interest,  and  privileges  of  the  insured  thereto.  Con- 
ceding that  this  is  a  sufficient  allegation  of  a  present  assignment, 
it  is  manifestly  insufficient  to  show  that  plaintiff  thereby  acquired 
any  contractual  rights  against  this  defendant,  as  insurer;  for, 
as  already  stated,  the  contract  of  fire  insurance  is  a  personal  con- 
tract, not  assignable  before  loss  without  the  consent  of  the  in- 
surer. The  statutory  provisions  (Code,  §§  3044,  3046),  declaring 
that  all  instruments  by  which  the  maker  promises  to  pay  another, 
without  words  of  negotiability,  a  sum  of  money,  are  assignable 
by  indorsement  thereon,  or  by  other  writing,  even  though  by  the 
terms  of  the  instrument  its  assignment  is  prohibited,  have  been 
applied  to  sustain  a  right  of  action  by  the  assignee  of  a  fire  poli- 
cy who  takes  an  assignment  thereof  after  loss,  notwithstanding 
provisions  in  the  policy  against  assignment.  Walters  v.  Wash- 
ington Ins.  Co.,  1  Iowa,  404,  63  Am.  Dec.  451 ;  Mershon  v.  Nation- 
al Ins.  Co.,  34  Iowa,  87.  Such  a  conclusion  is  in  accordance  with 
the  reason  and  policy  of  the  statute ;  for,  after  the  loss  has  oc- 
curred, the  obligation  of  the  insurer  under  the  policy  is  to  pay  a 
sum  of  money,  the  right  to  which  may  properly  be  transferred, 
although  the  amount  may  not  yet  be  definitely  ascertained.  After 
the  loss,  no  personal  element  remains  in  the  contract,  and  the 
relations  of  the  parties  to  it  are  simply  those  of  debtor  and  creditor. 
But  we  have  never  held  that  these  statutory  provisions  render 
assignable  a  personal  executory  contract.  On  the  contrary,  we 
have  plainly  intimated  that  such  a  contract  is  not  assigr«lable 
without  consent  of  the  other  party  to  the  contract.  Rappleve  v. 
Racine  Seeder  Co.,  79  Iowa,  220,  44  N.  W.  363,  7  L.  R.  A.' 139; 
Peterson  v.  Ball,  121  Iowa,  544,  97  N.  W.  79. 

We  find  nothing  in  our  statutes  or  decisions  inconsistent  with 
the  continued  recognition  of  the  general  rule  of  law  that  per- 
sonal contracts,  executory  in  their  nature  and  involving  relations 
of  trust  and  confidence,  are  not  assignable  by  one  party  thereto 
without  the  consent  of  the  other.  A  laborer  or  other  employe, 
whether  skilled  or  unskilled  in  the  particular  line  of  employment, 
cannot  substitute  another  employe  for  himself,  under  a  contract 
involving  the  rendition  of  services,  so  as  to  obligate  his  employer 
to  accept  the  services  of  such  other  person  and  pay  for  them 
under  the  terms  of  the  contract.  Cases  already  cited  amply  sup- 
port the  proposition  that  the  relations  of  insured  and  insurer  in- 
volve an  element  of  personal  confidence  in  the  insured  on  the 
part  of  the  insurer,  and  for  that  reason  are  unassignable,  save  with 
the  consent  of  the  latter. 

The  written  assignment  above  set  out  does  not  purport  to  be 
anything  more  than  an  assignment  by  Mrs.  Blume,  executed  after 
the  loss,  of  the  rights  which  she  then  had  under  the  policy.     This 


580  RIGHTS    UXDKU   TIIH   rONTItACT  (Cll.  0 

assignment  passed  nothing  to  the  plaintifif ;  for  after  the  loss 
Mrs.  Bkime  had  no  right  to  recover  anything,  because  she  had 
no  insurable  interest  covered  by  the  policy.  The  assent  of  the  as- 
sistant secretary  to  such  an  assignment  could  not  create  in  Mrs. 
Blume,  for  the  purpose  of  transfer  to  plaintiff,  any  right  which 
she  did  not  have;  and  there  is  nothing  in  the  assignment,  to  which 
the  assistant  secretary  assented,  to  justify  the  assumption  that 
such  officer  was  waiving,  on  the  part  of  the  company,  its  right  to 
insist  that  the  prior  verbal  agreement  between  Mrs.  Blume  and 
the  plaintiff  was  not  effectual  to  impose  any  liability  on  the  com- 
pany which  it  had  not  assumed  by  the  issuance  of  its  policy. 

The  invalidity  of  the  policy  after  the  attempted  transfer  thereof 
by  Mrs.  Blume  to  the  plaintiff  in  connection  with  the  conveyance 
of  the  property  was  not  the  result  of  any  forfeiture  on  account  of 
condition  subsequent.  The  contract  of  insurance  came  to  an  end 
because  the  subject-matter  of  the  contract — that  is,  the  insurable 
interest  of  Mrs.  Blume — had  ceased  to  exist.  The  assent  of  the 
company  to  a  new  obligation  on  its  part  toward  this  plaintiff  was 
a  condition  precedent,  without  compliance  with  which  no  new 
contract  could  arise.  What  is  said  in  the  case  of  Woodmen  Ace. 
Ass'n  V.  Pratt,  62  Neb.  673,  87  N.  W.  546,  55  L.  R.  A.  291,  89 
Am.  St.  Rep.  777 ,  in  relation  to  forfeitures  not  being  favored,  has 
therefore  no  application,  and  plainly  the  case  is  not  in  point,  as 
it  does  not  involve  a  contract  of  fire  insurance  which  in  its  nature 
differs,  in  respect  to  assignability,  from  a  contract  of  accident  in- 
surance. The  difficulty  alleged  in  plaintiff's  petition  of  securing 
the  assent  of  the  assistant  secretary  to  an  assignment  of  the  policy 
would  not  in  itself  give  rise  to  any  right  on  the  part  of  this  plain- 
tiff to  become  the  assured  under  the  policy,  in  the  absence  of  the 
assent  on  the  part  of  the  company,  which  was  required  by  its 
by-laws  to  be  given  before  any  new  obligation  on  its  part  could 
arise;  and  it  is  not  claimed  that  there  is  any  provision  in  the 
by-laws  authorizing  an  assistant  secretary  to  create  new  obliga- 
tions of  insurance  otherwise  than  by  giving  his  assent  to  an  assign- 
ment of  an  existing  policy,  made  in  his  presence.  For  these  rea- 
sons, the  cases  of  German  Ins.  Co.  v.  Rounds,  35  Neb.  752,  53 
N.  W.  660,  and  Beebe  v.  Ohio  Farmers'  Ins.  Co.,  93  Mich.  514, 
53  N.  W.  818,  18  L.  R.  A.  481,  32  Am.  St.  Rep.  519,  relied  on  for 
appellant,  are  not  in  point. •''     *     *     * 

Judgment  affirmed.* 

3  The  remainder  of  the  opinion,  deciding  that  the  general  rule  applicalile 
to  assignments  of  fire  policies  was  equally  operative  in  the  case  of  a  mutual 
insurance  association  like  the  defendant,  is  omitted. 

*  The  case  dealing  with  the  assignment  of  policies  of  insurance  on  property 
may  be  found  collected  in  2  Cooley,  Briefs  on  Insurance,  10G.3-107S. 

After  the  loss  has  occurred,  since  the  liability  of  the  insurer  then  becomes 
fixed,  the  policy  may  be  assigned  as  any  chose  in  action,  without  the  con- 
sent of  the  insurer.     See  Bartling  v.  German  Mut.  Lightning  &  Tornado  Ins. 


Sec.  1)  FIRE    INSURANCE  581 

ILUNOTS  MUT.  FIRE  INS.  CO.  v.  FIX. 

(Supreme  Court  of  Illinois,  1870.     53  111.  151,  5  Am.   Rep.   38.) 

Mr.  Justice  Lawrence;,  The  appellee,  Fix,  being  indebted  to  May- 
er, for  whose  use  this  suit  is  brought,  executed  to  him  his  notes,  se- 
cured by  mortgage  on  a  brewery,  and  at  the  same  time  assigned  to 
him  a  policy  of  insurance,  issued  by  the  appellants,  upon  the  building 
and  fixtures.  This  assignment  was  made  with  the  consent  of  the  com- 
l)any  indorsed  upon  the  policy.  The  present  suit  was  brought  in  the 
name  of  Fix  for  the  use  of  Mayer,  and  resulted  in  a  verdict  and  judg- 
ment for  the  plaintiff,  from  which  the  company  appealed. 

On  the  trial,  the  company  offered  to  prove  that  the  building  was 
set  on  fire  by  the  plaintiff.  Fix.  The  evidence  was  objected  to  by 
plaintiff's  counsel,  and  the  objection  was  sustained.  This  ruling  pre- 
sents the  main  question  in  the  case,  to  wit,  whether,  where  a  policy  of 
insurance  has  been  assigned  by  the  assured  to  one  holding  a  mortgage 
on  the  premises,  with  the  consent  of  the  company  indorsed  upon  the 
policy,  its  validity  can  be  destroyed  by  acts  done  by  the  assignor  in 
violation  of  its  conditions. 

This  question  has  received  much  discussion  in  the  Courts  of  New 
York,  and  the  decisions  first  made  have  been  deliberately  overruled. 
It  was  first  held,  in  the  Traders'  Ins.  Co.  v.  Robert,  9  Wend.  (N.  Y.) 
404,  that  no  act  of  the  assured,  after  the  assignment  of  the  policy  with 
the  consent  of  the  company,  can  impair  the  rights  of  his  assignee. 
This  case  was  approved  and  followed  in  Tillon  v.  Kingston  Mutual 
Ins.  Co.,  5  N.  Y.  406,  the  Court  holding  that  the  assignment  of  a  pol- 
icy, with  the  assent  of  the  insurer,  creates  new  and  mutual  relations 
and  rights  between  the  assignee  and  the  insurer,  which  cannot  be  im- 
paired by  a  third  person,  over  whom  the  assignee  has  no  control. 

The  question  again  came  up  in  Grosvenor  v.  Atlantic  Fire  Ins.  Co.. 
IZTST.  Y.  392,  and  in  the  Buffalo  Steam  Engine  Works  v.  Sun  Mutual 
Ins.  Co.,  Id.  401.  In  the  first  case,  the  policy  was  not  assigned  by  the 
mortgagor  to  the  mortgagee,  but  by  its  original  terms,  the  loss,  in  case 
of  fire,  was  made  payable  to  the  mortgagee.  The  majority  of  the 
Court  held  the  case  was  not  distinguishable  from  an  assignment  of  the 
policy,  and  overruling  the  cases  already  cited,  held  the  policy  was 
avoided  by  certain  acts  done  by  the  mortgagor  in  violation  of  its  terms. 
One  of  the  eight  Judges  composing  the  Court,  dissented  altogether, 
and  two  others  concurred  only  on  the  ground  that  the  case  was  not 
like  one  in  which  the  policy  had  been  assigned.  In  the  other  case,  de- 
Co.,  154  Iowa  335.  134  N.  W.  864  (1012) ;  Imperial  Fire  Ins.  Co.  v.  Dunham, 
117  Pa.  460.  12  Atl.  668.  2  Am.  St.  Rep.  686  (1SS8).  Since  a  transfer  of  a 
pdlicy  of  insurance  as  collateral  security  is  not  an  assiiiument.  it  necessarily 
follows  that  a  pledge  of  the  policy  does  not  require  the  consent  of  insurer, 
even  though  there  is  a  stipulation  requiring  such  consent  to  an  "assign- 
ment." See  Insurance  Co.  of  Pennsylvania  v.  Phoenix  Insurance  Co.,  71  Pa. 
31  (1872);  Phillips  v.  Merrimack  Mut.  Fire  Ins.  Co..  10  Cush.  (Mass.)  350 
(1852);  Ellis  v.  Kreutzinger,  27  Mo.  311,  72  Am.  Dec.  270  (1858). 


582  RIGHTS   UNDKK   THE   CONTRACT  (Ch.  9 

cided  at  the  same  term,  and  which  was  one  of  assignment,  the  major- 
ity of  the  Court  held  the  pohcy  avoided  by  the  acts  of  the  assignor, 
the  three  Judges  dissenting. 

In  these  two  cases,  the  question  involved  received  a  much  fuller 
discussion  than  was  given  to  it  when  the  former  decisions  were  ren- 
dered. In  reply  to  the  argument  of  the  Court  in  9  Wend.  404,  that 
the  assignor  could  not  be  permitted  to  execute  a  release  to  the  insur- 
ance company  which  would  impair  the  rights  of  the  assignee,  and  that 
he  should  not  be  permitted  to  do  indirectly  what  he  could  not  do  di- 
rectly, the  Court  very  justly  say,  this  argument  fails  to  distinguish 
between  acts  done  for  the  purpose  of  discharging  a  liability,  and  acts 
which,  by  the  terms  of  the  contract,  were  necessary  to  be  done  or 
omitted,  in  order  to  continue  the  liability  in  force.  The  principle, 
however,  laid  down  in  the  case  in  5  N.  Y.  406,  that  the  assignment  of 
a  policy,  with  the  assent  of  the  company,  creates  new  relations  and 
rights  between  the  assignee  and  the  company,  is  not  wholly  repudiated 
as  never  applicable,  for  it  is  admitted  that,  in  cases  where  there  has 
been  an  absolute  sale  of  the  insured  property,  the  assured  retaining 
no  interest  in  it,  and  there  has  been  an  assignment  of  the  policy  to 
the  purchaser,  with  the  consent  of  the  company,  such  purchaser  may 
be  considered  as  becoming  a  party  to  the  contract,  taking  upon  him- 
self the  performance  of  its  conditions,  while  the  assignor,  ceasing  to 
be  a  substantial  party,  and  having  no  interest  in  the  subject-matter, 
could  do  no  act  afifecting  the  rights  of  the  assignee. 

The  Court  insists,  however,  that  this  principle  cannot  be  applied  to 
an  assignment  to  a  mortgagee,  because,  in  such  cases,  the  mortgagor 
retains  his  interest  in  the  property  and  in  the  policy,  and  whenever 
the  mortgage  debt  is  paid,  the  benefit  of  the  policy  reverts  to  him,  or 
in  case  the  policy  exceeds  the  amount  of  the  mortgage,  the  surplus, 
in  the  event  of  a  loss,  would  be  payable  to  the  mortgagor.  The  Court 
further  say,  that  the  rule  of  the  former  cases  would  make  insurance 
companies  liable  for  risks  which  they  never  assumed,  and  against 
which  their  policies  are  intended  to  guard  them,  for  under  this  rule,  a 
mortgagor  remaining  in  possession,  might  convert  a  building  insured 
as  a  dwelling-house,  to  a  use  vastly  more  hazardous,  as  by  making  it 
a  place  for  manufacturing  fire-works,  and  still  the  company  be  re- 
quired to  pay,  although  one  of  the  material  terms  of  its  contract  was 
that  its  liability  should  cease  in  the  event  of  such  a  change  in  the  uses 
of  the  property. 

The  Supreme  Court  of  Pennsylvania,  in  State  Mutual  Ins.  Co.  v. 
Roberts,  31  Pa.  438,  adopts  the  rule  of  these  cases,  in  a  well  consid- 
ered opinion.  The  Supreme  Court  of  the  United  States  in  Carpenter 
V.  Providence  Washington  Ins.  Co.,  16  Pet.  495,  10  L.  Ed.  1044,  lays 
down  a  similar  principle.  This  rule  is  also  followed  in  Pupke  v.  Res- 
olute Ins.  Co.,  17  Wis.  378,  84  Am.  Dec.  754.  On  the  other  hand,  the 
earlier  New  York  cases  were  followed  in  Pollard  v.  Somerset  Mutual 
Fire  Ins.  Co.,  42  Me.  226. 


Sec.  1)  FIRE    INSURANCE  583 

In  this  State  the  question  is  an  open  one.  Counsel  for  appellee  cite 
the  N.  E.  Fire  &  Marine  Ins.  Co.  v.  Wetmore,  32  111.  242,  and  City 
Fire  Ins.  Co.  v.  Marks,  45  111.  482,  as  adopting  the  rule  of  the  earlier 
New  York  cases.  But  in  the  first  of  these  cases,  the  policy  was  issued 
directly  to  the  mortgagees,  and  assigned  by  them  with  the  note  and 
mortgage,  and  the  question  in  regard  to  which  the  case  in  5  N.  Y. 
was  cited,  was  as  to  the  right  of  the  assignee  to  bring  suit  in  the  name 
of  the  assignors.  In  the  case  in  45  111.  the  assured  had  sold  the  stock 
of  goods  insured,  and  the  policy  had  been  assigned  to  the  purchaser 
with  the  consent  of  the  company.  The  Court  in  its  opinion,  cites  the 
earlier  New  York  cases  only,  but  even  under  the  rule  laid  down  in  the 
last  case,  in  17  N.  Y.,  the  assignee  was  entitled  to  recover,  the  trans- 
action being  a  sale  and  not  a  mortgage. 

This  Court  has  shown  in  various  cases,  a  disposition  to  hold  insur- 
ance companies  to  a  full  measure  of  responsibility,  but  we  are  of 
opinion  that  the  cases  in  17  N.  Y.  stand  upon  the  better  reason. 

The  consent  of  insurance  companies  to  an  assignment  of  the  pol- 
icy by  a  mortgagor  to  a  mortgagee,  should  not  be  construed  as  im- 
posing upon  them,  as  a  consequence  of  such  mere  naked  assent,  a 
liability  which  they  never  would  intentionally  assume,  and  against 
which  they  take  all  possible  pains  to  guard  themselves,  and  must  guard 
themselves  in  order  to  preserve  their  solvency.  The  principle  contend- 
ed for  by  counsel  for  appellee,  and  laid  down  in  the  earlier  New  York 
cases  is,  that  no  act  of  the  assignor,  done  without  the  consent  of  the 
assignee,  can  invalidate  the  policy,  so  far  as  relates  to  the  assignee. 
If  this  be  true  without  limitation,  then,  as  said  by  the  New  York 
Court  of  Appeals,  a  risk  taken  by  a  company  at  the  lowest  rates,  be- 
cause in  the  least  hazardous  class,  might  be  changed  by  the  mortgagor 
remaining  in  possession,  and  without  the  concurrence  of  the  mort- 
gagee, to  the  class  of  extrahazardous,  and  the  liability  of  the  company 
would  remain  the  same.  A  detached  dwelling-house  might  be  con- 
verted into  a  powder  magazine,  or  to  some  other  use  which  would 
prevent  any  sound  insurance  company  from  taking  the  risk  on  any 
terms,  and  still  under  the  rule  claimed  by  appellee,  the  company  would 
remain  responsible.  The  mortgagor  might  go  further,  and  not  only 
convert  his  building  to  extra-hazardous  uses,  but  absolutely  set  it  on 
fire,  with  a  view  o'f  defrauding  the  company,  as  the  appellants  offered 
to  prove  was  done  in  the  present  case. 

We  cannot  adopt  a  rule  which  would  lead  to  such  results.  In  anal- 
ogy to  the  case  of  absolute  sales  by  the  assured,  we  should  be  much 
inclined  to  hold  to  the  rule  announced  in  1  Selden,  if  it  were  possible 
to  separate  the  interest  of  the  mortgagor  and  mortgagee.  But  it  is  not, 
for  the  mortgagor  is  not  only  interested  in  the  payment  of  the  mort- 
gage, but  where  he  pays  the  premium,  the  fruits  of  the  policy  absolute- 
ly belong  to  him,  subject  to  the  lien  of  the  mortgagee.  Where  there 
is  an  absolute  sale,  there  is  no  difficulty  in  determining  the  measure 
of  the  assignee's  rights  and  the  company's  liabilities,  for  he  stands  in 


584  RIGHTS   UNDER  TUE  CONTRACT  (Ch.  D 

the  position  of  receiving  a  new  policy  as  owner,  and  becomes  respon- 
sible for  any  extra-hazardous. uses  to  which  the  building  may  be  ap- 
plied, a  responsibility  he  cannot  evade  on  the  ground  that  the  l)uil(l- 
ing  is  not  under  his  control.  But  where  there  is  no  sale,  but  the  pol- 
icy is  merely  assigned  as  security,  we  are  obliged  to  hold,  cither  that 
the  company  is  bound  absolutely  to  the  assignee,  no  matter  how  far 
the  conditions  of  its  contract  may  have  been  violated,  which  would 
be  a  very  unreasonable  ruling,  or  that  there  is  such  identity  of  inter- 
est in  regard  to  both  the  property  and  the  policy,  that  there  can  be  no 
recovery,  even  for  the  use  of  the  assignee,  if  the  assignor  fails  to  com- 
ply with  the  conditions. 

The  utmost  that  can  be  claimed  for  an  assignee  in  such  cases  is  that 
he  should  stand  in  the  same  position  as  if  he  had  taken  out  a  new  and 
independent  policy  to  protect  his  own  interest  as  mortgagee.  But 
admitting  such  claim,  we  have  no  rule  to  guide  us.  It  is  impossible 
for  us  to  say  what  conditions  the  company  would  deem  it  necessary  to 
insert  in  such  a  policy  for  its  own  protection.  It  is  very  certain  it 
would  stipulate  that  the  hazard  to  the  building  should  not  be  increased, 
and  thus  would  compel  the  mortgagee  to  take  upon  himself  the  re- 
sponsibility of  the  mortgagor's  acts,  from  which  he  could  not  escape 
by  saying  that  his  rights  should  not  be  prejudiced  by  the  acts  of  a 
third  person.  It  would  necessarily  result,  from  the  nature  of  the  in- 
terest insured,  that  its  owner  might  be  damnified  by  the  acts  of  the 
mortgagor  in  possession,  although  beyond  his  control.  Whether  a 
company  would  also  stipulate,  in  such  a  policy,  that  neither  the  mort- 
gagor nor  the  mortgagee  should  obtain  further  insurance  without  its 
consent  we  do  not  know,  though  it  is  evident  such  a  stipulation  would 
be  a  wise  precaution. 

The  history  of  the  Robert  Case  in  9  Wend,  singularly  illustrates  the 
injustice  of  attempting, to  base  a  judgment  against  an  insurance  com- 
pany in  favor  of  the  mortgagor,  upon  the  equities  of  his  assignee.  In 
that  case,  the  judgment  was  rendered  in  favor  of  Robert,  the  mort- 
gagor, for  the  use  of  Bolton,  his  assignee,  on  the  ground  that,  though 
Robert  had  violated  the  policy,  this  could  not  prejudice  Bolton.  Aft- 
er the  rendition  of  the  judgment,  and  before  its  payment,  Robert  paid 
ofif  the  mortgage,  and  threatened  the  insurance  company  with  an  exe- 
cution. The  company  moved  the  Court  for  a  perpetual  stay,  which 
was  granted,  the  Court  holding  consistently  with  its  former  ruling, 
that  Robert  had  no  equitable  rights  under  the  policy :  9  Wend.  404 
and  474.  From  this  order  an  appeal  was  taken  to  the  Court  for  the 
correction  of  errors,  and  that  Court  held,  as  the  original  judgment  was 
unreversed,  it  was  conclusive  upon  the  rights  of  the  parties,  and  as 
the  mortgage  had  been  paid,  the  benefit  of  the  judgment  reverted  to 
Robert,  the  mortgagor.  He  thus  received  the  full  benefit  of  the  policy, 
although  he  had  forfeited  all  rights  under  it,  and  a  judgment  had  been 
rendered  in  his  favor  only  in  consequence  of  the  equities  of  his  as- 
signee:   17  Wend.  631. 


Sec.  1)  FIRE    INSURANCE  585 

It  is,  in  our  opinion,  very  clear,  if  we  attempt  to  dispose  of  cases 
of  this  character  on  the  theory  that  the  assignment  is  to  be  treated 
as  a  new  policy,  issued  directly  to  the  mortgagee,  for  his  exclusive 
benefit,  and  to  adjust  the  rights  of  these  parties  in  accordance  with 
what  we  may  suppose  such  a  policy  would  contain,  we  shall  be  wander- 
ing in  a  labyrinth  where  there  would  be  but  one  thing  certain,  and 
that  is,  that  great  injustice  would  be  done  these  companies.  We  should 
practically  be  enforcing  liabilities  against  them  which  they  never  in- 
tended to  incur,  and  giving  to  the  mortgagor  the  benefit  of  a  policy 
in  which  he  has  forfeited  all  his  rights. 

We  deem  it  safer  and  more  just  to  say,  that  where  a  policy  is  assign- 
ed as  collateral  to  a  mortgage,  though  with  the  consent  of  the  com- 
pany, the  assignee  takes  it  subject  to  the  conditions  expressed  upon 
its  face,  or  necessarily  inhering  in  it,  and  that  no  recovery  can  be  had 
merely  in  consequence  of  the  equities  of  the  assignee,  if  the  assignor 
has  lost  the  right  to  recover  by  violating  the  terms  of  the  contract. 

The  evidence,  offered  to  show  that  the  plaintiff  set  the  building  on 
fire,  should  have  been  admitted,  and  the  instruction  asked  for  defend- 
ants, in  regard  to  the  effect  of  a  second  insurance,  should  have  been 
given. 

Judgment  reversed. '^ 


III.  Vendor  and  Vi^ndES 


RAYNER  V.  PRESTON. 

(Court  of  Appeal,  1881.     L.  R.  18  Ch.  Div.  1.) 

This  was  an  appeal  by  the  plaintiffs  from  a  decision  of  Jesse,  M.  R., 
14  Ch.  D.  297.  The  plaintiffs  purchased  from  the  defendants  a  mes- 
suage and  workshops.  Between  the  date  of  the  contract  and  the  time 
fixed  for  completion,  the  buildings  purchased  were  injured  by  fire. 
The  vendors  had  before  the  contract  insured  the  buildings  against  fire, 
but  there  was  not  in  the  contract  any  mention  of  this  fact  or  of  the 
policy.  The  plaintiffs  brought  an  action  to  establish  their  right  to  a 
sum  received  by  the  vendors  from  the  insurance  office,  or  to  have  it 
applied  in  or  towards  reinstating  the  buildings  injured. 

Brett,  L.  J.  ®  For  a  reason  which  will  presently  appear,  viz., 
the  different  opinion  of  Lord  Justice  James,  I  give  with  some  fear  the 
result  of  the,  I  must  say,  very  clear  opinion  which  I  have  in  this  case. 

5  Compare  Hall  v.  Insurance  Co.,  93  Mich.  184,  53  N.  W.  727.  18  L.  R.  A. 
135,  32  Am.  St.  Rep.  497  (1892);  Ellis  v.  Insurance  Co..  64  Iowa.  507,  20 
N.  W.  782  (1884);  Ellis  v.  Insurance  Co.  (C.  C.)  32  Fed.  646  (1887);  Continental 
Ins.  Co.  V.  Munns,  120  Ind.  30,  22  N.  E.  78,  5  L.  R.  A.  430  (1889). 

«  Part  of  the  opinion  is  omitted. 


586  RIGHTS  UNDER  TDK   CONTRACT  (Cll.  0 

This  action  is  brought  by  the  plaintiffs  against  the  defendants  to 
recover  money  which  is  in  the  hands  of  the  defenthmts ;  and,  there- 
fore, if  the  action  had  been  brought  at  common  law,  it  would  have 
been  an  action  for  money  had  and  received.  That  action  was  always 
treated  at  common  law  as  being  founded  upon  equity,  and  therefore 
it  seems  to  me  that  the  decision  in  this  case,  whatever  it  ought  to  be, 
would  be  the  same  whether  it  should  be  considered  to  be  a  decision 
at  common  law  or  in  equity. 

It  seems  to  me  that  the  question  raised  between  the  plaintiffs  and 
the  defendants  calls  upon  us  to  consider,  first  of  all,  the  nature  of  a 
policy  of  fire  insurance ;  and,  secondly,  what  was  the  relation  with 
regard  to  the  policy  and  to  the  property  between  the  plaintiffs  and 
the  defendants  in  this  case.  Now,  in  my  judgment,  the  subject-matter 
of  the  contract  of  insurance  is  money,  and  money  only.  The  subject- 
matter  of  insurance  is  a  different  thing  from  the  su])ject-matter  of 
tlie  contract  of  insurance.  The  subject-matter  of  insurance  may  be  a 
house  or  other  premises  in  a  fire  policy,  or  may  be  a  ship  or  goods 
in  a  marine  policy.  These  are  the  subject-matter  of  insurance,  but  the 
subject-matter  of  the  contract  is  money,  and  money  only.  The  only 
result  of  the  policy,  if  an  accident  which  is  within  the  insurance  hap- 
pens, is  a  payment  of  money.  It  is  true  that  under  certain  circum- 
stances in  a  fire  policy  there  may  be  an  option  to  spend  the  money  in 
rebuilding  the  premises,  but  that  does  not  alter  the  fact  that  the  only 
liability  of  the  insurance  company  is  to  pay  money.  The  contract, 
therefore,  is  a  contract  with  regard  to  the  payment  of  money,  and 
it  is  a  contract  made  between  two  persons,  and  two  persons  only,  as 
a  contract. 

In  this  case  there  was  a  contract  of  insurance  made  between  the 
defendants  and  the  insurance  company.  That  contract  was  made  by 
the  defendants,  not  on  behalf  of  any  undisclosed  principal,  not  on 
behalf  of  any  one  interested  other  than  themselves.  The  contract  was 
made  by  the  defendants  solely  and  entirely  on  their  own  behalf,  and 
at  a  time  when  they  had  no  relation  of  any  kind  with  the  plaintiffs. 
It  was  a  personal  contract  between  the  defendants  and  the  insurance 
office,  to  which  they  were  the  sole  parties.  It  is  true  that  under  cer- 
tain circumstances  a  policy  of  insurance  may,  in  equity,  be  assigned,  so 
as  to  give  another  person  a  right  to  sue  upon  it ;  but  in  this  case  the 
policy  of  insurance,  as  a  contract,  never  was  assigned  by  the  defend- 
ants to  the  plaintiffs.  It  would  have  been  assigned  by  the  defendants 
to  the  plaintiffs  if  it  had  been  included  in  the  contract  of  purchase,  but 
it  was  not.  Any  valuation  of  the  policy,  any  consideration  of  increase 
of  the  price  of  the  premises  in  consequence  of  there  being  a  policy, 
was  wholly  omitted.  There  was  nothing  given  by  the  plaintiffs  to  the 
defendants  for  the  contract.  The  contract,  therefore,  neither  express- 
ly nor  impliedly,  was  assigned  to  the  plaintiffs ;  and,  so  far  as  regards 
the  contract  of  insurance,  there  never  was  any  relation  of  any  kind 
between  the  plaintiffs  and  the  defendants. 


Sec.  1)  FIRE    INSURANCE  587 

But  there  did  exist  a  relation  between  the  plaintiffs  and  the  defend- 
ants, not  with  regard  to  the  subject-matter  of  the  contract,  but  with 
regard  to  the  subject-matter  of  the  insurance.  There  was  a  contract 
of  purchase  and  sale  between  the  plaintiffs  and  the  defendants  in  re- 
spect of  the  premises  insured.  It  becomes  necessary  to  consider  ac- 
curately, as  it  seems  to  me,  and  to  state  in  accurate  terms,  what  is 
the  relation  between  the  two  people  who  have  contracted  together 
with  regard  to  premises  in  a  contract  of  sale  and  purchase.  With 
the  greatest  deference,  it  seems  wrong  to  say  that  the  one  is  a  trustee 
for  the  other.  The  contract  is  one  which  a  court  of  equity  will  en- 
force by  means  of  a  decree  for  specific  performance.  But  if  the 
vendor  were  a  trustee  of  the  property  for  the  vendee,  it  would  seem 
to  me  to  follow  that  all  the  product,  all  the  value  of  the  property  re- 
ceived by  the  vendor  from  the  time  of  the  making  of  the  contract 
ought,  under  all  circumstances,  to  belong  to  the  vendee.  What  is  the 
relation  between  them,  and  what  is  the  result  of  the  contract?  Wheth- 
er there  shall  ever  be  a  conveyance  depends  on  two  conditions ;  first 
of  all,  whether  the  title  is  made  out,  and,  secondly,  whether  the  money 
is  ready;  and  unless  those  two  things  coincide  at  the  time  when  the 
contract  ought  to  be  completed,  then  the  contract  never  will  be  com- 
pleted and  the  property  never  will  be  conveyed. 

But  suppose  at  the  time  when  the  contract  should  be  completed,  the 
title  should  be  made  out  and  the  money  is  ready,  then  the  conveyance 
takes  place.  Now  it  has  been  suggested  that  when  that  takes  place, 
or  when  a  court  of  equity  decrees  specific  performance  of  the  con- 
tract, and  the  conveyance  is  made  in  pursuance  of  that  decree, .  then 
by  relation  back  the  vendor  has  been  trustee  for  the  vendee  from  the 
time  of  the  making  of  the  contract.  But,  again,  with  deference,  it 
appears  to  me  that  if  that  were  so,  then  the  vendor  would  in  all  cases 
be  trustee  for  the  vendee  of  all  the  rents  which  have  accrued  due  and 
which  have  been  received  by  the  vendor  between  the  time  of  the  making 
of  the  contract  and  the  time  of  completion ;  but  it  seems  to  me  that 
that  is  not  the  law.  Therefore,  I  venture  to  say  that  I  doubt  whether  it 
is  a  true  description  of  the  relation  between  the  parties  to  say  that 
from  the  time  of  the  making  of  the  contract,  or  at  any  time,  one  is 
ever  trustee  for  the  other.  They  are  only  parties  to  a  contract  of  sale 
and  purchase  of  which  a  court  of  equity  will  under  certain  circum- 
stances decree  a  specific  performance.  But  even  if  the  vendor  was 
a  trustee  for  the  vendee,  it  does  not  seem  to  me  at  all  to  follow  that 
anything  under  the  contract  of  insurance  would  pass.  As  I  have  said, 
the  contract  of  insurance  is  a  mere  personal  contract  for  the  pay- 
ment of  money.  It  is  not  a  contract  which  runs  with  the  land.  If  it 
were,  there  ought  to  be  a  decree  that  upon  the  completion  of  the  pur- 
chase the  policy  be  handed  over.  But  that  is  not  the  law.  The  con- 
tract of  insurance  does  not  run  with  the  land;  it  is  a  mere  personal 
contract,  and  unless  it  is  assigned  no  suit  or  action  can  be  maintained 
upon  it  except  between  the  original  parties  to  Jt.     *     *     * 


588  RIGHTS   UNDER  THE  CONTUACT  (Ch.  9 

I  therefore,  \vith  deference,  think  that  the  plainlifTs  here  cannot  re- 
cover from  the  defendant,  on  the  j^n-ound  that  there  was  no  rehition  of 
any  kind  or  sort  hctween  the  phiintiff  and  the  defendant  with  re<,Mrd  to 
the  policy,  and  therefore  none  with  regard  to  any  money  received 
under  the  pohcy.'^ 

James,  L.  J.  I  am  unahle  to  concur  in  affirming  the  judgment  of 
the  Master  of  tlie  Rolls.  According  to  my  view  of  the  case  the  plain- 
tiff's contention  is  founded  not  only  on  what  I  may  call  the  natural 
ecjuity  which  commends  itself  to  the  general  sense  of  the  lay  world 
not  instructed  in  legal  principles,  but  also  on  artificial  equity  as  it  is 
understood  and  administered  in  our  system  of  jurisprudence. 

I  am  of  opinion  that  the  relation  between  the  parties  was  truly  and 
strictly  that  of  trustee  and  cestui  que  trust.  I  agree  that  it  is  not 
accurate  to  call  the  relation  between  the  vendor  and  purchaser  of  an 
estate  under  a  contract  while  the  contract  is  in  fieri  the  relation  of 
trustee  and  cestui  que  trust.  But  that  is  because  it  is  uncertain  wheth- 
er the  contract  will  or  will  not  be  performed,  and  the  character  in 
which  the  parties  stand  to  one  another  remains  in  suspense  as  long 
as  the  contract  is  in  fieri.  But  when  the  contract  is  performed  by 
actual  conveyance,  or  performed  in  everything  but  the  mere  formal 
act  of  sealing  the  engrossed  deeds,  then  that  completion  relates  back 
to  the  contract,  and  it  is  thereby  ascertained  that  the  relation  was 
throughout  that  of  trustee  and  cestui  que  trust.  That  is  to  say,  it  is 
ascertained  that  while  the  legal  estate  was  in  the  vendor,  the  beneficial 
or  equitable  interest  was  wholly  in  the  purchaser.  And  that,  in  my 
opinion,  is  the  correct  definition  of  a  trust  estate.  Wherever  that  state 
of  things  occurs,  whether  by  act  of  the  parties  or  by  act  or  operation 
of  law,  whether  it  is  ascertained  from  the  first  or  after  a  period  of 
suspense  and  uncertainty,  then  there  is  a  complete  and  perfect  trust, 
the  legal  owner  is  and  has  been  a  trustee,  and  the  beneficial  owner  is 
and  has  been  a  cestui  que  trust. 

This  being  the  relation  between  the  parties,  I  hold  it  to  be  an 
universal  rule  of  equity  that  any  right  which  is  vested  in  a  trustee — 
any  benefit  which  accrues  to  a  trustee,  from  whatever  source  or  under 
whatever  circumstances,  by  reason  of  his  legal  ownership  of  the 
property — that  right  and  that  benefit  he  takes  as  trustee  for  the  ben- 
eficial owner.     If  the  policy  of  insurance  in  this  case  were  a  collateral 

7  In  accord  with  the  opinion  of  Brett,  L.  J.,  in  the  principal  case,  see 
White  V.  Oilman,  138  Cal.  375,  71  Pac.  436  (1903),  (insurance  placed  by  vendor, 
on  building  erected  by  vendee  under  an  executory  contract  of  sale  on  the 
property  in  question,  held  to  inure  exclusively  to  the  benefit  of  vendor,  and 
not  subject  to  be  credited  on  the  purchase  price).  So  when,  under  an  execu- 
tory sale  of  real  estate,  the  vendor  made  an  absolute  assignment  of  a  policy 
on  the  buildings  to  the  vendee,  the  vendor  is  not  entitled  to  an  equitable  lien 
upon  the  proceeds  of  the  policy  paid  to  the  vendee  upon  the  burning  of  the 
buildings,  even  though  the  vendee  is  insolvent  and  the  vendor  still  retains 
legal  title.  Zenor  v.  Hayes,  228  111.  626,  81  N,  E.  1144,  13  L.  R.  A.  (N.  S.) 
909  (1907).  See.  also,  in  accord,  Phoenix  Assurance  Co.  v.  Spooner,  74  L.  J. 
K.  B.  792  (1905). 


Sec.  1)  FIRE    INSURANCE  589 

•contract,  such  as  the  policy  which  a  creditor  effects  on  the  Hfe  of 
his  debtor,  the  case  would  be  wholly  different.  But  the  policy  of 
fire  insurance  is  not,  in  my  opinion,  a  collateral  contract,  it  is  not  a 
wagering  contract,  a  contract  that  if  a  fire  happens  then  a  certain  sum 
of  money  shall  be  paid  to  the  insurer ;  it  is  in  terms  and  in  effect  a 
contract  that,  if  the  property  is  injured  then  the  insurance  company 
will  make  good  the  actual  damage  sustained  by  the  property.  That 
damage,  and  that  damage  only,  gives  the  right  and  is  the  measure  of 
the  right,  and  it  seems  to  me  impossible  to  say  that  it  is  not  by  reason 
-of  the  legal  ownership  and  in  respect  solely  of  the  injury  done  to  that 
legal  ownership  that  the  right  to  recover  from  the  insurance  company 
accrued  to   the   insured. 

If  the  fire  in  this  case  had  happened  through  the  wrongful  or  neg- 
ligent act  of  a  third  person  while  the  contract  was  in  fieri  the  legal 
right  to  sue  for  the  damage  would  be  in  the  vendor,  but  on  the  comple- 
tion of  the  contract  the  purchaser  would  be  entitled  to  use  of  the  name 
of  the  vendor  as  his  trustee  to  sue  for  the  damage  so  sustained,  or,  if 
the  damages  had  actually  been  recovered  in  the  interval,  to  recover  the 
damages  from  the  vendor.  And  it  appears  to  me  that  there  is  no  dis- 
tinction in  principle  between  this  right  and  the  right  to  use  the  vendor's 
name  in  an  action  on  the  contract  of  indemnity  against  loss  by  fire 
which  the  policy  of  insurance  is.  It  is  not,  in  my  view  of  the  case, 
at  all  material  to  consider  what  would  be  the  case  if  after  actual  con- 
veyance and  during  the  currency  of  the  policy  a  fire  had  occurred. 
The  vendor  in  that  case  would  have  no  right  as  between  him  and  the 
insurance  office,  and  the  purchaser  would  have  no  right  of  action, 
because  one  of  the  conditions  of  the  policy  excludes  it,  and,  inde- 
pendently of  that  condition,  the  policy  would,  or  might  probably  be 
held  not  to  run  with  the  land  in  the  hands  of  the  subsequent  owner, 
and  in  that  case  there  would  not  be  that  which  is  the  foundation  of 
the  right — legal  ownership  and  right  in  one  person,  and  equitable 
ownership  in  another. 

No  doubt  it  is  a  mere  accident  that  there  was  such  a  policy  and 
there  was  such  a  right.  The  vendor  could  not  have  complained  if  there 
had  been  no  insurance.  But  that  has  occurred  in  a  great  variety  of 
cases  in  which  equitable  rights  have  arisen.  Where  there  is  a  creditor, 
a  debtor,  and  a  surety,  and  the  surety  finds  out  that  by  something  to 
which  he  was  not  privy  and  of  which  he  had  never  heard,  somebody 
else  had  become  surety,  or  the  creditor  had  obtained  security,  the 
surety  has  a  right  to  obtain  contribution  from  such  surety,  or  to  ob- 
tain such  security  as  the  case  may  be,  and  the  creditor  releasing  such 
surety  or  parting  with  such  security  would  probably  find  himself  in 
considerable  peril. 

In  the  same  city  in  which  this  controversy  has  arisen  there  occurred 
some  years  ago  a  great  destruction  of  property  by  reason  of  an  explo- 
sion of  gunpowder  caused  by  a  fire.  Houses  were  damaged,  not  by  fire 
tut  by  the  explosion  caused  by  a  fire  in  another  neighboring  place.    The 


590  RIGOTS   UNDKU   THE   CONTRACT  (Ch.  9 

insurance  offices  thonylit  that  it  was  for  their  interest  to  he  very 
Hheral  and  treat  the  damage  from  the  explosion  as  a  damage  by  fire 
within  the  policies,  and  to  pay  accordingly.  This  was  a  mere  act  of 
liberality.  'J'hey  thought  it  was  for  their  permanent  benefit  commer- 
cially to  be  liberal,  and  they  were  liberal  accordingly.  See  Taunton 
V.  Royal  Insurance  Company,  2  H.  &  M.  135.  I  cannot  myself  doubt 
that  if  a  trustee,  or  a  vendor  who  had  become  trustee,  by  the  comple- 
tion of  his  contract,  had  received  this  bounty  he  would  have  received 
it  by  reason  of  his  trusteeship,  and  would  have  had  to  give  it  up  to 
his  cestui  que  trust  or  purchaser. 

In  my  view  of  the  case  it  is  perhaps  unnecessary  to  refer  to  the  Act 
of  Parliament  as  to  fire  insurance.  But  that  Act  seems  to  me  to  shew 
that  a  policy  of  insurance  on  a  house  was  considered  by  the  Legis- 
lature, as  I  believe  it  to  be  considered  by  the  universal  consensus  of 
mankind,  to  be  a  policy  for  the  benefit  of  all  persons  interested  in 
the  property,  and  it  appears  to  me  that  a  purchaser  having  an  equitable 
interest  under  a  contract  of  sale  is  a  person  having  an  interest  in  the 
house  within  the  meaning  of  the  Act.  I  believe  that  there  is  no  case  to 
be  found  in  which  the  liability  of  the  insurance  office  has  been  limited 
to  the  value  of  the  interest  of  the  insured  in  the  house  destroyed.  If 
a  tenant  for  life  having  insured  his  house  has  the  house  destroyed  or 
damaged  by  fire,  I  have  never  heard  it  suggested  that  the  insurance 
office  could  cut  down  his  claim  by  shewing  that  he  was  of  extreme 
old  age  or  suffering  from  a  mortal  disease.  In  the  case  of  Colling- 
ridge  v.  Royal  Exchange  Assurance  Corporation,  3  O.  B.  D.  173,  the 
vendor  recovered  the  whole  amount  of  the  loss,  although  it  was  ab- 
solutely certain,  having  regard  to  the  solvency  of  his  purchaser,  that 
he  would  really  never  suffer  any  loss  at  all,  personally  or  otherwise, 
as  trustee  for  such  purchaser. 

Of  authority  on  the  subject,  there  is,  no  doubt,  the  express  decision 
of  Vice  Chancellor  Kindersley  against  the  plaintiff,  but  against  that 
there  are  to  be  set  off  the  very  distinct  opinions  of  Lord  St.  Leonards 
and  Vice  Chancellor  Parker,  men  of  great  knowledge  of  equity  and 
of  great  accuracy  even  in  their  dicta. 

But  I  prefer  to  rest  my  judgment  on  the  fact  that  the  relation  be- 
tween the  vendor  and  the  purchaser  became,  and  was  in  law,  as  from 
the  date  of  the  contract  and  up  to  the  completion  of  it,  the  relation  of 
trustee  and  cestui  que  trust,  and  that  the  trustee  received  the  insurance 
money  by  reason  of  and  as  the  actual  amount  of  the  damage  done  to 
the  trust  property.  The  plaintiff  puts  his  case  also  on  the  ground  of 
the  representations  made  to  him  by  the  defendant's  solicitor  and  agent. 
What  took  place  appears  to  me  to  be  this.  The  solicitor  said  to  the 
purchaser,  I  don't  know  who  is  entitled,  but  the  vendor  is  the  only  per- 
son who  has  a  legal  claim,  and  I  will  make  the  claim  accordingly  which- 
ever is  entitled,  and  the  purchaser  left  the  matter  in  his  hands.  Now 
the  purchaser  could  at  that  time  have  applied  to  the  office  to  compel 
the  money  to  be  laid  out  in  restoring  the  building.     And  I  am  of  opin- 


Sec.  1)  FIRE    INSURANCE  591 

ion  that  when  the  money  was  under  these  circumstances  obtained  from 
the  office,  it  reached  the  vendor's  hands  according  to  the  then  rights  of 
the  parties  as  between  them  and  the  insurance  office,  that  is  to  say,  as 
money  which  ought  to  be  laid  out  in  reinstating  the  premises,  or,  in 
other  words,  as  money  which  the  purchaser  alone  had  any  real  or  sub- 
stantial interest  in.^ 

Brett,  L.  J.  I  should  like  to  add  to  what  I  have  said  that  I  feel 
very  great  doubt  wdiether  as  between  the  defendants  and  the  insurance 
company  the  defendants  can  keep  the  money. 

Cotton,  L.  J.    I  quite  concur  in  that  doubt. 

8  The  view  of  James,  L.  J.,  finds  considerable  snpport  from  the  American 
authorities.  In  Millville  Aerie  No.  ISoG.  F.  O.  of  Eagles,  v.  Weatherby 
(N.  J.  Ch.)  88  Atl.  S47  (191.'^).  a  portion  of  the  opinion  of  Leaming,  Y.  C,  is 
as  follows:  "As  purchaser  under  a  valid  contract  of  purchase  vendee  be- 
came the  equitable  owner  of  the  property;  in  equity  the  property  is  regarded 
as  belonging  to  him.  the  vendor  retaining  the  legal  title  simply  as  trustee 
and  as  security  for  the  unpaid  purchase  money.  By  reason  of  this  equitable 
relation  of  the  parties  to  a  contract  of  sale  of  land,  it  has  been  determined 
by  the  great  weight  of  American  authority  that  money  accruing  on  a  policy 
of  insurance,  where  the  loss  has  occurred  subsequent  to  the  execution  of 
the  contract,  will  in  equity  inure  to  the  benefit  of  the  vendee ;  the  vendor 
stiU  retaining  his  character  as  trustee,  and  the  insurance  money  in  his  hands 
representing  the  property  that  has  been  destroyed.  See  1  Warville  on  Ven- 
dors, p.  205,  §  20;  39  Cyc.  1641,  1644.  In  the  event  of  loss  by  fire,  the  pro- 
ceeds of  the  insurance  policy  here  in  question  would  have  been  applied  to  the 
payment  of  the  mortgage,  the  amount  of  which  forms  a  part  of  the  purchase 
price  of  the  premises  purchased,  and  any  surplus  would  have  fvirther  enured 
to  the  benefit  of  the  vendee  by  being  applied  on  his  purchase  money,  and 
any  further  surplus  would  have  been  payable  to  him  by  his  vendor.  The 
insurance  here  in  question  must  therefore  be  regarded  as  essentially  for  the 
benefit  of  the  vendee,  although  it  afforded  an  incidental  benefit  to  the  vendor 
in  supplying  him  an  additional  security  for  the  purchase  price  of  the  land; 
such  additional  security  to  vendor  cannot,  however,  be  here  treated  as  an 
element  of  sul)stantial  value  to  vendor,  for  the  value  could  only  arise  from 
a  failure  of  the  vendee  to  comply  with  his  contractual  obligations  to  the 
vendor." 

To  the  same  effect  is  Reed  v.  Lukens,  44  Pa.  200,  84  Am.  Dec.  425  (1863)  ; 
Mattinglv  v.  Springfield  Fire  &  Marine  Ins.  Co.,  120  Ky.  768,  83  S.  W.  577 
(1904) ;  Skinner  &  Sons  Shipbuilding  &  Dry  Dock  Co.  v.  Houghton,  92  Md.  68, 
48  Atl.  85,  84  Am.  St..  Rep.  485  (1900).  lu  Gilbert  v.  Port,  28  Ohio  St.  276 
(1876),  the  court,  admitting  that,  in  so  far  as  the  insurer  was  concerned,  only 
the  party  contracting  with  it  could  claim  the  benefit  of  the  policy,  held, 
nevertheless,  that  as  between  the  vendor  and  vendee  the  one  upon  whom  the 
loss  by  destructiou  of  the  property  fell,  who  in  this  case  was  the  vendor, 
was  entitled  to  the  insurance  money.  See,  in  approval  of  this  theory,  Brak- 
hage  V.  Tracy,  13  S.  D.  343,  83  N.  W.  363  (1900),  vendee  paid  premiums; 
Phinizy  v.  Guernsey.  Ill  Ga.  346,  36  S.  F.  796,  50  L.  R.  A.  680,  78  Am.  St. 
Rep.  207  (1900),  vendor  suffering  loss  retains  insurance  money. 

In  AVilliams  v.  Lilley,  67  Conn.  50,  34  Atl.  765,  37  L.  R.  A.  150  (1895),  the 
court  held  that  under  the  peculiar  facts  of  the  case  (the  lessee  under  lease 
with  option  of  purchase  paying  premiums  on  the  insurance,  taxes,  and  over- 
head expenses),  the  lessor  vendor,  the  party  named  in  the  policy  as  the 
insured,  was  in  equity  re(iuired  to  credit  the  lessee,  on  his  exercising  his  op- 
tion of  purchase,  with  the  insurance  money  that  he  had  received  because  of 
damage  to  the  building  by  fire.  See  notes,  37  L.  R.  A.  150-153,  and  13  L.  R.  A. 
(N.  S.)  909. 


592  RIGHTS   UNDER  THE   CONTRACT  (Ch.  I) 


PEOPLE'S  ST.   RY.  CO.  v.  SPENCER. 

(Supreme  Court  of  I'enusylvania,  ISO.'].     Kid  Pa.  85,  27  Atl.  lU,  .'50  Am. 

St.  Kcp.  22.) 

On  November  18,  1889,  the  plaintiff,  the  Street  Railway  Compa- 
ny, in  consideration  of  the  payment  of  $20,000  by  the  defendant, 
conveyed  to  the  defendant  a  lot  in  the  city  of  Scranton  on  which 
were  located  their  car  barns  and  offices.  Contemporaneously  with 
the  delivery  of  the  deed  the  plaintiff  took  back  a  lease  of  the 
premises  at  a  nominal  rental,  with  an  exclusive  option  of  purchase 
for  $20,000,  at  the  end  of  the  year.  Their  agreement  was  contin- 
ued at  the  expiration  of  the  first  year  upon  the  plaintiff's  paying 
interest  on  the  loan.  Under  the  terms  of  the  lease  the  plaintiff 
insured  the  premises  for  $12,000  and  paid  the  premiums  thereon. 
The  plaintiff  was  named  as  the  insured  in  the  policy,  which  con- 
tained the  following  clause :  "The  interest  of  the  assured  in  the 
above  described  building  is  the  right  to  purchase  from  A.  D. 
Spencer,  owner;  and,  in  case  of  loss,  the  insurance  is  payal)le  to 
him,  as  his  interest  may  appear  under  said  contract."  On  May 
1,  1891,  the  buildings  burned.  After  the  loss  the  plaintiffs  exer- 
cised their  option  of  purchase.  This  proceeding  is  between  the 
plaintiff  and  defendant  to  determine  the  ownership  of  the  insur- 
ance money,  the  insurer  having  placed  the  same  in  the  hands  of 
a  third  party  pending  the  determination  of  this  action.^ 

MiTCHEi.1.,  J.  AH  the  facts  appear  in  the  writings  set  forth  in 
the  plaintiff's  statement.  None  of  the  papers  which  are  merely 
referred  to,  but  not  set  out  in  full,  seem  to  be  essential  to  the 
cause  of  action,  and  the  omission  to  give  them  in  full  is  not  there- 
fore fatal.  The  affidavit  of  defense  raises  no  issue  of  fact,  for 
it  denies  no  part  of  the  statement,  except  the  inferences  from  the 
face  of  the  papers.  The  case  was  therefore  one  for  the  court  to 
decide  upon  the  statement  and  al^davit.  All  the  writings  con- 
stitute parts  of  one  transaction,  and  the  nature  of  that,  beyond 
question,  was  a  conveyance  of  the  land  as  security  for  the  repay- 
ment of  a  loan  of  money.  It  starts  with  admitted  title  in  the 
company  (appellee);  then  a  conveyance  to  appellant  for  $20,000; 
a  contemporaneous  lease  from  appellant  back  to  the  company,  at 
a  nominal  rent  of  $1,  with  no  change  of  possession,  which  remain- 
ed all  the  time  in  the  company ;  and  an  absolute  and  exclusive 
option  in  favor  of  the  company  to  repurchase  at  the  end  of  the 
year  for  the  same  amount — $20,000 — with  interest;  that  is,  to  re- 
sume its  original  title  on  payment  of  the  loan.  At  the  end  of  the 
term  the  arrangement  was  extended,  or  renewed  for  another  year, 
during  which  the  option  was  exercised  by  the  company,  the  money 
paid,  and  the  title  reconveyed  by  the  appellant.     It  is  unimportant 

9  The  statement  of  facts  is  abbreviated. 


Sec.  1)  FiKE  iNsrnANCB  593 

what  name  we  apply  to  the  relation  of  the  parties  during-  the  year. 
Whether  technically  vendor  and  vendee,  mortgagor  and  mortgagee, 
or  lessor  and  lessee,  is  immaterial.  The  nature  of  the  relation  is 
incontestable.  Appellant  was  the  holder  of  the  legal  title,  sub- 
ject to  an  equity  in  the  company.  It  is  strongly  argued  for  ap- 
pellant that  his  interest  at  the  time  of  the  fire  was  an  absolute 
fee-simple  title.  But  this  is  an  error.  It  was  not  absolute.  It 
was  the  legal  title  m  fee,  but  subject  to  the  equitable  interest  of 
the  company — an  interest  in  the  land,  capable  of  being  specifically 
enforced,  and  good,  not  only  against  the  appellant,  but  all  others, 
creditors,  purchasers,  or  strangers,  to  whom  the  recorded  deeds 
and  the  company's  possession  gave  notice. 

The  only  substantial  question  in  the  case  is  the  date  at  which 
the  company's  equity  became  complete.  The  fire  took  place  dur- 
ing the  running  of  the  term.  The  option  to  redeem  was  exercised 
after  the  fire  had  occurred.  Did  the  company's  interest  begin  to 
run  only  from  the  exercise  of  its  option,  or  did  it,  upon  that  event, 
relate  back  for  all  purposes  to  the  beginning  of  the  transaction? 
We  are  of  opinion  that  both  principle  and  authority  sustain  the 
latter  view.  As  already  said,  the  transaction  was  in  substance  a 
loan  of  money,  and  appellant's  right  was  to  have  his  money  back 
with  interest  at  a  specified  time,  or,  in  default  of  that,  to  have 
his  title  become  absolute.  The  insurance  was  for  his  protection, 
not  to  increase  his  profit;  to  keep  up  the  sufficiency  of  his  securi- 
ty while  the  loan  lasted,  or  make  good  the  value  of  his  purchase 
if  it  became  absolute.  For  that  reason  it  was  to  be  kept  up  by  the 
appellee.  If  the  latter  had  exercised  its  option  before  the  fire,  there 
could  have  been  no  question  that  the  insurance  money  would  have 
belonged  to  it.  But  the  date  of  the  fire  makes  no  substantial  dif- 
ference when,  as  was  the  case,  the  appellee  elected  to  repay  the 
loan,  and  resumed  its  title.  On  the  happening  of  that  contingency, 
the  appellant  got  his  money,  with  interest,  which  was  all  he  was 
entitled  to,  while  the  appellee  got  back  its  land,  lessened  in  value 
by  the  fire,  but  the  loss  compensated  by  the  insurance  money. 
The  insurance  was,  in  contemplation  of  law,  for  the  benefit  of 
whomever  should  be  entitled  when  the  option  was  exercised  or 
expired  by  default,  and,  in  fact,  it  was  contracted  for  "as  interest 
may  appear."  It  stood  in  place  of  so  much  of  the  property  as  was 
destroyed  by  the  fire,  and  followed  the  title  when  the  equitable 
and  legal  interests  united. 

The  authorities,  so  far  as  we  have  any  analogous  cases,  lead  to 
the  same  conclusion.  It  was  held  in  Kerr  v.  Day,  14  Pa.  112, 
53  Am.  Dec.  526,  that  an  option  to  purchase  is  a  substantial  inter- 
est in  land,  which  may  be  conveyed  to  a  vendee,  and  the  English 
chancery  cases  were  reviewed  by  Bell,  J.,  with  the  result  that, 
"when  the  lessee  made  his  option  to  purchase,  he  was  to  be  con- 
Vance  Ins. — 38 


594  RIGHTS   UNDER  THE   CONTUACT  (Ch.  0 

sidered  as  the  owner  ab  initio.  Indeed,  the  determination  can 
only  be  supported  by  attributing  to  the  lessee  an  equitaljle  estate 
in  the  land,  under  his  covenant  for  an  optional  purchase,  which 
passed  to  his  alienee,  vesting  him  with  the  right  to  call  for  a  spe- 
cific execution  on  declaring  his  election."  And  in  Prick's  Appeal, 
101  Pa.  485,  where  the  land  was  sold  upon  a  prior  judgment  be- 
fore payment  or  conveyance,  it  was  held  that  the  surplus  was 
the  property  of  the  optional  vendee.  It  is  true  that  the  option 
in  that  case  had  been  exercised  before  the  levy  and  sale,  but  that 
circumstance  was  not  of  controlling  weight,  as  the  decision  was 
put  on  the  ground  that  "in  equity  the  vendee  became  the  owner, 
subject  to  the  payment  of  the  price  stipulated.  His  right  of  prop- 
erty therein  flows  from  the  contract,  and  exists  before  any  pur- 
chase money  may  have  been  paid ;"  citing  Siter's  Appeal,  26  Pa. 
178.  We  are  of  opinion  that,  upon  the  exercise  of  its  option  to 
redeem,  the  appellee's  equitable  title  reverted  back  to  the  date  of 
the  original  agreement,  and  appellee  became  the  owner  of  the 
land  as  it  was  at  such  date,  or  of  the  insurance  money  which  stood 
pro  tanto  in  its  place.^° 
Judgment  affirmed. 


IV.  Mortgagor  and  Mortgaged 


LEYDEN  V.  LAWRENCE. 

(Court  of  Chancery  of  New  Jersey,  1911.     79  N.  J.  Eq.  113,  81  Atl.  121. n) 

Leaming,  V.  C.  At  a  former  hearing  touching  the  sufficiency  of 
a  plea  which  had  been  filed  by  complainant  to  the  cross-bill  of  de- 
fendant, I  held  as  follows:  "It  is  settled  in  this  state  that  a  mort- 
gagee of  real  estate  has  an  insurable  interest  therein,  and  when 
such  mortgagee,  at  his  own  expense  and  solely  in  his  own  behalf, 

10  Insurance  Money  Held  Substitute  fob  Insured  Property. — In  Wyman 
V.  Wyman,  26  N.  Y.  253  (1863),  the  owner  of  real  estate  secured  insurance 
thereon  running  to  his  "executors,  administrators  or  assigns."  A  loss  having 
occurred  shortly  after  the  insured  had  died  intestate,  it  was  held  that,  while 
the  property  insured  passed  to  the  intestate's  heirs  at  law,  the  right  of  ac- 
tion on  the  insurance  contract  passed  to  his  administrator;  but  it  was  further 
decided  that  tlie  proceeds  of  the  policy,  as  recovered  by  the  administrator, 
came  to  his  hands  as  realty,  and  therefore  were  distributable  as  such  among 
the  heirs  at  law.  This  case  was  fully  approved  in  Robl's  Estate,  163  Cal. 
801,  127  Pac.  55,  Ann.  Cas.  1914A,  319  (1912),  in  which  it  was  held  that  where 
an  executrix  took  out  insurance  upon  certain  personalty  specifically  bequeath- 
ed to  her,  and  it  was  burned  during  administration,  the  proceeds  went  to 
her  as  legatee,  rather  than  to  the  estate,  although  the  executrix  had  used 
money  of  the  estate  in  paving  the  premiums.  See,  also,  Haxall  v.  Shippen, 
37  Va.  536,  34  Am.  Dec.  745  (1839);  Culbertson  v.  Cox,  29  Minn.  309.  13  N. 
W.  177,  43  Am.  Rep.  204   (1882)  ;  Parry  v.  Ashley,  3  Simons,  97  (1829). 

See  the  excellent  article  on  the  principal  case  in  33  Am.  Law  Reg.  (N.  S.) 
134. 

11  See  same  case,  78  N.  J.  Eq.  453,  79  Atl.  615. 


Sec.  1)  FIRE   INSURANCE  595 

procures  insurance  on  the  mortgaged  property  for  the  better  se- 
curity of  his  debt,  the  insurer,  if  obliged  to  pay  a  loss  occasioned 
by  injury  to  such  property,  may  be  subrogated  pro  tanto  to  the 
rights  of  the  mortgagee  under  the  mortgage. ^^  Sussex  County 
Mutual  Insurance  Co.  v.  Woodruff,  26  N.  J.  Law,  541;  Nelson 
V.  Bound  Brook  Insurance  Co.,  43  N.  J.  Eq.  256  [11  Atl.  681,  3 
Am.  St.  Rep.  308]  ;  Lawrence  v.  Union  Insurance  Co.  [80  N. 
J.  Law,  133]  76  Atl.  1053.  It  may  be  said  to  be  equally  well  set- 
tled that  if  the  insurance  has  been  taken  by  the  mortgagee  at 
the  expense  and  for  the  benefit  of  the  mortgagor,  as  well  as  for 
his  own  protection,  the  mortgagor  will  have  the  right,  in  case  of 
a  loss,  to  have  the-  avails  of  the  policy  applied  for  his  benefit 
toward  the  discharge  of  his  indebtedness.  Pearman  v.  Gould,  42 
N.  J.  Eq.  4  [5  Atl.  811]."  I  further  held  at  that  time  that  with  the 
fact  established  by  the  mortgagor  that  the  insurance  in  question 
had  been  taken  by  the  mortgagee  at  the  expense  and  for  the  ben- 
efit of  the  mortgagor,  as  well  as  for  his  own  protection,  pursuant 
to  the  clause  in  the  mortgage  which  authorized  the  mortgagee  so 
to  do,  the  mortgagor  would  be  entitled  to  have  the  avails  of  the 
policy  applied  for  his  benefit  toward  the  discharge  of  his  indebted- 

12  This  is  unquestionably  in  accord  with  the  weight  of  authority.  Inter- 
national Trust  Co.  V.  Boardman,  149  Mass.  1.58,  21  N.  E.  239  (1889) ;  Foster 
V.  Van  Reed,  70  N.  Y.  19,  26  Am.  Rep.  544  (1877). 

But  it  is  held  in  Massachusetts  that  the  mortgagee,  insuring  his  distinctive 
interest  solely  on  his  own  account  may  retain  insurance  money  received  and 
also  collect  his  debt.  Hence  the  insurer  has  no  right  of  subrogation  to  the 
mortgagee's  claim  against  the  mortgagor.  See  King  v.  State  Mut.  Fire  Ins. 
Co.,  7  Cush.  (Mass.)  1,  54  Am.  Dec.  683  (1851);  Suffolk  Ins.  Co.  v.  Boydeu, 
9  Allen  (Mass.)  123  (1864),  18  Am.  Law  Reg.  (N.  S.)  737. 

Insurance  by  Mortgagor. — In  like  manner  the  mortgagee  has  no  rights  to 
the  proceeds  of  insurance  taken  out  by  the  mortcagor  solely  to  protect  his 
own  interest.  Shadgett  v.  Phillips,  131  Ala.  478,  31  South.  20,  56  L.  R.  A. 
461,  90  Am.  St.  Rep.  95  (1901)  ;  Columbian  Ins.  Co.  v.  Lawrence,  10  Pet.  507, 
9  L.  Ed.  512  (1836) ;  Farmers'  Loan  &  Trust  Co.  v.  Penn  Plate  Glass  Co.,  186 
U.  S.  4.34,  22  Sup.  Ct.  842,  46  L.  Ed.  1234  (1902). 

But  the  mortgagee  has  a  lien  upon  the  insurance  money  if  the  policy  was 
made  payable  to  him  as  his  interest  may  appear;  Wheeler  v.  Insurance  Co., 
101  U.  S.  4,39,  25  L.  Ed.  1055  (1879). 

In  Reynolds  v,  London,  etc.,  Ins.  Co.,  128  Cal.  16,  60  Pac.  467,  79  Am. 
St.  Rep.  17  (1900),  the  mortgagor  took  out  insurance  payable  to  the  mortgagee 
as  his  interest  might  appear.  At  foreclosure  sale  the  mortgagee  purchased 
the  property  and  loss  occurred  during  the  period  of  redemption.  The  former 
mortgagee  was  held  to  have  no  interest  in  the  insurance  money,  since  after 
foreclosure  he  no  longer  possessed  the  character  of  mortgagee. 

The  mortgagee  also  has  such  a  lien  if  the  mortgagor  has  contracted  to  in- 
sure for  the  mortgagee's  benefit. 

In  Fitts  V.  Grocery  Co.,  144  N.  C.  463,  57  S.  E.  164  (1907),  the  mortgagor 
insured  for  the  benefit  of  a  first  mortgagee,  and  subsequently  issued  a  second 
mortgage  covenanting  to  insure  for  the  benefit  of  such  second  mortgagee,  but 
did  not  do  so.  The  first  mortgage  having  been  paid  off,  the  buildings  burned. 
It  was  held  that  the  second  mortgagee  was  entitled  to  have  his  debt  paid 
from  the  proceeds  of  the  insurance. 

For  a  collection  of  the  cases  dealing  with  the  rights  of  the  mortgagor  and 
mortgagee  in  the  proceeds  of  insurance  policies  on  the  property  mortgages, 
see  4  Cooley.  Briefs  on  Insurance.  .3099-3703. 


aOG  RIGHTS  UNDER  THE  CONTRACT  (Ch.  0 

ness.  A  further  examination  of  the  subject,  at  the  conclusion  of 
the  final  hearing  on  an  answer  filed  to  the  cross-l)ill,  assures  me 
that  the  above  statement  of  the  law,  as  recognized  in  this  state, 
is  accurate. 

At  the  final  hearing,  no  evidence  was  introduced  in  behalf  of 
cross-complainant,  in  support  of  the  averment  of  the  cross-bill  to 
the  efifect  that  the  insurance  in  question  had  been  effected  by  the 
mortgagee  in  pursuance  of  the  agreement  contained  in  the  mort- 
gage, and  no  evidence  was  introduced  in  behalf  of  the  defendants 
to  the  cross-bill  upon  that  subject.  There  is  therefore  an  entire 
absence  of  any  evidence  to  establish  the  fact  that  the  insurance 
was  effected  by  the  mortgagee  for  the  joint  benefit  of  himself  and 
his  mortgagor,  or  at  the  mortgagor's  expense,  except  the  fact  that 
the  insurance  was,  in  amount,  in  excess  of  the  amount  due  on  the 
mortgage,  and  that  the  mortgage  authorized  the  mortgagee  to 
efifect  insurance  at  the  expense  of  the  mortgagor,  in  the  event  of 
the  failure  of  the  mortgagor  to  keep  the  premises  insured.  I  am 
entirely  satisfied,  under  this  condition  of  the  evidence,  that  the 
claim  of  cross-complainant  that  the  insurance  was  effected  pur- 
suant to  the  clause  in  the  mortgage  cannot  be  sustained.  The 
clause  in  the  mortgage  gave  to  the  mortgagee  the  option  to  take 
out  insurance  at  the  expense  of  the  mortgagor,  but  did  not  com- 
pel him  to  do  so.  The  mortgagee  was  at  liberty  to  insure  for  the 
joint  benefit  of  himself  and  his  mortgagor  at  the  expense  of  the 
mortgagor,  or  to  insure  at  his  own  expense  solely  for  his  own  ben- 
efit; and  it  is  impossible  to  indulge  the  inference  that  the  mort- 
gagee did  insure  at  the  expense  or  for  the  benefit  of  the  mort- 
gagor, in  view  of  the  fact  that  the  insurance  effected  by  the  mort- 
gagee was,  by  its  terms,  solely  for  his  "mortgagee  interest." 

It  was  urged  in  behalf  of  cross-complainant,  however,  that,  as 
the  clause  in  the  mortgage  authorized  the  mortgagee  to  insure  at 
the  expense  of  the  mortgagor,  the  mortgagee  was  denied  the  priv- 
ilege of  insuring  in  any  other  manner,  and  a  line  of  cases  decided  by 
the  New  York  Court  of  Appeals  was  cited  in  support  of  that  view; 
but  I  find  nothing  in  the  cases  cited  to  support  that  proposition. 
On  the  contrary,  in  Foster  v.  Van  Reed,  70  N.  Y.  19,  26  Am.  Rep. 
544,  it  is  held  that  such  a  provision  in  a  mortgage  does  not  pro- 
hibit or  prevent  an  insurance  by  the  mortgagee  on  his  interest 
as  mortgagee,  at  his  own  expense  and  in  his  own  behalf. 

I  entertain  the  view,  therefore,  that  the  failure  on  the  part  of 
the  cross-complainant  to  establish  as  a  fact  that  the  insurance  in 
question  was  placed  by  the  mortgagee  at  the  expense  of  the 
mortgagor,  or  for  the  benefit  of  the  mortgagor,  or  in  any  man- 
ner, or  for  any  purpose,  other  than  that  which  appears  upon  the 
face  of  the  insurance  policies,  is  operative  to  defeat  the  relief 
sought  by  cross-complainant.  It  follows  that  the  insurance  com- 
panies, in  whose  behalf  this  suit  for  the  foreclosure  of  the  mortgage 


Sec.  1)  FIRE   INSURANCE  597 

is  brought,  are  entitled  under  the  assignment  of  the  mortgage  from 
the  mortgagee  to  enforce  the  mortgage  lien.  I  reach  this  conclu- 
sion independently  of  the  fact  that  the  policies  of  insurance  con- 
tained a  clause  providing  for  subrogation  in  behalf  of  the  insur- 
ance companies  in  case  of  loss.  It  is  therefore  unnecessary  to 
here  determine  whether  these  provisions  for  subrogations,  which 
were  annexed  to  the  policies  some  days  after  the  policies  were  is- 
sued, are  efifective. 

I  will  advise  a  decree  pursuant  to  the  prayer  of  the  bill. 


REED  et  al.  v.  FIREMEN'S  INS.  CO    OF  NEWARK. 

(Court  of  Errors  and  Appeals  of  New  Jersey,  1911.     SI  N.  J.  Law,  523,  80 
Atl.  462,  35  L.  R.  A.  [N.  S.]  343.) 

VooRHEES,  J.  ^^  This  is  a  suit  on  a  fire  insurance  policy  issued 
by  the  Firemen's  Insurance  Company  to  Ignatz  Fabrikant,  insuring 
him  against  direct  loss  or  damage  by  fire  on  two  frame  buildings  in 
Hoboken,  N.  J.  The  body  of  the  policy  contained  the  following : 
"Loss  if  any,  payable  to  David  F.  and  James  A.  Reed,  mortgagees, 
mortgagee  clause  attached."  The  mortgagee  clause,  which  was  at- 
tached to  the  policy,  as  well  as  the  policy  itself,  was  the  standard 
form.^*    The  suit  is  brought  by  the  mortgagee.    The  policy  bears  date 

13  See  former  appeal,  78  N.  J.  Law,  549,  74  Atl.  477   (1909). 

1*  The  standard  mortgagee  clause  reads  as  follows:     "Loss  or  damage,  if 

any,  under  this  policy,  shall  be  payable  to  as  mortgagee  (or 

trustee),  as  interest  may  appear,  and  this  insurance,  as  to  the  interest  of 
the  mortgagee  (or  trustee)  only  therein,  shall  not  be  invalidated  by  any  act 
or  neglect  of  the  mortgagor  or  owner  of  the  within  described  property,  nor 
by  any  foreclosure  or  other  proceedings  or  notice  of  sale  relating  to  the 
property,  nor  by  any  change  in  the  title  or  ownership  of  the  property,  nor 
by  the  occupation  of  the  premises  for  purposes  more  hazardous  than  are 
permitted  by  this  policy ;  provided,  that  in  case  the  mortgagor  or  owner  shall 
neglect  to  pay  any  premium  due  under  this  policy,  the  mortgagee  (or  trustee) 
shall,  on  demand,  pay  the  same.  Provided,  also,  that  the  mortgagee  (or 
trustee)  shall  notify  this  company  of  any  change  of  ownership  or  occupancy 
or  increase  of  hazard  which  shall  come  to  the  knowledge  of  said  mortgagee 
(or  trustee),  and  unless  permitted  by  this  policy,  it  shall  be  noted  thereon 
and  the  mortgagee  (or  trustee)  shall  on  demand,  pay  the  premium  for  such 
increased  hazard  for  the  term  of  the  use  thereof;  otherwise  this  policy  shall 
be  null  and  void.  This  company  reserves  the  right  to  cancel  this  policy 
at  any  time  as  provided  bj'  its  tenns,  but  in  such  case  this  policy  shall  con- 
tinue in  force  for  the  benefit  only  of  the  mortgagee  (or  trustee)  for  ten  days 
after  notice  to  the  mortgagee  (or  trustee)  of  such  cancellation  and  shall  then 
cease  and  this  company  shall  have  the  right,  on  like  notice,  to  cancel  this 
agreement.  Whenever  this  company  shall  pay  the  mortgagee  (or  trustee) 
any  sum  for  loss  or  damage  under  this  policy  and  shall  claim  that,  as  to 
the  mortgagor  or  owner,  no  liability  therefor  existed,  this  company  shall, 
to  the  extent  of  such  payment,  be  thereupon  legally  subrogated  to  all  the 
rights  of  the  party  to  whom  such  payment  shall  be  made,  under  all  securities 
held  as  collateral  to  the  mortgage  debt,  or  may.  at  its  option,  pay  to  the  mort- 
gagee (or  trustee)  the  whole  principal  due  or  to  grow  due  on  the  mortgage 
with  interest,  and  shall  thereupon  receive  a  full  assignment  and  transfer 
of  the  mortgage  and  of  all  such  other  securities;  but  no  subrogation  shall 


598  BIGHTS   UNDER   THE   CONTRACT  (Ch.  9 

October  9,  1903,  and  on  February  25,  1905,  the  buildings  were  dam- 
aged by  fire,  as  insisted  by  the  plaintiff,  to  such  an  extent  that  they 
were  past  rei)aration,  and  so  a  total  loss,  while  the  defendant  denied 
damage  to  so  great  an  extent  and  insisted  that  the  loss  was  only  par- 
tial. On  March  8,  1905,  Fabrikant  was  notified  by  the  building  in- 
spector of  Hoboken  under  an  ordinance  of  that  city  to  raze  the  build- 
ings within  six  days  because  of  their  dangerous  condition.  The  owner 
sold  the  buildings  to  a  dealer  in  secondhand  building  materials,  who 
on  or  about  April  9th  or  10th  caused  them  to  be  torn  down. 

The  plaintiff  in  error  relies  for  reversal  principally  upon  the  follow- 
ing points :  That  the  interest  of  the  insured  Fabrikant  was  other  than 
unconditional  and  sole  ownership ;  that  the  loss  was  caused  by  order  of 
civil  authority,  and  not  directly  by  fire ;  that  the  company  is  not  re- 
sponsible for  so  much  of  the  loss  as  was  occasioned  by  ordinance  or 
law  regulating  the  construction  or  repair  of  buildings,  and  that  this 
was  such  loss,  and  that  there  was  no  proof  by  which  the  jury  could 
distinguish  between  that  loss  and  the  loss  by  fire;  that  there  was  no 
proof  of  loss  made  by  anybody,  either  mortgagor  or  mortgagee ;  that 
there  was  no  appraisal  by  either  mortgagor  or  mortgagee,  although  it 
was  demanded  by  the  company  of  both.  In  practically  all  of  these 
points  is  involved  the  question :  Is  the  mortgagee  clause  an  independent 
contract?  The  contention  that  it  is  runs  through  all  of  the  points 
made  by  the  defendant  in  error,  except  the  first  point,  which  is  a  ques- 
tion of  pleading.  We  have  thought  well  to  eliminate  all  question  of 
pleading  at  once,  for,  in  view  of  the  conclusion  arrived  at  on  the  merits, 
we  may  assume  that  the  defendant  is  entitled  to  raise,  under  the  plead- 
ings as  they  exist,  the  several  questions  sought  to  be  litigated. 

We  proceed,  therefore,  to  examine  the  case  upon  the  merits.  The 
insistence  of  the  defendant  is  that  the  mortgagee  clause  is  not  an  inde- 
pendent contract,  in  the  sense  that  none  of  the  terms  of  the  policy, 
applies  to  the  mortgagee,  because  it  would  then  be  unenforceable,  be- 
cause lacking  certainty  and  completeness,  because  contrary  to  the  in- 
tent manifested  by  the  statute  (P.  L.  1892,  p.  366;  P.  L.  1902,  p.  407), 
providing  for  "agreements  or  additions  as  may  be  indorsed  thereon  or 
added  thereto  and  form  a  part  of  such  contract  or  policy,"  and  be- 
cause to  construe  this  clause  as  a  complete  independent  contract,  with- 
out resort  to  the  policy,  is  contrary  to  the  words  of  the  clause  which 
refer  to  the  policy,  and  would  do  violence  to  them.  It  must  be  ad- 
mitted that  the  mortgagee  clause  is  not  an  independent  contract  in 
the  sense  that  none  of  the  terms  of  the  policy  applies  to  it.  It  is  not 
in  itself  complete,  but  becomes  so  by  reading  the  policy  in  connection 
with  it,  and  the  reading  of  the  two  together  does  not  clash  with  the 
notion  that  the  mortgagee  clause  creates  an  independent  contract  be- 

impair  the  right  of  the  mortgagee  (or  trustee)   to  recover  the  full  amount 

of  claim. 

"Dated, 


"Attached  to  and  forming  part  of  Policy  No. 


Sec.  1)  FIRE   INSURANCE  599 

tween  the  company  and  the  mortgagee.  The  poHcy  furnishes  the  terms 
of  the  contract  between  the  owner  and  the  insurer.  The  mortgagee 
clause  is  the  contract  between  the  insurer,  and  the  mortgagee,  quite 
separate  from  the  policy,  yet  ingrafted  upon, it,  and  to  be  understood 
by  reference  to  the  policy  which  renders  it  certain  and  complete.  The 
policy,  therefore,  may  be  looked  at  for  the  purpose  of  showing  what 
the  mortgage  contract  refers  to  and  establishes,  which  is  quite  dif- 
ferent, however,  from  examining  the  policy  for  the  purpose  of  de- 
feating the  ingrafted  contract. 

The  Court  of  Appeals  of  New  York  in  Eddy  v.  London  Assur.  Corp., 
143  N.  Y.  311,  38  N.  E.  307,  25  h.  R.  A.  686,  referring  to  the  mort- 
gagee clause,  says :  "The  controlling  idea  was  a  separate  insurance 
of  the  mortgagee,  freed  from  the  conditions  attached  to  the  insuiance 
of  the  owner,  and  not  to  be  impaired  or  weakened  by  any  act  or  neglect 
of  such  owner.  *  *  *  gy  taking  the  insurance  in  the  manner  the 
mortgagee  herein  did,  instead  of  taking  out  a  separate  policy,  all  the 
provisions  in  the  policy  which  from  their  nature  would  properly  apply 
to  the  case  of  an  insurance  of  the  mortgagee's  interest  would  be  re- 
garded as  forming  part  of  the  contract  with  him,  while  those  provi- 
sions which  antagonize  or  impair  the  force  of  the  particular  and 
specific  provisions  contained  in  the  clause  providing  for  the  insurance 
of  the  mortgagee  must  be  regarded  as  ineffective  and  inapplicable  to 
the  case  of  the  mortgagee."  See,  also,  Smith  v.  Union  Ins.  Co.,  25 
R.  I.  260,  55  Atl.  715,  105  Am.  St.  Rep.  882.  The  law  which  applied 
to  the  old  form  "loss  if  any  payable,  etc.,  to  the  mortgagee,"  inserted 
in  the  policy  (Sun  Ins.  Co.  v.  Greenville  B.  &  L.  Ass'n,  58  N.  J.  Law, 
367,  33  Atl.  962 ;  Milliken  v.  Woodward,  64  N.  J.  Law,  444,  45  Atl. 
796),  is  inapplicable  to  the  standard  mortgagee  rider,  and,  although  in 
the  body  of  the  present  policy  we  find,  as  above  noted,  the  former,  yet 
it  there  refers  in  words  to  the  attached  mortgagee  clause  for  the  terms 
of  the  contract. 

Our  conclusion  is  that  the  standard  mortgagee  clause  creates  an 
independent  contract  of  insurance  for  the  separate  benefit  of  the  mort- 
gagee ingrafted  upon  the  main  contract  of  insurance  contained  in  the 
policy  itself,  and  to  be  rendered  certain,  and  understood  by  reference 
to  the  policy. 

The  next  contention  made  in  behalf  of  the  company  is  that  the 
mortgagee  clause  is  not  a  contract  to  pay  the  mortgagee  under  any 
and  all  circumstances ;  that  it  safeguards  him  only  against  such  an 
act  or  neglect  of  the  owner  as  would  invalidate  the  policy;  and  that, 
because  the  ownership  of  Fabrikant  was  "other  than  unconditional  and 
sole,"  the  title  to  the  property  being  vested  in  him  and  his  wife,  the 
policy  is  void  ab  initio,  because  such  untrue  statement  was  a  pre- 
existing fact,  and  not  an  act  or  neglect  of  the  insured.  The  argument 
is  that,  inasmuch  as  the  clause  declares  that  the  insurance  as  to  the 
interest  of  the  mortgagee  shall  not  be  invalidated  by  any  act  or  neglect 
of  the  mortgagor,  this  language  must  refer  to  acts  or  neglects  of  the 


GOO  RIGHTS   UNDER   TIIK   CONTRACT  (Cll.  0 

owner,  occurring  subsequently  to  tlie  issuing  of  the  policy,  for  a  void 
policy  could  not  be  invalidated. 

We  have  already  determined  that  the  contract  insured  the  mort- 
gagee's interest  separately,  and  there  appears  to  be  an  undoubted  con- 
sideration for  such  contract,  not  dependent  upon  the  contract  with  the 
owner.  Therefore,  admitting,  for  argument's  sake,  that  the  contract 
with  Fabrikant  was  void,  and  never  sprang  into  existence,  because  a 
condition  precedent  had  been  broken  by  him,  yet  there  arises  an  estop- 
pel in  favor  of  the  mortgagee  against  the  company,  precluding  it  from 
setting  up  that  state  of  affairs  to  free  itself  from  liability.  It  has  inde- 
pendently promised  to  pay  the  mortgagee's  loss,  and  has  represented 
the  instrument  to  be  a  policy,  and  has,  by  referring  to  it,  made  use 
of  that  instrument  as  a  valid  subsisting  agreement  for  the  purpose  of 
more  definitely,  by  such  reference,  manifesting  its  contract  with  the 
mortgagee.  Therefore  the  wording  of  the  clause  should  be  taken  dis- 
tinctly to  declare  that  the  policy  is  valid  and  enforceable,  and  will  so 
continue  until  rendered  invalid  by  a  subsequent  act  or  neglect.  The 
words  of  the  clause,  "loss  shall  be  payable"  amount  to  a  waiver  by  the 
company,  in  favor  of  the  mortgagee,  of  the  effect  of  any  prior  or  con- 
temporaneous act  of  the  owner  which  would  have  a  vitiating  effect 
upon  the  policy. 

A  similar  argument  was  made  in  Syndicate  Ins.  Co.  v.  Bohn,  65 
Fed.  165,  12  C.  C.  A.  531,  27  L.  R.  A.  614.  Judge  Sanborn,  writing 
the  opinion  for  the  United  States  Circuit  Court  of  Appeals  for  the 
Eighth  Circuit,  had  to  deal  with  a  policy  which  in  that  suit  had,  as 
against  the  owner,  been  declared  void  on  the  above  ground.  He  then 
considers  the  validity  of  the  insurance  in  favor  of  the  mortgagee  aris- 
ing from  a  clause  similar  to  that  here  under  consideration.  After  tracing 
che  evolution  and  history  of  policies  intended  to  secure  the  interest  of 
mortgagees,  and  of  this  clause,  the  learned  judge  says:  "The  inference 
is  irresistible  that  they  intended  to,  and  that  they  did  thereby,  agree 
that  no  act  or  neglect  of  the  mortgagors,  unknown  to  the  mortgagee, 
whether  prior  or  subsequent  to  the  date  of  this  contract,  should  avoid 
it.  Moreover,  these  insurance  companies  cannot  now  be  heard  to  say 
that  these  contracts  were  void  in  their  inception,  as  to  the  interest  of 
the  mortgagee.  'They  tendered  to  this  mortgagee  their  own  policies 
running  to  third  parties,  and  their  contracts  with  the  mortgagee  that 
these  policies  should  not  be  invalidated  by  any  act  or  neglect  of  the 
parties.  The  policies  had  been  issued  by  themselves,  and  any  third 
party  had  the  right  to  rely  upon  their  statement  as  to  the  validity  of 
their  own  policies.  The  policies  certainly  could  not  be  invalidated  un- 
less they  were  then  valid,  and  the  tender  of  them  to  this  mortgagee  as 
contracts  of  insurance  of  its  interest  as  mortgagee,  with  promises  that 
they  should  not  be  invalidated,  was  a  clear  representation  to  the  latter 
that  those  policies  were  then  valid.  The  mortgagee  undoubtedly  relied 
upon  this  representation,  and  on  the  faith  of  it  accepted  the  policies  and 


Sec.  1)  FIRE   INSURANCE  601 

the  mortgage  clauses  as  binding  agreements  of  indemnity.  If  the 
insurance  companies  had  notified  this  mortgagee  at  any  time  before 
the  loss  that  the  original  policies  were  or  might  have  been  invalid  at 
the  inception  of  the  contracts  between  them,  the  latter  would  undoubt- 
edly have  surrendered  the  contracts,  and  sought  insurance  elsewhere. 
They  waited  until  the  loss  had  occurred,  and  it  is  now  too  late  for  them 
to  retract  their  representations.  They  are  estopped  to  deny  the  truth 
of  their  statement,  to  the  manifest  injury  of  the  mortgagee."  See,  also, 
generally  on  this  point  2  Cooky's  Briefs  on  the  Law  of  Insurance,  p. 
1228. 

A  policy  of  fire  insurance  in  the  standard  form,  which  is  void  as  to 
the  assured  owner,  because  of  his  breach  of  the  warranty  that  his 
interest  is  not  other  than  unconditional  and  sole  ownership,  may  never- 
theless be  valid  as  to  a  mortgagee,  when  the  mortgagee  clause  in  the 
usual  form  is  attached  to  the  policy.     *     *     *  ^^ 

The  next  point  made  is  that  there  was  no  proof  of  loss  or  appraisal 
made  by  either  mortgagor  or  mortgagee.  A  provision  for  the  submis- 
sion of  an  appraisal  as  a  prerequisite  to  a  suit  is  legal.  Wolfif  v.  L. 
L.  &  Globe  Ins.  Co.,  50  N.  J.  Law,  453,  14  Atl.  561 ;  Hamilton  v.  L. 
L.  &  Globe  Ins.  Co.,  136  U.  S.  242,  10  Sup.  Ct.  945,  34  L.  Ed.  419. 
The  present  policy  provided  that  the  said  ascertainment — that  is,  of 
the  actual  cash  value  of  the  loss — should  be  made  by  the  insured,  and 
by  the  company.  The  effect  of  this  clause  was  held  tp  be  a  prerequisite 
to  recovery  in  the  case  last  cited. 

The  question  is  whether  the  mortgagee  under  the  clause  insuring 
him  is  exempted  from  the  proof  of  loss  and  appraisal.  The  standard 
clause  does  not  make  it  obligatory  on  the  mortgagee  to  furnish  proofs 
of  loss,  and  the  rule  is  stated  by  Clement  on  Fire  Insurance,  p.  206, 
to  be:  "Unless  the  mortgagee  clause  attached  makes  it  obligatory  on 
the  mortgagee  to  furnish  proofs  of  loss,  he  is  not  required  to  furnish 
them  as  a  condition  precedent  to  his  right  of  action  on  the  policy.  The 
failure  of  the  mortgagor  or  owner  to  furnish  the  proofs  constitutes 
one  of  the  neglects,  from  the  invalidating  consequences  of  which  the 
mortgagee  is  exempt."  The  express  terms  of  the  policy  limit  the 
furnishing  of  such  proofs  to  the  insured.  Therefore,  a  demand  upon 
the  mortgagee  to  do  so  is  without  the  express  agreement  contained  in 
the  contract,  and  is  not  binding  upon  the  mortgagee/®     *     *     * 

Judgment  affirmed.^ '^ 

15  Tart  of  the  opinion  relating  to  certain  instructions  to  the  jury  is  omitted. 

16  The  remainder  of  the  opinion,  holding  that  the  owner's  sale  of  the  debris 
after  the  fire  could  not  affect  the  mortgagee's  right  to  recover  as  for  a  total 
loss,  is  omitted. 

17  See,  in  accord,  Heilbrnnn  v.  German  Alliance  Ins.  Co.,  140  App.  Div. 
557,  125  N.  Y.  Supp.  374  (1910),  affirmed  by  Court  of  Appeals.  202  N.  Y.  610, 
95  N.  E.  82.3  (1911)  In  this  case  Scott.  J ,  thus  represents  the  state  of  the 
authorities  on  this  vexed  question:  "The  decision  below  rested  upon  the 
proposition  that  the  plaintiff's  assignor,  although  only  a  mortgagee,  was 
bound,  as  a  condition  precedent  to  a  recovery,  to  allege  and  prove  that  he. 


002  BIGHTS  UNDER  THE  CONTRACT  (Ch.  9 


V.  Measure  of  Recovery 


FULLER  V.  BOSTON  MUT.  FIRE  INS.  CO. 

(Supreme  Judicial  Court  of  Massachusetts,  1842.    4  Mete.  200.) 

Defendant,  a  mutual  insurance  company,  was  authori/.cd  by  its 
charter  to  insure  property  only  to  the  amount  of  three-fourths  of  its 
value.  It  issued  a  policy  to  one  Jones  for  $2,000  upon  his  paper-mill 
and  water-wheels,  for  one  year,  in  consideration  of  a  premium  of  $35. 
The  policy  stated  that  said  $2,000  was  "not  more  than  three-fourths 
of  the  valuation  of  said  building  and  wheels,  as  appears  by  the  pro- 
posal of  said  Jones,  lodged  with  the  secretary  of  this  company ;"  and 
Jones,  in  his  proposal  for  insurance,  did  state  the  estimated  value  of 
said  mill  and  wheels,  exclusive  of  the  land,  to  be  $3,000.  The  pol- 
icy was  made  on  said  estimate,  a  committee  of  the  company  having 
previously  visited  and  examined  the  mill  and  wheels  in  company 
with  Jones.  Jones  assigned  the  policy  to  the  plaintiff  with  the  con- 
sent of  the  company.  The  plaintiff,  at  the  time  of  the  loss,  was  inter- 
ested in  the  property  to  the  amount  of  $2,500  as  mortgagee.  The 
property  having  been  destroyed  by  fire,  the  parties  submitted  the  mat- 
ter to  arbitrators,  who  awarded  to  the  plaintiff  the  whole  amount  in- 
sured. The  defendants  refusing  to  abide  by  the  award,  the  plaintiff 
brought  suit  upon  the  policy.  At  the  trial  the  Judge  ruled  that  the 
award  was  obligatory  upon  the  defendants,  and  that  the  estimate  of 
the  value  of  the  insured  property,  in  the  proposal  and  policy,  was  con- 
clusive, and  must  be  taken  as  the  true  value. 

or  the  mortgagor,  had  within  the  time  prescribed  by  the  policy,  given  to 
the  defendant  notice  of  the  loss  and  furnished  proofs  of  loss.  Whether  or 
not  such  an  obligation  rested  upon  the  mortgagee  is  the  crucial  question 
involved  in  this  appeal.  The  question  has  never  been  directly  passed  upon 
in  this  state,  and  in  other  jurisdictions  there  are  decisions  both  ways.  That 
no  such  obligation  rests  upon  a  mortgagee  has  been  held  in  Northern  Assur- 
ance Co.  v.  Chicago  Mutual  Bldg.  &  Loan  Ass'n,  98  111.  App.  152  (1901),  af- 
firmed 198  111.  474,  64  N.  E.  979  (1902);  Queens  Ins.  Co.  v.  Dearborn  Savings 
Loan  &  Bldg.  Ass'n,  75  111.  App.  371  (1898),  affirmed  175  111.  115,  51  N.  E. 
717  (1898);  Dwelling  House  Ins.  Co.  v.  Kansas  Loan,  etc.,  Co.,  5  Kan.  App. 
137,  48  Pac.  891  (1897)  ;  Glens  Falls  Ins.  Co.  v.  Porter,  44  Fla.  568,  33  South. 
473  (1902);  Adams  v.  Farmers'  Mut.  Ins.  Co.,  115  Mo.  App.  21,  90  S.  W. 
747  (1905).  On  the  other  hand,  it  has  been  held  that  a  mortgagee  must  fur- 
nish proofs  of  loss  in  Lombard  Invest.  Co.  v.  Dwelling  House  Ins.  Co.,  62 
Mo.  App.  315  (1895),  apparently  overruled  by  Adams  v.  Farmers'  Mut.  Fire 
Ins.  Co.,  supra ;  Southern  Home  Bldg.  &  Loan  Ass'n  v.  Home  Ins.  Co.  of  New 
Orleans,  M  Ga.  167,  21  S.  E.  375,  27  L.  R.  A.  844,  47  Am.  St.  Rep.  147  (1894) ; 
American,  etc.,  Ass'n  v.  Farmers'  Ins.  Co.,  11  Wash.  619,  40  Pac.  125  (1895). 
To  the  same  effect  is  Union  Inst,  for  Savings  v.  Phoenix  Ins.  Co.,  196  Mass. 
230,  81  N.  E.  994,  14  L.  R.  A.  (N.  S.)  459,  13  Ann.  Cas.  433  (1907),  although 
the  precise  point  was  not  involved." 

The  dissenting  opinion  of  Laughlin,  J.,  in  this  case  is  carefully  reasoned. 
In  Union  Inst,  for  Savings  v.  Phoenix  Ins.  Co.,  supra,  it  was  held  that  the 
mortgagee  was  required  to  give  notice  and  proofs  of  loss  within  a  reason- 
able time,  not  necessarily  within  the  period  stipulated  in  the  policy. 


Sec.  1)  FIRE   INSURANCE  603 

SiiAW,  C.  J.  Assumpsit  on  a  policy  of  insurance  against  fire,  in 
which  the  plaintiff  relies  upon  the  original  cause  of  action,  and  also 
on  an  award.  The  plaintiff  sues,  in  effect,  as  assignee ;  but  as  the  as- 
signnieni  was  made  with  the  consent  of  the  defendants  and  as  a  part 
of  the  original  contract,  and  as  it  is  found  that  the  plaintiff  was  in- 
terested, as  mortgagee,  to  the  amount  of  the  whole  sum  insured,  we 
see  no  reason  why  he  cannot  maintain  the  action  in  his  own  name; 
and  his  right  so  to  do  has  not  been  contested  on  that  ground. 

Several  questions  have  been  argued ;  one  of  them,  and  a  principal 
one,  is,  whether  the  valuation  of  the  property,  as  stated  in  the  policy, 
under  the  circumstances  is  to  be  deemed  conclusive  evidence  of  the 
actual  value,  for  the  purpose  of  adjusting  the  loss. 

It  is  not  contended  that  there  was  any  designed  or  fraudulent  over- 
valuation or  any  collusive  valuation  or  any  willful  misrepresentation 
of  the  value.  The  case  arises  upon  a  policy  made  by  a  mutual  insure 
ance  company  that  had  no  authority  to  insure  over  three-fourths  of  the 
value  of  the  buildings.  In  regard  to  all  property  lying  out  of  the  city 
of  Boston,  the  mode  taken  to  ascertain  the  value  was  this :  the  assured 
made  a  statement  in  writing — in  answer  to  certain  standing  questions, 
in  compliance  with  the  by-laws  of  the  company — of  the  situation,  cir- 
cumstances, and  value  of  the  buildings  proposed  to  be  insured,  which 
was  filed  and  remained  with  the  company.  By  the  7th  article  of  the 
by-laws,  it  would  be  the  duty  of  the  president  to  visit  and  examine 
the  buildings,  alone  or  jointly  with  a  director,  and  fix  the  sum  to  be 
taken  thereon,  and  the  rates  of  insurance.  As  this  company  was  es- 
tablished at  Boston,  it  was  to  be  expected  that  the  greater  portion  of 
risks  would  be  taken  in  Boston ;  and  the  by-laws  were  adapted  to 
meet  that  expected  state  of  things ;  but  they  made  no  special  provi- 
sion for  examining  buildings  out  of  the  city.  But  this  indicates  the 
general  policy  of  the  company ;  and  in  point  of  fact,  it  appears,  in  the 
present  case,  that  a  like  examination  was  made  by  a  committee  of  the 
directors,  and  for  the  like  purpose. 

In  determining  what  amount  shall  be  insured,  the  company  neces- 
sarily determine  the  value  of  the  building,  or  rather  they  fix  a  val- 
uation, over  which  it  shall  not  be  rated,  for  the  purpose  of  insurance. 
Being  limited  to  insure  not  exceeding  three-fourths  of  the  value,  in 
determining  the  sum  to  be  insured,  they  by  necessary  consequence  fix 
a  valuation  at  such  a  sum  that  the  sum  insured  shall  not  exceed  three- 
fourths  of  it.  The  result  is  that  as  the  valuation  is  thus  proposed  on 
the  one  side,  and  after  the  proposition  is  considered  and  modified,  it  is 
acceded  to  on  the  other,  and  the  amount  insured,  and  at  the  rate  of  pre- 
mium, assessment  and  liability,  established  on  the  same  basis,  it  is, 
in  the  highest  sense,  a  valuation  by  mutual  agreement. 

Then  the  question  is,  whether  a  valuation  thus  deliberately  and  care- 
fully made  by  mutual  agreement,  as  a  part  of  the  original  negotiation 
— when  each  party  is  independent  of  the  other,  and  at  liberty  to  con- 
tract or  not,  as  they  are  or  are  not  respectively  satisfied  with  the  terms 


G04  RIGHTS   UNDER   TIIIC   CONTUACT  (Ch.  D 

— shall,  in  the  absence  of  all  fraud,  collusion,  and  misrej^jresentalion, 
be  taken  as  the  best  evidence  of  the  actual  value  of  the  premises  in- 
sured. Sec  Borden  v.  llingham  Mutual  Fire  Ins.  Co.,  18  Pick.  523, 
29  Am.  Dec.  614. 

The  same  reason,  which  applies  to  other  cases  of  contract,  applies 
to  this ;  and  the  general  rule  is  that  parties  capable  of  contracting,  and 
who  enter  into  a  contract,  without  fraud  or  imposition,  are  bound  by 
law  to  abide  by  it. 

One  of  the  principal  objections  is,  that  the  defendants  are  a  corpo- 
ration, and  that  a  corporation  can  only  act  within  the  scope  of  the  au- 
thority conferred  upon  them ;  and  that  by  their  act  of  incorporation, 
this  company  can  only  insure  three-fourths  of  the  value  of  the  prop- 
erty; and  if  they  can  show  that  a  contract,  in  its  terms  proposes  to 
bind  them  to  a  responsibility  for  a  greater  amount,  they  may  show  it 
in  defense,  and  reduce  the  amount  to  that,  for  which  alone  they  can 
make  themselves  liable.  This,  as  I  understand  it,  is  the  strength  of  the 
argument.  But  admitting  its  full  force,  we  think  it  does  not  shake 
the  position,  that  a  valuation,  fairly  and  deliberately  made,  is  binding 
on  them.  The  defendants  were  incorporated  for  the  express  and  in- 
deed for  the  sole  purpose  of  insuring  each  other  against  loss  by  fire. 
Like  all  other  trading  or  negotiating  corporations,  being  invested  with 
power  to  make  a  particular  class  of  contracts,  they  are  invested  with 
all  the  incidental  powers  necessary  to  carry  into  efifect  the  objects  and 
purposes  for  which  the  corporation  was  created.  In  giving  them 
power  to  insure  a  certain  proportion  of  the  value  of  buildings,  the 
Legislature  necessarily  clothed  them  with  the  power,  at  some  time 
and  in  some  mode,  to  determine  such  value,  or  to  enter  into  suitable 
and  proper  arrangements  for  fixing  it.  Whether  this  shall  be  done 
by  their  own  officers,  or  by  referees  mutually  agreed  on ;  whether  be- 
fore or  after  the  contract  entered  into ;  is  a  question  of  expediency, 
not  of  power.  If  they  had  not  power,  in  some  mode,  to  fix  the  value, 
they  never  could  make  an  adjustment  which  might  not  be  overreached 
by  a  suit,  in  which  the  question  of  value  must  be  submitted  to  a  jury. 
Such  valuation  by  the  appraisement  of  indifferent  men,  or  such  ad- 
justment after  a  loss,  would  always  be  open  to  the  same  objection  as 
this  valuation ;  which  is,  that  though  the  officers  of  the  corporation 
have  assented  to  the  valuation,  yet  if  it  is  an  over-valuation,  or  if,  in 
other  words,  it  can  be  shown,  to  the  satisfaction  of  a  jury,  to  be  an 
over-valuation,  it  is  void  as  against  the  corporation.  But  we  think 
the  true  answer  is  this :  that  a  valuation  deliberately  and  honestly 
fixed  by  agreement,  a  valuation  by  which  the  premium  and  assessments 
to  be  paid  by  the  assured  are  fixed,  as  well  as  the  amount  to  be  paid 
by  the  company  in  case  of  loss,  is  the  best  evidence  of  the  actual  val- 
ue. Suppose  a  claim  on  a  policy  for  a  loss,  and  that  the  company 
might  perhaps  have  successfully  defended,  on  the  ground  that  the  loss 
v/as  one  for  which  they  were  not  liable — as  by  fire  caused  by  civil  war 
or  insurrection — and  the  parties  should  agree  to  an  adjustment  by 


Sec.  1)  FIUK   INSURANCE  C05 

compromise  or  arbitration :  Such  adjustment  would,  we  think,  be  bind- 
ing; and  yet  its  bin(hng  force  would  be  derived  wholly  from  the 
agreement.  It  being  once  admitted  that  they  are  a  body  having  the 
faculty  to  contract,  we  think  it  follows,  that  they  have  power,  by  their 
regular  agents  and  officers,  to  make  all  such  subsidiary  and  incidental 
contracts  and  agreements,  both  in  making  the  principal  contract,  and 
afterward  in  adjusting  and  executing  it,  as  are  necessary  to  accom- 
plish the  main  purpose  and  object  of  their  incorporation. 

Being  of  opinion  that  the  valuation,  under  the  circumstances,  was 
conclusive,  it  becomes  unnecessary  to  consider  the  other  branch  of  the 
case,  or  the  effect  of  the  award.  The  fact  that  the  present  plaintifif  was 
no  party  to  the  submission,  would  seem  to  be  a  formidable  objection 
to  his  recovering  upon  it;  but,  for  the  reason  stated,  we  give  no  opin- 
ion on  that  point,  and  only  make  this  remark,  to  show  that  we  place 
no  reliance  on  that  award,  in  rendering  judgment  for  the  plaintiff. 


REILLY  V.  FRANKLIN  FIRE  INS.  CO. 

(Supreme  Court  of  Wisconsin,  1877.     43  Wis.  449,  28  Am.  Rep.  552.) 

Action  on  certain  policies  insuring  the  plaintiff  against  loss  or  dam- 
age to  his  hotel  in  Oshkosh  to  the  amount  of  $10,000,  a  total  loss  be- 
ing alleged.  Defendant's  answer  alleged  that  the  value  of  the  prop- 
erty insured  did  not  exceed  $7,469.42,  and  denied  liability  beyond  that 
sum.  Defendant  appealed  from  an  order  sustaining  a  demurrer  to 
this   answer. 

CoLK,  J.  I.  The  material  part  of  the  answer  to  be  considered  on 
the  demurrer  is,  the  allegation  that  the  policy  provided  that  in  case 
of  fire  the  loss  or  damage  should  be  established  according  to  the  true 
and  actual  cash  marketable  value  of  the  property  when  the  loss  hap- 
pened; and  that  the  true  and  actual  cash  marketable  value  of  the 
property,  at  the  time  of  the  fire,  was  less  than  the  amount  of  insur- 
ance on  the  property.  It  is  claimed  that  this  shows  a  partial  defense 
to  the  action.  The  insured  building  was  a  brick  hotel,  which  was 
v^holly  destroyed.  The  policy  was  issued  after  ch.  347,  Laws  of  1874, 
took  effect,  and  the  case  therefore  necessarily  involves  a  construction 
of  that  statute,  and  its  application  to  the  answer.  The  act  of  1874 
is  entitled  "An  act  to  regulate  insurance  companies,"  and  provides  that 
in  all  cases  where  an  individual  or  company  authorized  by  the  laws 
of  this  state  to  take  risks,  issue  policies  and  transact  the  business  of 
insurance  in  this  state,  shall  insure  or  issue  a  policy  of  insurance 
against  loss  by  fire  upon  the  real  property  of  any  individual  or  cor- 
poration in  this  state,  and  the  property  so  insured  shall  be  wholly  de- 
stroyed without  criminal  fault  on  the  part  of  the  assured,  the  amount 
of  insurance  written  in  the  policy  "shall  be  taken  and  deemed  the  true 
value  of  the  property  at  the  time  of  such  loss,  and  the  amount  of  the 


606  RIGHTS   UNDER  THE  CONTRACT  (Ch.  9 

loss  sustained  by  the  individual  or  corporation  in  whose  favor  the  said 
policy  was  issued,  and  such  amount  shall  be  taken  and  deemed  the 
measure  of  damages." 

The  words  of  this  statute  are  neither  obscure,  doul>tful  nor  ambig- 
uous as  to  their  meaning,  and  they  therefore  afford  but  little  room 
for  interpretation.  In  clear  and  precise  terms  they  make,  in  case  of 
total  loss  of  real  property  without  criminal  fault  of  the  assured,  the 
amount  of  insurance  written  in  the  policy,  the  value  of  the  property 
at  the  time  of  loss ;  and  that  amount  is  fixed  as  the  measure  of  dam- 
ages. It  is  analogous  to  a  valued  policy ;  only  here  the  statute  per- 
emptorily declares  what  shall  be  deemed  to  be  the  real  vakie  of  the 
property  at  the  time  of  loss,  and  what  sum  shall  be  paid  as  indemnity. 
And  as  the  intention  of  the  legislature  is  obvious  the  statute  clearly 
prescribing  that  the  amount  of  insurance  written  in  the  policy  shall 
be  deemed  the  true  value  of  the  property  at  the  time  of  loss,  it  results 
that  the  above  allegation  is  bad  and  shows  no  defense.  For  if  the  stat- 
ute is  to  have  effect  as  enacted,  nothing  is  left  open  in  the  case  to 
proof;  "the  true  and  actual  cash  marketable  value  of  the  property"  at 
the  time  it  was  destroyed,  is  not  a  matter  to  be  inquired  into,  as  the 
amount  of  insurance  written  in  the  policy  determines  the  amount  of 
loss  and  fixes  the  extent  of  the  recovery. 

The  ingenious  counsel  for  the  defendant  insisted  that  the  statute  in- 
tends, and  should  be  construed  as  only  to  mean,  that  the  amount  of 
insurance  written  in  the  policy  shall  be  taken  as  prima  facie  the  value 
of  the  property,  so  as  in  case  of  total  loss,  to  place  the  onus  of  prov- 
ing the  real  value  upon  the  insurer  instead  of  the  insured.  But  this 
construction  seems  quite  inadmissible  in  view  of  the  language,  which 
expressly  declares,  not  only  that  the  amount  of  insurance  written  in 
the  policy  shall  be  taken  and  deemed  as  the  true  value  of  the  property 
at  the  time  of  the  loss,  but  that  "such  amount  shall  be  taken  and  deem- 
ed the  measure  of  damages."  It  will  be  seen  that  the  statute  adopts 
the  amount  of  insurance  written  in  the  policy  as  the  rule  of  damages, 
or  amount  of  compensation,  leaving  no  question  open  as  to  what  in 
fact  was  the  real  value  of  the  property  destroyed. 

The  manifest  policy  of  the  statute  is  to  prevent  over-insurance,  and 
to  guard,  as  far  as  possible,  against  carelessness  and  every  induce- 
ment to  destroy  property  in  order  to  procure  the  insurance  upon  it. 
Where  property  is  insured  above  its  value,  a  strong  temptation  is  pre- 
sented to  an  unscrupulous  and  dishonest  owner,  either  to  intentional- 
ly burn  it,  or  not  to  guard  and  protect  it  as  he  ought.  Not  sharing 
in  the  risk,  with  the  insurer,  it  is  for  his  advantage  that  it  be  destroyed ; 
and  it  often  is  destroyed  with  other  property,  w^hen  it  would  not  have 
been  but  for  the  fact  of  such  excessive  insurance.  And  insurance 
companies,  too,  actuated  by  motives  of  gain,  or  incited  by  sharp  com- 
petition in  business,  take  risks,  frequently,  recklessly  and  for  amounts 
in  excess  of  the  real  value  of  the  property  insured ;  which  they  would 
be  less  likely  to  do  if  compelled  to  pay  the  amount  of  insurance  writ- 


Sec.  1)  FIRE   INSURANCE  607 

ten  in  their  policies.  It  is  evident  that  it  was  to  prevent  these  evils 
and  guard  against  these  mischiefs,  that  the  statute  was  enacted.  Its 
policy  seems  to  be  wise  and  wholesome ;  but  if  it  were  not  so,  it  is 
not  the  province  of  the  court  to  emasculate  the  law  by  any  nice  or 
forced  construction  of  its  language.  As  it  stands,  it  clearly  makes  the 
amount  of  insurance  written  in  the  policy  the  measure  of  the  value 
of  the  property  and  the  rule  of  damages.  And,  as  the  meaning  and 
intent  of  the  statute  are  clear,  effect  must  be  given  to  it,  certainly  as 
regards  this  class  of  property.  The  measure  of  damages,  therefore, 
being  fixed  by  the  statute,  the  company  had  no  right  to  show  that  the 
assured  sustained  a  loss  less  than  the  amount  written  in  the  policy. 

II.  But  the  counsel  further  contends  that,  by  reason  of  the  stipula- 
tion in  the  policy,  the  statute  does  not  apply  and  cannot  govern  as  to 
the  extent  of  the  defendant's  liability.  It  is  said  the  parties  were  abun- 
dantly able  to  contract  for  themselves ;  that  they  restrict  or  change  the 
rule  provided  by  the  statute ;  and  that  the  assured  did  expressly  waive 
that  rule,  by  agreeing  that  the  loss  should  be  established  according  to 
the  true  and  actual  cash  marketable  value  of  the  property  when  de- 
stroyed. We  have  no  doubt  that  the  statute  applies  to  the  policy;  and 
so  far  as  there  is  any  conflict  or  inconsistency  between  it  and  the  pro- 
visions of  the  policy,  the  statute  must  control. ^^     *     *     * 

We  have  said  that  the  legislature  seems  to  have  enacted  the  law 
of  1874  to  prevent  or  do  away  with,  as  far  as  possible,  the  great  evils 
and  mischiefs  arising  from  over  insurance.  Consequently,  on  grounds 
of  public  policy  and  in  order  to  accomplish  that  end,  it  was  provided 
that  the  amount  of  insurance  written  in  the  policy  should  be  conclusive 
as  to  the  value  of  the  real  property  destroyed. 

Now  the  law  is  well  settled,  that  where  a  statute  is  founded  upon 
public  policy,  a  party  cannot  waive  its  provisions  even  by  express  con- 
tract. "The  contracts  of  private  persons  cannot  alter  a  rule  establish- 
ed on  grounds  of  public  policy."  Emery  v.  Piscataqua  F.  &  M.  Ins. 
Co.,  supra  (52  Me.  322) ;  Sedgw.  Stat.  Con.  Law,  p.  70.  The  law  of 
1874  must  be  regarded  as  though  written  in  the  policy  itself ;  and  the 
stipulation  that  the  loss  shall  be  established  according  to  the  actual 
cash  marketable  value  of  the  property  when  destroyed,  being  in  con- 
flict with  the  rules  of  damages  prescribed  by  the  statute,  must  fall. 
The  counsel  argued  that  the  same  rule  obtains  here  as  in  cases  where 
common  carriers  have  restricted  their  common-law  liability  by  special 
agreement.  But  the  cases  are  not  analogous,  for  very  obvious  reasons. 
Where  the  owner,  in  consideration  of  paying  a  less  rate,  agrees  to  re- 
lieve the  carrier  from  his  liability  as  insurer  of  the  property,  no  prin- 
ciple of  public  policy  may  be  violated.     But  suppose  he  should  con- 

• 

18  The  court  here  cites  in  support  of  its  position  White  v.  Conn.  Mut. 
Life  Ins.  Co.,  4  Dill.  177.  5  Cent.  Law  J.  486.  Fed.  Cas.  17.r)45  (1877),  Emery 
V.  Piscataqua  F.  &  M.  Ins.  Co.,  52  Me.  322  (1864),  and  Charaberlin  v.  Ins. 
Co.,  5.5  N.  H.  249  (1875),  and  disapproves  of  Farmers',  etc.,  Ins.  Co.  v.  Curry, 
10  Chicago  Leg.  News,  43  (1877). 


GOS  RIGHTS   UNDKU   Till':   CONTRACT  (Cll.  0 

tract  to  exempt  the  carrier  from  lial)ility  for  gross  ncgli.c^cncc?  It 
would  not  be  difficult  to  find  respectable  decisions  which  would  con- 
demn such  a  contract  as  unreasonable  and  contrary  to  public  policy. 

It  will  be  noticed  that  the  statute  relates  solely  to  insurance  upon 
real  property,  which  the  parties  can  see  and  fix  a  value  upon  when  the 
insurance  is  effected.  If  companies  exercise  the  care  which  it  is  for 
the  public  interest  they  should  use  in  making  the  valuation,  there  will 
be  no  danger  of  excessive  insurance. 

We  were  referred  to  some  cases  in  Massachusetts  bearing  upon  the 
question  under  consideration ;  but  as  we  do  not  rest  our  decision  up- 
on them,  we  will  only  remark  that  they  hold,  for  example,  that  where 
the  policy  states  that  the  amount  insured  is  three-fourths  of  the  value 
of  the  property  as  stated  by  the  applicant,  the  valuation  thus  agreed 
upon  by  the  parties  is  conclusive,  in  the  absence  of  fraud.  See  Luce 
V.  Dorchester  Ins.  Co.,  105  Mass.  297,  7  Am.  Rep.  522;  Brown  v. 
Quincy  Ins.  Co.,  105  Mass.  396,  7  Am.  Rep.  538. 

The  order  sustaining  the  demurrer  to  the  answer  is  affirmed,  and 
the  cause  remanded  for  further  proceedings.^® 


WASHINGTON  MILLS  EMERY  MFG.  CO.  v.  WEYMOUTH 
&  BRAINTREE  MUT.  FIRE  INS.   CO. 

(Supreme   Judicial   Court   of   Massachusetts,    1883.      135   Mass.    003.) 

[The  statement  of  facts  and  part  of  the  opinion  will  be  found 
reported  ante,  p.  280.] 

Morton,  C.  J.  *  *  *  4.  The  other  rulings  requested  relate  to 
the  question  of  damages. 

The  auditor  adopted  as  the  rule  of  damages,  that  the  plaintifif  is 
entitled  to  recover  the  actual  intrinsic  cash  value  of  the  property 
destroyed,  and  to  such  a  sum  as  it  would  have  cost  at  the  time  of 
the  fire  to  have  replaced  and  restored  the  property  to  the  condition 
in  which  it  was  before,  without  regard  to  the  fact  that  it  was  to  be 
removed  on  the  first  day  of  October;  and  he  found  such  value  to 
be  more  than  the  insurance.  He  also  found  in  the  alternative,  that, 
if  the  rule  was  that  the  plaintiff  could  recover  only  the  relative  val- 
ue to  the  plaintiff  of  the  building  subject  to  removal  before  October 
1,  1878,  then  such  value  was  $400.     It  seems  to  us  clear  that  the 

19  Ln  accord  w^tli  the  principal  case,  see  Hartford  Fire  Insurance  Co.  v. 
Bourbon  County  Court,  24  Ky.  Law  Rep.  18.50,  72  S.  W.  739  (1903) ;  Queen 
Ins.  Co.  V.  Leslie,  47  Ohio  St.  409,  24  N.  E.  1072,  9  L.  R.  A.  45  (1890) ;  Hicker- 
son  V.  Insurance' Co.,  96  Tenn.  193,  33  S.  W.  1041,  32  L.  R.  A.  172  (1896). 
In  Hartford  Fire  Ins.  Co.  v.  Bourbon  County  Court,  supra,  it  was  held  that 
not  only  was  the  provision  of  the  policy  limiting  the  liability  of  the  insurer 
to  the  cash  value  of  the  property  rendered  invalid  by  the  valued  policy  stat- 
ute, but  also  that  a  clause  giving  the  company  the  option  of  rebuilding  was 
repugnant  to  the  same  statute. 


Sec.  1)  FIRE    INSURANCE  609 

last  rule  does  not  furnish  the  plaintiff  an  indemnity  according  to 
the  contract  of  the  parties.  Even  if  the  rule  were  that  the  insured 
could  recover  only  the  actual  ultimate  loss  in  money  to  him  caused 
by  the  fire,  the  market  value  of  the  buildings  subject  to  removal 
would  not  be  a  fair  test  of  such  loss.  It  might  be  of  great  impor- 
tance to  him  that  he  should  have  the  use  of  the  buildings  up  to  Oc- 
tober 1,  for  the  completion  of  contracts  and  for  carrying  on  his 
manufacture,  and  so  the  actual  loss  caused  by  the  fire  might  be 
large.  Besides,  there  was  the  possibility,  and  in  this  case  the  great 
probability,  that  the  insured  could  by  an  arrangement  with  the  city 
of  Boston  extend  his  lease  or  license  to  occupy  the  land  for  a  longer 
period.  But  we  do  not  think  that  in  adjusting  a  loss,  the  true  rule 
of  indemnity  is  to  ascertain  what  the  actual  loss  to  the  plaintiff  is, 
or  in  other  words,  to  what  extent  he  has  suffered  by  the  fire.  It 
often  happens  that  the  insured  may  gain  an  advantage  by  the  fire, 
by  reason  of  some  collateral  contracts  or  relations  with  other  par- 
ties. Thus,  a  mortgagee  has  an  insurable  interest  in  the  mortgaged 
property ;  he  may  insure  his  interest  generally,  and  need  not  dis- 
close the  peculiar  nature  of  it,  unless  inquired  of;  and,  in  case  of 
loss,  he  is  entitled  to  recover  to  the  amount  of  his  debt,  and  apply 
the  money  to  his  own  use,  not  accounting  with  the  mortgagor,  and 
it  is  no  defense  that  his  title  is  a  defeasible  one,  or  that  he  suffers 
no  actual  loss  by  the  fire  because  his  security  remains  sufficient. 
King  V.  State  Ins.  Co.,  7  Cush.  1,  54  Am.  Dec.  683 ;  Suffolk  Ins.  Co. 
V.  Boyden,  9  Allen,  123.  This  was  so  held  in  a  case  where  the 
mortgagor  had  repaired  the  building  before  the  commencement  of 
the  suit,  so  that  it  was  made  as  valuable  as  it  was  before  the  fire. 
Foster  v.  Equitable  Ins.  Co.,  2  Gray,  216.  So  the  market  value  of 
the  property  burned  is  not  always  a  fair  rule  of  adjustment.  The 
contract  of  the  insurer  is  not  that,  if  the  property  is  burned,  he  will 
pay  its  market  value ;  but  that  he  will  indemnify  the  assured,  that 
is,  save  him  harmless,  or  put  him  in  as  good  a  condition  so  far  as 
practicable,  as  he  would  have  been  in  if  no  fire  had  occurred. 

In  the  case  before  us,  we  think  the  rule  adopted  by  the  auditor 
is  the  true  rule.  It  complies  with  the  letter  and  spirit  of  the  con- 
tract, and  is  the  only  rule  which  will  give  full  indemnity  to  the 
assured  without  injustice  to  the  insurer.  It  would  work  an  exact 
indemnity  if  the  insurer  could  have,  on  the  day  after  the  fire,  re- 
placed the  buildings  in  the  same  condition  they  were  in  before  the 
fire.  The  insured  would  then  have  been  saved  harmless,  and  would 
have  neither  gained  nor  lost  by  the  fire.  This  is  not  practicable, 
but  the  rule  adopted  by  the  auditor  is  as  near  an  approach  to  this 
exact  indemnity  as  is  practicable.  The  insurer  cannot  complain  if 
he  pays  no  more  than  the  value  of  the  property  he  has  insured,  no 
more  than  the  sum  insured  upon  it,  and  no  more  than  the  interest 
Vance  Ins.— 39 


GIO  RIGHTS   UNDER  THE  CONTRACT  (Ch.9 

of  the  insured  at  the  time  of  the  loss.  He  thus  pays  no  more  than 
an  indemnity  under  his  contract.  It  is  no  defence  to  him  that  the 
loss  may,  by  reason  of  other  collateral  and  independent  contracts, 
give  an  advantage  to  the  insured. 

Chancellor  Kent  in  his  Commentaries  states  the  rule  to  be,  that, 
"if  a  tenant  erects  a  building  on  a  lot  held  under  a  lease,  with  liber- 
ty to  renew  or  remove  the  building  at  the  end  of  the  lease,  and  the 
building  be  destroyed  by  fire  a  few  days  before  the  end  of  the  lease, 
though  the  Intilding  as  it  stood  was  worth  more  than  the  sum  insur- 
ed, and  if  removed,  would  have  been  worth  much  less,  yet  the 
courts  look  only  to  the  actual  value  of  the  building  as  it  stood  when 
lost,  and  they  do  not  enter  into  the  consideration  of  these  incidental 
and  collateral  circumstances,  in  fixing  the  true  standard  of  indemni- 
ty;"  and  he  cites  with  approval  the  well  considered  case  of  Lau- 
rent V.  Chatham  Ins.  Co.,  1  N.  Y.  Super.  Ct.  45 ;   3  Kent.  376. 

The  case  at  bar  is  governed  by  the  same  principles ;  and  a  ma- 
jority of  the  court  is  of  opinion  that  the  ruling  of  the  Superior 
Court,  that,  upon  the  facts  proved,  the  plaintifif  was  entitled  to  re- 
cover the  whole  amount  insured  upon  the  buildings  destroyed,  was 
correct. 

Judgment  on  the  verdict.^" 

20  In  accord  with  the  principal  case  are  those  holding  that  the  life  tenant 
insuring  solely  for  his  own  benefit  recovers  the  actual  value  of  the  property 
destroyed.  Merrett  v.  Farmers'  Insurance  Co.,  42  Iowa,  11  (1875)  ;  Franklin 
Insurance  Co.  v.  Drake,  2  B.  Mon.  (Ky.)  47  (1841) ;  Trade  Ins.  Co.  v.  Bar- 
racliCe,  45  N.  J.  Law,  543,  46  Am.  Hep.  792  (1883).  See  11  Harv.  Law  Rev. 
512 ;  10  Law  Quar.  Rev.  512.  The  reason  for  this  holding  is  thus  expressed 
by  the  court  in  Convis  v.  Citizens'  Mut.  Fire  Ins.  Co.,  127  Mich.  616,  623,  86 
N.  W.  994  (1901):  "It  is  next  urged  by  the  defendant  corporation  that  the 
company  is  responsible  only  for  the  value  of  her  life  estate  in  the  building 
destroyed.  This  would  virtually  destroy  the  use  of  her  life  estate,  for  she 
could  not  replace  the  building  for  the  present  value  of  her  interest  in  money 
based  upon  the  value  of  that  estate.  The  company  insured  this  property 
knowing  that  the  land  of  which  it  was  a  part,  and  the  principal  part  in 
value,  was  her  homestead ;  that  she  was  entitled  to  its  use ;  that  it  would  be 
of  little  value  to  her  without  the  house ;  and  that  she  would  be  entitled  to  the 
full  amount  of  the  insurance,  to  enable  her  to  rebuild,  so  that  she  might  enjoy 
and  use  the  property.  The  insurer  has  not  been  deceived.  It  understood  that 
it  was  insuring  for  the  full  value,  and  intended  to  do  so.  Its  defense  is 
technical,  and  without  merit." 

In  Kludt  V.  German  Mut.  Fire  Ins.  Co.,  152  Wis.  637,  140  N.  W.  321,  45 
L.  R.  A.  (N.  S.)  1131  (1913),  a  husband,  who  was  living  with  his  family  in 
a  house  belonging  wholly  to  his  wife,  took  out  insurance  thereof  in  his  own 
name.  The  court  said:  "In  the  instant  ease,  however,  the  deceased  had  an 
insurable  interest,  and  the  contract  of  insurance  insured  the  propert.v,  not 
his  interest.  There  is  nothing  in  the  policy  or  circumstances  of  the  case  to 
indicate  that  the  deceased  insured  his  interest  merely.  TTie  loss  was  total, 
and  the  value  of  the  property  insured  was  in  excess  of  the  amount  for  which 
the  property  was  insured.  The  damages  recoverable,  therefore,  are  the  sum 
for  which  the  property  was  insured.  19  Cyc.  839 ;  Horsch  v.  Dwelling  H.  Ins. 
Co.,  77  Wis.  4,  45  N.  W.  945,  8  L.  R.  A.  806  (1890) ;  St.  Clara  F.  A.  v.  North- 
western N.  Ins.  Co.,  98  Wis.  257,  73  N.  W.  767,  67  Am.  St.  Rep.  805  (1898); 
Siemers  v.  Meeme  M.  H.  P.  Ins.  Co.,  143  Wis.  114,  126  N.  W.  669,  139  Am. 
St.  Rep.  1083  (1910)  ;  Johnston  v.  Abresch  Co.,  123  Wis.  130,  101  N.  W.  395, 
68  L.  R.  A.  934,  107  Am.  St.  Rep.  995  (1904)  ;  Andes  Ins.  Co.  v.  Fish,  71  111. 


Sec.  2)  LIFE   IXSUUANCB  611 

SECTION  2.— LIFE   INSURANCE 
I.   Benijficiarids 


RICKER  V.   CHARTER  OAK  INS.    CO. 

(Supreme  Court  of  Minnesota,  1880.     27  Minn.  193,  6  N.  W.  771,  38  Am. 

Rep.  289.) 

Corne;ll,  J.  The  original  policy  was  issued  upon  the  application 
of  Samuel  Stanchfield,  the  person  whose  life  was  insured,  and  all 
the  premiums  stipulated  for  were  paid  by  him  before  the  death 
of  Elizabeth  A.  Stanchfield,  who  was  his  wife.  By  its  terms  the 
amount  of  the  insurance  was  made  payable,  upon  the  death  of  the 
insured,  to  Elizabeth  A.  Stanchfield,  his  said  wife,  and,  in  case  of 
her  death  before  his  decease,  the  same  was  to  be  paid  to  his  chil- 
dren, or  to  their  guardian,  if  minors,  for  their  use  and  benefit. 
The  said  Elizabeth  died  intestate  in  July,  1874,  leaving  surviving 
her  said  husband,  the  plaintiffs  herein,  and  one  Joel  B.  Stanchfield, 
who  were  the  issue  of  their  marriage.  After  this  Samuel  Stanch- 
field married  the  intervenor  herein,  by  whom  he  had  one  child, 
Carl  S.  Stanchfield,  both  of  whom  are  now  living.  On  February 
13,  1878,  Samuel  Stanchfield  died.  After  the  decease  of  his  former 
wife  and  his  marriage  with  the  intervenor,  Louisa  Stanchfield, 
the  insured  surrendered  the  original  policy,  which  was  cancelled, 
and  a  new  one  was  issued  in  its  place  and  as  a  substitute  therefor, 
bearing  the  same  date,  and  containing  the  same  terms  and  condi- 
tions, save  that  it  was  therein  provided  that  it  should  inure  "to 
the  sole  and  separate  use  and  benefit"  of  said  intervenor,  Louisa 
Stanchfield,  his  second  wife.  The  legal  effect  of  this  surrender  and 
change,  and  the  competency  of  Samuel  Stanchfield  to  make  it 
without  the  consent  of  his  children,  are  the  important  questions 
presented  for  adjudication  in  this  case. 

Upon  the  allegations  and  admissions  in  the  pleadings  it  must  be 
presumed  that  the  original  policy  was  made,  and  its  stipulations 
were  to  be  performed,  in  the  State  of  Connecticut,  where  the  de- 
fendant company  was  created,  organized,  and  did  its  business,  and 
hence  its  legal  effect,  and  the  rights  and  obligations  of  the  parties 

620  (1874).  It  seems  to  be  well  settled  that,  in  the  absence  of  fraud  or  mis- 
take, where  the  insured  had  an  insurable  interest  at  the  time  the  policy 
is  issued,  and  there  is  no  limitation  in  the  policy,  and  the  insurable  interest 
continues  to  the  time  of  loss,  the  whole  amount  of  the  thimage  done  to  the 
property,  not  exceeding  the  amount  for  which  it  is  insured,  may  be  recovered. 
It   follows  that   the  judgment   must   be  affirmed." 

But  in  a  few  iurisdictions  the  insured  is  limited  to  the  value  of  his  interest 
as  tenant.  See  Doyle  v.  Insurance  Co.,  181  Mass.  139,  63  N.  E.  391  (1902)  ; 
Beekman  v.  Insurance  Co.,  66  App.  Div.  72,  73  N.  Y.  Supp.  110  (1901). 


G12  RIGHTS   UNDER  THE   CONTRACT  (Ch.  0 

under  it,  depend  upon  the  laws  of  that  State ;  but  as  no  evidence 
appears  to  have  been  given  as  to  what  those  laws  were,  they  are 
to  be  taken  as  identical  with  the  common  law  of  this  State,  inde- 
pendent of  any  statute  upon  the  sul)ject.  Upon  this  theory  the 
case  has  been  argued,  and  it  will  be  considered  and  determined 
accordingly. 

The  general  rule  upon  the  subject,  as  stated  by  Mr.  Bliss,  is 
this :  "That  a  policy  of  life  insurance,  and  the  money  to  become 
due  under  it,  belong,  the  moment  it  is  issued,  to  the  person  or 
jiersons  named  in  it  as  beneficiary  or  beneficiaries,  and  that  there 
is  no  power  in  the  person  procuring  the  insurance,  by  any  act 
of  his,  by  deed  or  by  will,  to  transfer  to  any  other  person  the  in- 
terest of  the  person  or  persons  so  named.  The  person  designated 
in  the  policy  is  the  proper  person  to  receipt  for  and  to  sue  for  the 
money.  The  principle  is  that  the  rights  under  the  policy  become 
vested  immediately  upon  it  being  issued,  so  that  no  person  other 
than  those  designated  in  it  can  assign  or  surrender  it,  and  that  in 
such  assignment  or  surrender  all  the  persons  must  concur,  or  the 
interest  of  those  not  concurring  is  not  affected."  Bliss  on  Life  Ins. 
(2d  Ed.)  §§  317,  ZZ7.  This  is  held  to  be  the  rule  in  Succession 
of  Kugler,  23  La.  Ann.  455. 

Upon  the  facts  in  the  case  at  bar,  however,  the  Court  is  not 
called  upon  to  consider  the  rule  as  applied  to  a  case  where  a  por- 
tion of  the  premiums  which  constitute  the  consideration  for  the 
insurance  still  remains  unpaid,  and  where  the  policy  is  liable  to 
forfeiture  in  case  of  non-payment.  Here  the  entire  amount  of 
the  premiums  stipulated  for  in  the  policy  had  been  paid  before  the 
death  of  the  wife,  Elizabeth  A.  Stanchfield,  and  the  subsequent 
attempted  surrender  of  the  policy  by  her  husband,  whose  life  was 
insured.  The  case,  therefore,  stands  in  the  same  position  it  would 
if  the  whole  consideration  for  the  policy  had  been  paid  by  the 
party  procuring  it  at  the  time  of  its  execution  and  delivery  by 
the  company ;  and  the  question  is,  whetlier,  having  made  such 
Dayment,  and  taken  out  a  policy  for  the  benefit  of  his  said  wife 
and  his  children,  payable  in  express  terms  to  her,  or,  in  the  event 
of  her  prior  decease,  to  his  children,  it  was  competent  for  him 
to  surrender  the  same  and  take  another  policy  in  consideration  of 
such  surrender,  and  in  lieu  of  the  original,  for  the  benefit  of  an- 
other party? 

This  question,  it  seems  to  the  Court,  must  be  answered  in  the 
negative.  The  transaction  on  the  part  of  Mr.  Stanchfield  was  in 
the  nature  of  an  irrevocable  and  executed  voluntary  settlement, 
upon  his  wife  and  children  of  the  sum  secured  to  be  paid  by  the 
policy  at  his  death,  conditioned  that  the  same  should  be  paid  to 
her  for  her  benefit  should  she  survive  him ;  but,  if  not,  then 
the  same  should  be  paid  to  his  children,  or,  if  minors,  to  their 
guardian,  for  their  sole  use  and  benefit.     Nothing  remained  to  be 


Sec.  2)  LIFE   INSURANCE  613 

done  on  his  part  to  make  the  intended  gift  of  the  policy  to  the  ben- 
eficiaries therein  named  complete  and  effectual  as  against  himself 
and  all  mere  volunteers  claiming  under  him.  In  paying  for  the 
insurance  and  procuring  the  policy  to  be  issued,  payable  in  express 
terms,  upon  his  death,  to  his  said  wife,  Elizabeth,  if  then  living, 
and  if  not  to  his  children,  for  their  sole  use  and  benefit,  without 
any  condition  or  stipulation  reserving  a  right  to  change  or  alter 
any  of  the  terms  of  the  agreement,  he  did  all  that  could  well 
be  done,  under  the  circumstances,  in  the  execution  of  an  inten- 
tion to  vest  in  his  said  appointees  the  entire  interest  in  the  policy, 
and  all  rights  thereunder.  Adams  v.  Brackett,  5  Mete.  (Mass.) 
280;   Landrum  v.  Knowles,  22  N.  J.  Eq.  594. 

What  he  did  was  a  "clear  and  distinct  act,"  wholly  divesting 
himself  of  all  ownership  or  control  over  the  money  paid  for  the 
insurance,  disclaiming  any  interest  in  the  policy,  or  intention  to 
take  or  hold  it  for  himself  or  his  legal  representatives,  at  the  same 
time  putting  it  beyond  his  power  so  to  do,  by  the  stipulation  ob- 
ligating the  company  to  pay  the  sum  insured,  whenever  it  should 
become  due,  to  such  of  the  persons  named  in  the  policy  as  might 
then  be  entitled  thereto  by  its  terms.  Taking  the  delivery  of  the 
policy  from  the  company,  under  these  circumstances,  can  only 
be  construed  as  an  act  of  acceptance  for  the  designated  beneficia- 
ries, and  his  subsequent  holding  of  the  same  as  that  of  a  naked 
depositary,  without  any  interest,  for  those  entitled  thereto.  Such 
conduct  on  the  part  of  the  husband  arid  father  was  both  natural 
and  proper,  and  it  raises  no  presumption  against  the  theory  of 
a  completed  transaction  on  his  part,  as  evidenced  by  his  other 
acts.  As  the  insured  had  no  legal  or  equitable  interest  in  the 
policy  at  the  time  of  its  surrender  and  cancellation,  the  act  was 
a  nullity,  and  could  not  afifect  the  rights  of  his  children,  to  whom 
it  then  belonged,  and  who  alone  could  release  the  company  from 
the  obligations  it  contained. ^^ 

We  concur  in  the  opinion  of  the  District  Court  that  "his  chil- 
dren" included  the  issue  of  both  marriages.    Order  affirmed. 

21  Although  the  doctrine  that  the  beneficiary  of  a  life  insurance  policy  has 
a  vested  interest  therein,  which  cannot  be  defeated  by  the  insured,  is  a 
comparatively  recent  one,  its  origin  is  obscured,  and  there  is  great  confusion 
as  to  the  theory  upon  which  it  is  based.  2  Harv.  Law  Rev.  239;  9  Harv. 
Law  Rev.  542;  13  Harv.  Law  Rev.  682;  15  Harv.  Law  Rev.  417;  6  Va. 
Law  Reg.  366. 

In  England  it  would  seem  that,  save  as  to  those  beneficiaries  who  come 
within  the  provisions  of  section  11  of  the  Married  Women's  Property  Act  of 
1882,  the  beneficiary  takes  no  interest  in  the  policy  procured  by  the  insured. 
See  Cleaver  v.  Mutual  Reserve  Fund  Life  Association,  [1892]  1  Q.  B.  147,  in 
which  Lord  Esher,  M.  R.,  said:  "Apart  from  the  statute,  what  would  be  the 
effect  of  making  the  money  payable  to  the  wife?  Tt  seems  to  me  that  as  be- 
tween the  executors  and  the  defendants  it  would  have  no  effect.  She  is 
no  party  to  the  contract;  and  I  do  not  think  that  the  defendants  could  have 
any  right  to  follow  the  money  they  were  bound  to  pay  and  consider  how 
the  executors  might  apply  it.     It  does  not  seem  to  me  that,  apart  from  the 


014  EIGHTS  UNDER  THE  CONTRACT  (Ch.  9 

Statute,  such  a  policy  would  create  any  trust  In  favor  of  the  wife.  James 
Maybrick  [the  insured]  niijilit  have  altered  the  destinsition  of  the  money  at 
any  time,  and  niislit  have  dealt  with  it  by  will  or  settlement,  if  he  had  done 
so,  the  defendants  could  not  have  interfered.  I  think  that,  apart  from  the 
statute,  no  interest  would  have  jiassed  to  the  wife  by  reason  merely  of  her 
being  named  in  the  policy;  and,  if  the  husband  wished  any  such  interest  to 
pass  to  lier,  he  must  have  left  the  money  to  her  by  will  or  settled  it  upon  her 
during  his  life,  otherwise  it  would  have  passed  to  his  executors  or  admin- 
istrators." 

The  English  view  also  obtained  in  Wisconsin,  as  appears  by  the  following 
extract  from  the  opinion  of  Dixon,  C.  J.,  in  Clark  v.  Durand,  12  Wis.  224 
(ISGO)  :  "The  true  criterion  by  which  to  determine  whether  the  plaintiff 
had  any  interest  in  the  moneys  received  upon  the  policy  would  seem  to  l)e 
whether,  during  her  life,  he  had  such  an  interest  in  it  as  would  enable  him 
to  compel  Mrs.  Clark,  or  the  defendant  as  nominal  trustee,  to  keep  up  the 
premiums,  upon  the  promiit  payment  of  which  its  validity  and  value  dei>end- 
ed,  or  as  would  have  enabled  him  to  restrain  or  prevent  her  and  the  defend- 
ant from  entering  into  and  consummating  the  bargain  which  they  did  in  re- 
lation to  it.  It  is  very  evident  that  he  was  no  party  to  the  policy  or  the 
agreement  by  wliich  it  was  procured.  The  only  parties,  real  and  nominal, 
were  the  defendant,  Mrs.  Clark,  and  the  company.  He  furnished  no  part  of 
the  consideration  upon  which  the  policy  was  issued.  If  it  was  her  intention, 
at  the  time  she  procured  it,  as  it  undoubtedly  was,  to  have  the  money  due 
upon  it  at  her  decease  paid  over  to  him,  or  applied  to  his  benefit,  yet  she  was 
under  no  obligation,  legal  or  equitable,  to  obtain  it,  or  to  keep  it  up  after 
it  was  obtained." 

This  doctrine,  as  affirmed  in  a  long  series  of  decisions  by  the  Wisconsin 
courts,  persisted  until  changed  by  statute  in  18!>1.  See  Ellison  v.  Straw,  116 
Wis.  207,  92  N.  W.  1094  (1902),  and  cases  cited  therein. 

The  Wisconsin  statute  above  referred  to,  chapter  376,  Laws  1891  (section 
2.347,  Rev.  St.  189S),  providing  that  the  interest  of  the  wife,  named  as  bene- 
ficiary in  the  policy  of  her  husband,  should  be  a  vested  right,  was  held  in 
Boehiuer  v.  Kalk,  155  Wis.  156,  144  N.  W.  182,  49  L.  R.  A.  (N.  S.)  4S7  (1913), 
to  be  unconstitutional  in  so  far  as  it  sought  to  change  the  rights  of  parties 
to  policies  issued  prior  to  its  enactment. 

In  Massachusetts,  prior  to  the  enactment  of  St.  1894,  c.  225,  changing  the 
judicial  rule,  it  was  likewise  held  that,  since  the  contract  was  made  with  the 
insured  and  not  with  the  beneficiary,  there  was  no  privity  of  contract  with 
the  latter  and  that  he  could  maintain  no  action  thereon.  Wright  v.  Vermont 
Life  Ins.  Co.,  164  Mass.  .302,  41  N.  E.  303  (1895);  King  v.  Cram,  185  Mass. 
103,  69  N.  E.  1049  (1904).  In  accord  with  this  view  it  was  held  in  Nims  v. 
Ford,  159  Mass.  575,  35  N.  E.  100  (1893),  that  the  beneficiary's  interest  in  the 
policy  was  only  of  an  equitable  nature,  which  could  not  be  reached  by  a 
trustee  process. 

Endowment  Policies. — The  doctrine  that  the  beneficiary's  interest  is  vested 
has  been  extended  to  endowment  policies.  Thus,  in  Succession  of  Desforges, 
135  La.  ,  64  South.  978  (1914),  it  was  held  that  money  paid  under  a  ma- 
tured endowment  policy  to  the  insured,  who  had  paid  all  the  premiums,  ana 
invested  by  him  as  his  own,  nevertheless  was  the  separate  property  of  his 
wife,  who  was  named  as  beneficiary  in  the  policy. 

MUKDER    OF   THE    INSURED    BY    THE    BENEFICIARY. It    iS    Well    Settled,    both    in 

this  country  and  in  England,  that  a  beneficiary  who  feloniously  causes  the 
death  of  the  insured  cannot  recover  on  the  policy.  See  New  York  Mutual 
Life  Ins.  Co.  v.  Armstrong,  117  U.  S.  591,  6  Sup.  Ct.  877,  29  L.  Ed.  997  (1886); 
Schmidt  v.  Northern  Life  Ass'n,  112  Iowa,  41,  83  N.  W.  800.  51  L.  R.  A. 
141,  84  Am.  St.  Rep.  323  (1900);  New  York  Life  Ins.  Co.  v.  Davis,  96  Va. 
737,  32  S.  E.  475,  44  L.  R.  A.  305  (1899) ;  Filmore  v.  Metropolitan  Life  Ins. 
Co.,  82  Ohio  St.  208,  92  N.  E.  26,  28  L.  R.  A.  (N.  S.)  675,  137  Am.  St.  Rep. 
778  (1910);  Cleaver  v.  Reserve  Life  Ass'n,  [1892]  1  Q.  B.  147.  It  is  also  uni- 
formly held  that  the  murder  of  the  insured  is  not  an  absolute  defense  to 
the  insurer,  but  that  the  personal  representatives  of  the  insured  can  recover 
for  the  benefit  of  the  estate  the  amount  of  the  policy.  In  England,  where  the 
beneficiary  is  considered  to  have  only  an  equitable  interest  in  the  policy,  it 
is  logically  enough  held  that,  since  his  inequitable  conduct  has  defeated  his 


Sec.  2)  LIFE   INSURANCE  C15 


WASHINGTON  CENTRAL  NAT.  BANK  et  al.  v.  HUME  et  al. 

(Supreme  Court  of  the  United  States,  1888.    128  U.  S.  195,  9  Sup.  Ct.  41, 

32  L.  Ed.  370.) 

Thomas  L.  Hume  died  on  October  23,  1881,  leaving  the  fol- 
lowing policies  of  insurance  upon  his  life  outstanding:  (1)  One 
issued  by  the  Life  Insurance  Company  of  Virginia  in  1872,  for 
$10,000,  payable  to  his  wife  and  children ;  (2)  five  issued  by  the 
Hartford  Life  &  Annuity  Company  in  1880,  for  $1,000  each,  payable 
to  his  wife  if  living,  otherwise  to  his  legal  representatives;  (3)  one 
issued  by  the  Maryland  Life  Insurance  Company  in  1881,  for 
$10,000,  payable  to  his  wife,  "the  insured";  (4)  one  issued  by 
the  Connecticut  Mutual  Life  Insurance  Company  in  1881,  for 
$10,000,  payable  to  his  wife  and  children.  By  the  terms  of  the 
two  last  policies,  Anna  G.  Hume,  wife  of  Thomas  L.  Hume,  ap- 
peared as  the  contracting  party.  In  addition  to  the  foregoing  poli- 
cies, there  was  one  for  $5,000  payable  to  Hume's  estate,  which 
had  been  duly  paid  to  his  administrators,  and  is  not  involved  in 
this  litigation.  Hume  having  died  deeply  insolvent,  divers  pro- 
ceedings were  instituted  by  or  on  behalf  of  his  creditors,  to  have 
the  proceeds  of  the  several  policies  declared  assets  of  the  dece- 
dent's estate  and  thus  made  available  to  his  creditors.  The  suits 
being  consolidated,  evidence  was  given  tending  to  prove  that 
Hume  had  really  been  insolvent  since  1874,  although  his  business 
continued  to  be  actively  carried  on  until  two  days  before  his  death : 
and  that  Hume  had  received  from  his  wife's  mother  sums  abun- 
dantly adequate  to  meet  the  premiums  of  the  policies  taken  out  in 
1880  and  1881. 

The  court  decreed  that  the  administrators  should  recover  all 
sums  paid  by  Thomas  L.  Hume  as  premiums  on  all  said  policies, 
including  those  on  the  Virginia  policy  from  1874;  and  that,  after 
deducting  said  premiums,  the  residue  of  the  money  paid  into  court 
(being  that  received  from  the  Maryland  and  the  Connecticut  Mu- 
tual) be  paid  to  Mrs.  Hume  individually,  or  as  guardian  for  herself 
and  children ;    and  that  the  Hartford   Life   &  Annuity    Company 

rights  to  the  fund,  the  trust  results  in  favor  of  the  estate  of  the  insured. 
See  Cleaver  v.  Reserve  Life  Ass'n,  supra.  In  the  United  States,  however, 
where  the  beneficiary  is  generally  held  to  have  a  vested  legal  interest,  the 
principle  upon  which  the  amount  of  the  policy  should  be  held  to  become  pay- 
able to  the  insured's  estate  is  not  so  clear.  See  Anderson  v.  Life  Ins.  Co., 
152  N.  C.  1,  67  S.  E.  53  (1010).  In  Metropolitan  Life  Ins.  Co.  v.  Sliane,  98 
Ark.  132,  135  S.  W.  836  (1911),  and  in  Filmore  v.  Metropolitan  Life  Ins.  Co., 
supra,  it  was  held  that  the  murder  of  the  insured  by  the  beneficiary  was  an 
impliedly  excepted  risk  in  so  far  as  the  beneficiary  was  concerned.  It  is 
hard  to  see  how  a  risk  can  be  impliedly  excepted  as  to  one  party,  and  not 
excepted  as  to  another,  since  the  implied  exception  limits  the  liability  assum- 
ed by  the  insurer.  See  Vance  on  Insurance,  p.  392 ;  notes  in  14  Harv.  Law 
Rev.  375,  and  24  Harv.  Law  Rev.  227,  241. 


G16  RIGHTS   UNDKU   TIIi:   CONTRACT  (Cll.  0 

pay  over  to  her  the  amount  due  on  the  certificates  issued  by  it. 
From  this  decree  appeals  and  cross-appeals  were  duly  prosecuted. --' 

Mr.  Chief  Justice  FullUr  delivered  the  opinion  of  the  court. 

No  appeal  was  prosecuted  from  the  decree  of  January  4,  18t^3, 
directing  the  amount  due  upon  the  policy  issued  by  the  Life  In- 
surance Company  of  Virginia  to  be  paid  over  to  Mrs.  Hume  for  her 
own  benefit  and  as  guardian  of  her  children,  nor  is  any  error  now 
assigned  to  the  action  of  the  court  in  that  regard.  Indeed,  it  is 
conceded  by  counsel  for  the  complainants  that  this  contract  was 
perfectly  valid  as  against  the  world,  but  it  is  insisted  that,  assum- 
ing the  proof  to  establish  the  insolvency  of  Hume  in  1874  and 
thenceforward,  the  premiums  paid  in  that  and  the  subsequent  years 
on  this  policy  belonged  in  equity  to  the  creditors,  and  that  they 
were  entitled  to  a  decree  therefor,  as  well  as  for  the  amount  of  the 
^Maryland  and  Connecticut  policies,  and  the  premiums  paid  thereon. 
It  is  not  denied  that  the  contract  of  the  Maryland  Insurance  Com- 
pany was  directly  between  that  company  and  Mrs.  Hume,  and 
this  is,  in  our  judgment,  true  of  that  of  the  Connecticut  Mutual, 
while  the  Hartford  company's  certificates  were  payable  to  her,  if 
living. 

Mr.  Hume  having  been  insolvent  at  the  time  the  insurance  was 
effected,  and  having  paid  the  premiums  himself,  it  is  argued  that 
these  policies  were  within  the  provisions  of  13  Eliz.  c.  5,  and  inure 
to  the  benefit  of  his  creditors  as  equivalent  to  transfers  of  property 
with  intent  to  hinder,  delay,  and  defraud.  The  object  of  the 
statute  of  Elizabeth  was  to  prevent  debtors  from  dealing  with  their 
property  in  any  way  to  the  prejudice  of  their  creditors;  but  deal- 
ing with  that  which  creditors,  irrespective  of  such  dealing,  could 
not  have  touched,  is  within  neither  the  letter  nor  the  spirit  of 
the  statute.  In  the  view  of  the  law,  credit  is  extended  in  reli- 
ance upon  the  evidence  of  the  ability  of  the  debtor  to  pay,  and 
in  confidence  that  his  possessions  will  not  be  diminished  to  the 
prejudice  of  those  who  trust  him.  This  reliance  is  disappointed, 
and  this  confidence  abused,  if  he  divests  himself  of  his  property 
by  giving  it  away  after  he  has  obtained  credit.  And  where  a  per- 
son has  taken  out  policies  of  insurance  upon  his  life  for  the  bene- 
fit of  his  estate,  it  has  been  frequently  held  that,  as  against  cred- 
itors, his  assignment,  when  insolvent,  of  such  policies,  to  or  for 
the  benefit  of  wife  and  children,  or  either,  constitutes  a  fraudulent 
transfer  of  assets  within  the  statute;  and  this,  even  though  the 
debtor  may  have  had  no  deliberate  intention  of  depriving  his  cred- 
itors of  a  fund  to  which  they  were  entitled,  because  his  act  has  in 
point  of  fact  withdrawn  such  a  fund  from  them,  and  dealt  with 
it  by  way  of  bounty.     Freeman  v.  Pope,  L.  R.  9  Eq.  206,  L.  R. 

2  2  The  statement  of  facts  is  much  abbreviated  and  part  of  the  opinion  is 
omitted. 


Sec.  2)  LIFE   INSURANCE  017 

5  Ch.  538.  The  rule  stands  upon  precisely  the  same  ground  as  any 
other  disposition  of  his  property  by  the  debtor.  The  defect  of  the 
disposition  is  that  it  removes  the  property  of  the  debtor  out  of  the 
reach  of  his  creditors.  Cornish  v.  Clark,  L.  R.  14  Eq.  189.  But 
the  rule  applies  only  to  that  which  the  debtor  could  have  made 
available  for  payment  of  his  debts.     *     *     * 

A  person  has  an  insurable  interest  in  his  own  life  for  the  benefit 
of  his  estate.  The  contract  affords  no  compensation  to  him,  but 
to  his  representatives.  So  the  creditor  has  an  insurable  interest 
in  the  debtor's  life,  and  can  protect  himself  accordingly,  if  he  so 
chooses.  Marine  and  fire  insurance  is  considered  as  strictly  an 
indemnity;  but  while  this  is  not  so  as  to  life  insurance,  which  is 
simply  a  contract,  so  far  as  the  company  is  concerned,  to  pay  a 
certain  sum  of  money  upon  the  occurrence  of  an  event  which  is 
sure  at  some  time  to  happen,  in  consideration  of  the  payment  of  the 
premiums  as  stipulated,  nevertheless  the  contract  is  also  a  contract 
of  indemnity.  If  the  creditor  insures  the  life  of  his  debtor,  he  is 
thereby  indemnified  against  the  loss  of  his  debt  by  the  death  of 
the  debtor  before  payment,  yet  if  the  creditor  keeps  up  the  premi- 
ums, and  his  debt  is  paid  before  the  debtor's  death,  he  may  still 
recover  upon  the  contract,  which  was  valid  when  made,  and  which 
the  insurance  company  is  bound  to  pay  according  to  its  terms ; 
but  if  the  debtor  obtains  the  insurance  on  the  insurable  interest 
of  the  creditor,  and  pays  the  premiums  himself,  and  the  debt  is 
extinguished  before  the  insurance  falls  in,  then  the  proceeds  would 
go  to  the  estate  of  the  debtor.  Knox  v.  Turner,  L.  R.  9  Eq.  155. 
The  wife  and  children  have  an  insurable  interest  in  the  life  of 
the  husband  and  father,  and  if  insurance  thereon  be  taken  out 
by  him,  and  he  pays  the  premiums  and  survives  them,  it  might 
be  reasonably  claimed,  in  the  absence  of  a  statutory  provision  to 
the  contrary,  that  the  policy  would  inure  to  his  estate.  In  Insur- 
ance Co.  V.  Palmer,  42  Conn.  60,  19  Am.  Rep.  530,  the  wife  insured 
the  life  of  the  husband,  the  amount  insured  to  be  payable  to  her 
if  she  survived  him ;  if  not,  to  her  children.  The  wife  and  one 
son  died  prior  to  the  husband,  the  son  leaving  a  ^on  surviving. 
The  court  held  that,  under  the  provisions  of  the  statute  of  that 
state,  the  policy  being  made  payable  to  the  wife  and  children, 
the  children  immediately  took  such  a  vested  interest  in  the  policy 
that  the  grandson  was  entitled  to  his  father's  share,  the  wife  having 
died  before  the  husband ;  but  that,  in  the  absence  of  the  statute, 
"it  would  have  been  a  fund  in  the  hands  of  his  representatives  for 
the  benefit  of  the  creditors,  provided  the  premiums  had  been  paid 
by  him."  So  in  the  case  of  Anderson's  Estate,  85  Pa.  202,  A. 
insured  his  life  in  favor  of  his  wife  who  died  intestate  in  his  life- 
time, leaving  an  only  child.  A.  died  intestate  and  insolvent,  the 
child  surviving,  and  the  court  held  that  the  proceeds  of  the  policy 
belonged  to  the  wife's  estate,  and,  under  the  intestate  laws,  was 


(518  RIGHTS  UNDER  THE  CONTRACT  (Ch.  9 

to  be  distributed  share  and  share  alike  between  her  child  and  her 
husband's  estate,  notwithstanding,  under  a  prior  statute,  life  in- 
surance taken  out  for  the  wife  vested  in  her  free  from  the  claims 
of  the  husband's  creditors.  But  if  the  wife  had  survived  she  would 
have  taken  the  entire  proceeds. 

We  think  it  cannot  be  doubted  that  in  the  instance  of  contracts 
of  insurance  with  a  wife  or  children,  or  both,  upon  their  insurable 
interest  in  the  life  of  the  husband  or  father,  the  latter,  while  they 
are  living,  can  exercise  no  power  of  disposition  over  the  same  with- 
out their  consent,  nor  has  he  any  interest  therein  of  which  he  can 
avail  himself,  nor  upon  his  death  have  his  personal  representatives 
or  his  creditors  any  interest  in  the  proceeds  of  such  contracts,  which 
belong  to  the  beneficiaries,  to  whom  they  are  payable.  It  is  indeed 
the  general  rule  that  a  policy,  and  the  money  to  become  due  under 
it,  belong,  the  moment  it  is  issued,  to  the  person  or  persons  named 
in  it  as  the  beneficiary  or  beneficiaries ;  and  that  there  is  no  pow- 
er in  the  person  procuring  the  insurance,  by  any  act  of  his,  by 
deed  or  by  will,  to  transfer  to  any  other  person  the  interest  of 
the  person  named.  Bliss,  Ins.  (2d  Ed.)  517;  Glanz  v.  Gloeckler, 
10  111.  App.  486,  per  McAllister,  J.;  s.  c,  104  111.  573,  44  Am. 
Rep.  94;  Wilburn  v.  Wilburn,  83  Ind.  55;  Ricker  v.  Insurance 
Co.,  27  Minn.  193,  6  N.  W.  771,  38  Am.  Rep.  289;  Insurance  Co. 
V.  Brant,  47  Mo.  419,  4  Am.  Rep.  328;  Gould  v.  Emerson,  99 
Mass.  154,  96  Am.  Dec.  720;   Insurance  Co.  v.  Weitz,  99  Mass.  157. 

This  must  ordinarily  be  so  where  the  contract  is  directly  with 
the  beneficiary ;  in  respect  to  policies  running  to  the  person  in- 
sured, but  payable  to  another  having  a  direct  pecuniary  interest 
in  the  life  insured ;  and  where  the  proceeds  are  made  to  inure 
by  positive  statutory  provisions.  Mrs.  Hume  was  confessedly 
a  contracting  party  to  the  Maryland  policy;  and,  as  to  the  Con- 
necticut contracts,  the  statute  of  the  state  where  they  were  made 
and  to  be  performed  explicitly  provided  that  a  policy  for  the  ben- 
efit of  a  married  woman  shall  inure  to  her  separate  use  or  that 
of  her  children ;  but  if  the  annual  premium  exceed  $300,  the 
amount  of  such  excess  shall  inure  to  the  benefit  of  the  creditors 
of  the  person  paying  the  premiums.  The  rights  and  benefits  given 
by  the  laws  of  Connecticut  in  this  regard  are  as  much  part  of 
these  contracts  as  if  incorporated  therein,  not  only  because  they 
are  to  be  taken  as  if  entered  into  there,  but  because  there  was  the 
place  of  performance,  and  the  stipulation  of  the  parties  was  made 
with  reference  to  the  laws  of  that  place.  And  if  this  be  so  as 
between  Hume  and  the  Connecticut  companies,  then  he  could  not 
have  at  any  time  disposed  of  these  policies  without  the  consent 
of  the  beneficiary ;  nor  is  there  anything  to  the  contrary  in  the 
statutes  or  general  public  policy  of  the  District  of  Columbia.  It 
may  very  well  be  that  a  transfer  by  an  insolvent  of  a  Connecticut 
policy,  payable  to  himself  or  his  personal  representatives,  would 


Sec.  2)  LIFE   INSURANCE  619 

be  held  invalid  in  that  district,  even  though  valid  under  the  law^s 
of  Connecticut,  if  the  laws  of  the  district  were  opposed  to  the 
latter,  because  the  positive  laws  of  the  domicile  and  the  forum 
must  prevail ;  but  there  is  no  such  conflict  of  laws  in  this  case, 
in  respect  to  the  power  of  disposition  by  a  person  procuring  in- 
surance payable  to  another. 

The  obvious  distinction  between  the  transfer  of  a  policy  taken 
out  by  a  person  upon  his  insurable  interest  in  his  own  life,  and 
payable  to  himself  or  his  legal  representatives,  and  the  obtaining 
of  a  policy  by  a  person  upon  the  insurable  interest  of  his  wife  anrl 
children,  and  payable  to  them,  has  been  repeatedly  recognized  by 
the  courts. ^^     *     *     * 

Conceding,  then,  in  the  case  in  hand,  that  Hume  paid  the  pre- 
miums out  of  his  own  money,  when  insolvent,  yet,  as  Mrs.  Hume 
and  the  children  survived  him,  and  the  contracts  covered  their 
insurable  interest,  it  is  difficult  to  see  upon  what  ground  the  cred- 
itors, or  the  administrators  as  representing  them,  can  take  away 
from  these  dependent  ones  that  which  was  expressly  secured  to 
them  in  the  event  of  the  death  of  their  natural  supporter.  The 
interest  insured  was  neither  the  debtor's  nor  his  creditors'.  The 
contracts  were  not  payable  to  the  debtor,  or  his  representatives, 
or  his  creditors.  No  fraud  on  the  part  of  the  wife,  or  the  children, 
or  the  insurance  company  is  pretended.  In  no  sense  was  there  any 
gift  or  transfer  of  the  debtor's  property,  unless  the  amounts  paid 
as  premiums'  are  to  be  held  to  constitute  such  gift  or  transfer. 
This  seems  to  have  been  the  view  of  the  court  below,  for  the  decree 
awarded  to  the  complainants  the  premiums  paid  to  the  Virginia 
Company  from  1874  to  1881,  inclusive,  and  to  the  other  companies 
from  the  date  of  the  respective  policies ;  amounting,  with  interest, 
to  January  4,  1883,  to  the  sum  of  $2,696.10,  which  sum  was  direct- 
ed to  be  paid  to  Hume's  administrators  out  of  the  money  which 
had  been  paid  into  court  by  the  Maryland  and  Connecticut  Mutu- 
al Companies.  But,  even  though  Hume  paid  this  money  out  of 
his  own  funds' when  insolvent,  and  if  such  payment  were  within 
the  statute  of  Elizabeth,  this  would  not  give  the  creditors  any  in- 
terest in  the  proceeds  of  the  policies,  which  belonged  to  the  ben- 
eficiaries for  the  reasons  already  stated. 

Were  the  creditors,  then,  entitled  to  recover  the  premiums? 
These  premiums  were  paid  by  Hume  to  the  insurance  companies, 
and  to  recover  from  them  would  require  proof  that  the  latter  par- 
ticipated in  the  alleged  fraudulent  intent,  which  is  not  claimed. 
Cases  might  be  imagined  of  the  payment  of  large  premiums,  out 

2  3  Here  the  court  quotes  from  Elliott's  Appeal,  .50  Pa.  75,  88  Am.  Dec. 
525  (1805),  and  McCuteheon's  Appeal.  99  Pa.  1.37  (1881),  and  cites  Bank  v. 
Insurance  Co.  (C.  C.)  24  Fed.  770  (188.5),  Pence  v.  Makepeace,  65  Ind.  .347 
(1879),  Succession  of  Hearing,  26  La.  Ann.  P,26  (1874),  Stigler's  Bx'r  v.  Stigler, 
77  Va.  163  (1883),  and  Thompson  v.  Cundiff,  11  Bush  (Ky.)  567  (1S75). 


<;20  BIGHTS   UNDER  THE   CONTRACT  (Ch.  9 

of  all  reasonable  proportion  to  the  known  or  reputed  financial  con- 
dition of  the  person  paying,  and  under  circumstances  of  grave 
suspicion,  which  might  justify  the  inference  of  fraud  on  creditors 
in  the  withdrawal  of  such  an  amount  from  the  delator's  resources; 
but  no  element  of  that  sort  exists  here.  The  ])remiums  form  no 
jjart  of  the  proceeds  of  the  policies,  and  cannot  be  deducted  there- 
from on  that  ground.  Airs.  Hume  is  not  shown  to  have  known 
cif  or  suspected  her  husband's  insolvency,  and  if  the  payments 
were  made  at  her  instance,  or  with  her  knowledge  and  assent,  or, 
if,  without  her  knowledge,  she  afterwards  ratified  the  act,  and 
claimed  the  benefit,  as  she  might  rightfully  do,  (Thompson  v. 
Insurance  Co.,  46  N.  Y.  675,)  and  as  she  does,  (and  the  same  re- 
marks apply  to  the  children,)  then  has  she  thereby  received  money 
which  ex  aequo  et  bono  she  ought  to  return  to  her  husband's  cred- 
itors;  and  can  the  decree  against  her  be  sustained  on  that  ground? 
If  in  some  cases  payments  of  premiums  might  be  treated  as  gifts 
inhibited  by  the  statute  of  Elizabeth,  can  they  be  so  treated  here? 

It  is  assumed  by  complainants  that  the  money  paid  was  derived 
from  Hume  himself,  and  it  is  therefore  argued  that  to  that  extent 
his  means  for  payment  of  debts  were  impaired.  That  the  pay- 
ments contributed  in  any  appreciable  way  to  Hume's  insolvency, 
is  not  contended.  So  far  as  premiums  were  paid  in  1880  and  1881, 
(the  payments  prior  to  those  years  having  been  the  annual  sum  of 
$196.18  on  the  Virginia  policy,)  we  are  satisfied  from  the  evidence 
that  Hume  received  from  Mrs.  Pickrell,  his  wife's  mother,  for 
the  benefit  of  Mrs.  Hume  and  her  family,  an  amount  of  money 
largely  in  excess  of  these  payments,  after  deducting  what  was 
returned  to  Mrs.  Pickrell ;  and  that,  in  paying  the  premiums  upon 
procuring  the  policies  in  the  Maryland  and  the  Connecticut  Mutual, 
Hume  was  appropriating  to  that  purpose  a  part  of  the  money 
which  he  considered  he  thus  held  in  trust;  and  we  think  that,  as 
between  Hume's  creditors  and  Mrs,  Hume,  the  money  placed  in 
Hume's  hands  for  his  wife's  benefit  is,  under  the  evidence,  equita- 
bly as  much  to  be  accounted  for  to  her  by  Hume,  and  so  by  them, 
as  is  the  money  paid  on  her  account  to  be  accounted  for  by  her 
to  him  or  them.  We  do  not,  however,  dwell  particularly  upon  this, 
nor  pause  to  discuss  the  bearing  of  the  laws  of  the  states  of  the 
insurance  companies  upon  this  matter  of  the  payment  of  premiums 
by  the  debtor  himself,  so  far  as  they  may  dififer  from  the  rule  which 
may  prevail  in  the  District  of  Columbia,  in  the  absence  of  specific 
statutory  enactment  upon  that  subject,  because  we  prefer  to  place 
our  decision  upon  broader  grounds. 

In  all  purely  voluntary  conveyances  it  is  the  fraudulent  intent 
of  the  donor  which  vitiates.  If  actually  insolvent,  he  is  held  to 
knowledge  of  his  condition ;  and  if  the  necessary  consequence  of 
his  act  is  to  hinder,  delay,  or  defraud  his  creditors,  within  the  stat- 
ute, the  presumption  of  the  fraudulent  intent  is  irrebuttable  and 


Sec.  2)  LIFE   INSURANCE  621 

conclusive,  and  inquiry  into  his  motives  is  inadmissible.  But  the 
circumstances  of  each  particular  case  should  be  considered,  as  in 
Partridge  v.  Gopp,  1  Eden,  163,  Amb.  596,  where  the  Lord  Keeper, 
while  holding  that  debts  must  be  paid  before  gifts  are  made,  and 
debtors  must  be  just  before  they  are  generous,  admitted  that  "the 
fraudulent  intent  might  be  collected  from  the  magnitude  and  value 
of  the  gift."  Where  fraud  is  to  be  imputed,  or  the  imputation  of 
fraud  repelled,  by  an  examination  into  the  circumstances  under 
which  a  gift  is  made  to  those  towards  whom  the  donor  is  under 
natural  obligation,  the  test  is  said,  in  Kipp  v.  Hanna,  2  Bland 
(Md.)  33,  to  be  the  pecuniary  ability  of  the  donor  at  that  time  to 
withdraw  the  amount  of  the  donation  from  his  estate  without  the 
least  hazard  to  his  creditors,  or  in  any  material  degree  lessening 
their  then  prospects  of  payment;  and,  in  considering  the  suffi- 
ciency of  the  debtor's  property  for  the  payment  of  debts,  the  prob- 
able, immediate,  unavoidable,  and  reasonable  demands  for  the 
support  of  the  family  of  the  donor  should  be  taken  into  the  account 
and  deducted,  having  in  mind  also  the  nature  of  his  business  and 
his  necessary  expenses.  Emerson  v.  Bemis,  69  111.  541.  This  argu- 
ment in  the  interest  of  creditors  concedes  that  the  debtor  may 
rightfully  preserve  his  family  from  suffering  and  want.  It  seems 
to  us  that  the  same  public  policy  which  justifies  this,  and  recog- 
nizes the  support  of  wife  and  children  as  a  positive  obligation  in 
law  as  well  as  morals,  should  be  extended  to  protect  them  from 
destitution  after  the  debtor's  death,  by  permitting  him,  not  to 
accumulate  a  fund  as  a  permanent  provision,  but  to  devote  a  mod- 
erate portion  of  his  earnings  to  keep  on  foot  a  security  for  support 
already,  or  which  could  thereby  be,  lawfully  obtained,  at  least  to 
the  extent  of  requiring  that,  under  such  circumstances,  the  fraudu- 
lent intent  of  both  parties  to  the  transaction  should  be  made  out. 
And  inasmuch  as  there  is  no  evidence  from  which  such  intent  on 
the  part  of  Mrs.  Hume  or  the  insurance  companies  could  be  in- 
ferred, in  our  judgment  none  of  these  premiums  can  be  recovered. 
The  decree  is  affirmed,  except  so  far  as  it  directs  the  payment 
to  the  administrators  of  the  premiums  in  question  and  interest, 
and,  as  to  that,  is  reversed,  and  the  cause  remanded  to  the  court 
below,  with  directions  to  proceed  in  conformity  with  this  opinion. 
Ordered  accordingly.^* 

2  4  The  rule  of  the  principal  case  that  the  proceeds  of  a  life  insurance 
policy  taken  out  by  an  insolvent  debtor  for  his  wife's  benefit,  and  the  amount 
paid  in  premiums  thereon,  are  exempt  from  the  claim  of  creditors,  is  follow- 
ed in  Masonic  Mutual  Life  Ass'n  v.  Paisley  (C.  C.)  Ill  Fed.  34  (1901);  Hendrie 
&  Bolthoff  Mfg.  Co.  V.  riatt,  13  Colo.  App.  15,  56  Pac.  211  (1899*  ;  State  v. 
Tomlinson,  16  Ind.  App.  662,  45  N.  E.  1116,  .59  Am.  St.  Rep.  .335  (1897) ;  John- 
son V.  Alexander,  125  Ind.  575,  25  N.  E.  706,  9  L.  R.  A.  660  (1890).  It  has 
been  repudiated  in  Merchants'  &  Miners'  Transportation  Co.  v.  Borland,  53 
N.  J.  Eq.  282,  31  Atl.  272  (189.5) ;  Lehman  v.  Gunn,  124  Ala.  213,  27  South. 
475,  51  L.  R.  A.  112,  82  Am.  St.  Rep.  1.59  (1900);  Fearn  v.  Ward,  80  Ala. 
555,   2   South.   114    (1887);    Pullis  v.   Robison,   73  Mo.   201,  39   Am.   Rep.  497 


022  RIGHTS   UNDER  THE   CONTUA^CT  (Ch.  9 

In  re  POLICY  NO.  6402  OF  SCOTTISH  EQUITABLE 
LIFE  ASSUR.  SOCIETY. 

(Supreme   Court   of    Judicature,    Chancery    Division.      [1902]   1  Cli.    282.) 
See  ante,  p.  167,  for  a  report  of  the  case. 


INDIANA  NAT.  LIFE  INS.  CO.  v.  McGINNIS. 

(Supreme  Court  of  Indiana,  1913.     101  N.  E.  289,  45  L.  R.  A.  [N.  S.]  192.) 

Action  by  Melissa  McGinnis  against  the  Indiana  National  Life  Insur- 
ance Company.  From  a  judgment  for  plaintiff,  defendant  appealed 
to  the  Appellate  Court  (99  N.  E.  751). 

Spence;r,  J.  This  suit  was  brought  in  June,  1909,  to  recover  upon 
a  life  insurance  contract  issued  on  December  9,  1907,  to  John  R.  Mc- 
Ginnis, and  payable  $3,000  to  appellee,  the  mother  of  the  insured,  and 
$2,000  to  Emily  S.  McGinnis,  the  wife  of  the  insured.  John  R.  Mc- 
Ginnis died  in  Colorado  on  January  16,  1909.  The  contract  or  policy 
in  suit  contained,  among  others,  the  following  provisions :  "Incon- 
testability. After  one  year  from  date  of  issue  this  policy  shall  be  in- 
contestable if  the  premiums  have  been  duly  paid."  "The  insured  may 
at  any  time  during  the  continuance  of  this  policy,  provided  the  policy 
is  not  then  assigned,  and  subject  to  the  rules  of  this  company  regarding 
assignments  and  beneficiaries,  change  the  beneficiary  or  beneficiaries 
by  written  notice  to  the  company,  at  its  head  office ;  such  change  to 
take  effect  on  the  indorsement  of  the  same  on  the  policy  by  the  com- 
pany." In  answer  to  appellee's  complaint  seeking  to  recover  on  this 
policy,  the  appellant  set  up  an  affirmative  defense  in  seven  paragraphs, 
to  the  first,  third,  fourth,  and  sixth  of  which  demurrers  were  sustained. 

[The  answer  of  the  defendant  alleged  in  substance  certain  false 
and  fraudulent  misstatements-as  to  health  and  habits  made  by  the  in- 
sured, which,  by  the  terms  of  the  policy,  constituted  breaches  of  war- 
ranties avoiding  the  contract ;  that  upon  learning  of  the  fraud  prac- 
ticed by  the  insured,  the  defendant  had  within  one  year  from  the  issue 
of  the  policy  repaid  to  him  the  amount  of  the  first  premium,  and  upon 
cancellation  of  the  policy  had  obtained  from  the  insured  a  written 
release  from  all  claims  under  such  policy ;  and  that  the  second  annual 

(ISSO)  ;  Stigler's  Ex'x  v.  Stigler,  77  Va.  163  (1888)  ;  Stokes  v.  Coffey,  8  Bush 
(Ky.)   533    (1871)  ;  Pence  v.  Makepeace,  65  Ind.  345    (1879). 

The  right  of  an  insolvent  debtor  to  take  out  insurance  upon  liis  life  and 
pay  the  premiums  out  of  his  assets  to  the  detriment  of  his  creditors  is  now 
quite  generally  fixed  by  statute.  See  Northwestern  Mut.  Jjife  Ins.  Co.  v. 
Chehalis  County  Bank,  65  Wash.  374,  118  Pac.  326  (1911) ;  Kittel  v.  Domeyer, 
175  X.  Y.  205.  67  N.  E.  433  (1903) ;  York  v.  Flaherty,  210  Mass.  35,  96  N.  E.  53 
(1911);  Levy's  Adm'r  v.  Globe  Bank  &  Trust  Co.,  143  Ky.  690,  137  S.  W. 
215  (1911). 

For  a  sharp  criticism  of  Central  Nat.  Bank  v.  Hume,  see  the  article  bj 
Professor  Williston  in  25  Am.  Law  Rev.  185. 


Sec.  2)  LIFE  INSURANCE  623 

premium  had  not  been  paid.  The  plaintiff's  reply  alleged  that  on  De- 
cember 9,  1907,  a  check  for  the  amount  of  the  premium  then  due  was 
tendered,  but  refused  by  the  defendant  on  the  ground  that  the  policy 
had  been  canceled.]  -° 

The  most  difficult  questions  here  presented  are  resolvable  into  the 
following:  (1)  Does  the  incontestable  clause  preclude  the  company 
from  asserting  as  a  defense  to  its  liability  the  charge  of  false  and 
fraudulent  answers  of  the  insured,  the  warranties  in  the  contract,  the 
mutual  cancellation  of  the  policy  by  the  insurer  and  the  insured  with- 
out the  knowledge  of  the  beneficiary  for  a  cash  consideration  paid  by 
the  company  to  the  insured,  where  the  answer  asserting  such  defense  is 
filed  more  than  one  year  after  the  execution,  delivery,  and  acceptance 
of  the  contract?  (2)  Had  the  beneficiary  upon  the  execution,  de- 
livery, and  acceptance  of  this  policy,  such  an  interest  therein,  either 
vested,  absolute,  defeasible,  indefeasible,  qualified,  limited,  or  other- 
wise, that  her  interest  cannot  be  taken  from  her  without  her  knowl- 
edge or  consent  by  an  agreement  canceling  the  policy,  made  between 
the  insurer  and  the  insured,  to  which  she  is  not  a  party.  *  *  * 
In  other  words,  where  the  terms  of  the  contract  specifically  pro- 
vide for  the  change  of  beneficiary  by  compliance  with  certain  con- 
ditions, can  the  appellee's  interest  in  the  policy,  whatever  it  may 
be  termed,  be  lost  to  her  by  an  agreement  to  cancel  made  by  the 
insurer  and  the  insured,  to  which  agreement  she  is  in  no  sense  a  party? 

We  shall  endeavor  to  consider  these  questions  in  the  order  stated. 
The  record  discloses  that  this  action  was  commenced  on  June  16,  1909, 
more  than  one  year  and  six  months  after  the  execution  of  the  policy. 
It  seems  to  be  a  well-recognized  principle  of  insurance  law  that  a  pro- 
vision in  a  contract  of  insurance  limiting  the  time  in  which  the  insurer 
may  take  advantage  of  certain  facts  that  might  otherwise  constitute 
a  good  defense  to  its  liability  on  such  contract  is  valid,  and  precludes 
every  defense  to  the  policy  other  than  the  defenses  excepted  in  the 
provision  itself.  It  also  seems  to  be  generally  held  that  such  a  clause 
precludes  the  defense  of  fraud,  as  well  as  other  defenses,  and  that  it 
is  not  invalid  on  the  theory  that  it  is  against  public  policy,  provided 
the  time  in  which  the  defenses  must  be  made  is  not  unreasonably  short. 
An  examination  of  the  following  cases  will  show  that  the  holding  of 
the  courts  of  this  country  has  been  almost  universally  that  every  de- 
fense to  a  policy  of  insurance  embraced  within  the  terms  of  the  "incon- 
testable clause"  is  completely  lost  to  the  insurer,  if  it  fails  to  make  the 
defense  or  take  affirmative  action  within  the  time  limited  by  the  policy. 
Kline  V.  National  Benefit  Ass'n,  111  Ind.  462,  11  N.  E.  620,  60  Am. 
Rep.  703;  Federal  Life  Ins.  Co.  v.  Kerr,  173  Ind.  613,  89  N.  E.  398. 
91  N.  E.  230;  Court  of  Honor  v.  Hutchens,  43  Ind.  App.  321,  82  N. 
E.  89;    People's  Mut.  Ben.  Soc.  v.  Templeton,  16  Ind.  App.  126,  44 

2  5  In  the  omitted  portion  of  the  opinion  the  court  states  the  pleadings 
and  decides  that  the  defense  of  nonpayment  of  the  second  annual  premium 
was  not  available  to  the  defendant  because  of  the  tender  refused. 


024  RIGHTS   UNDER  THE  CONTRACT  (Ch.  0 

N.  E.  809;  Wright  v.  Mutual  Ben.  Ass'n,  118  N.  Y.  237,  23  N.  E. 
186,  6  L.  R.  A.  731,  16  Am.  St.  Rep.  749;  Clement  v.  N.  Y.  Ins.  Co., 
101  Tenn.  22,  46  S.  W.  561,  42  L.  R.  A.  247,  70  Am.  St.  Rep.  650; 
Reagan  v.  Union  Mut.  Life  Ins.  Co.,  189  Mass.  555,  76  N.  E.  217,  2 
L.  R.  A.  (N.  S.)  821,  109  Am.  St.  Rep.  659,  4  Ann.  Cas.  362;  Goodwin 
V.  Provident  Assur.  Ass'n,  97  Iowa,  226,  66  N.  W.  157,  32  L.  R.  A. 
473,  59  Am.  St.  Rep.  411 ;  Murray  v.  State  Ins.  Co.,  22  R.  I.  524,  48 
Atl.  800,  53  L.  R.  A.  742 ;  Royal  Circle  v.  Achterrath,  204  111.  549,  68 
N.  E.  492,  63  L.  R.  A.  452,  98  Am.  St.  Rep.  224;  Mutual,  etc.,  Ass'n 
V.  Austin,  142  Fed.  398,  7Z  C.  C.  A.  498,  6  L.  R.  A.  (N.  S.)  1064 ;  Massa- 
chusetts Ben.  L.  Ass'n  v.  Robinson,  104  Ga.  256,  30  S.  E.  918,  42 
L.  R.  A.  261;  Northwestern  Mut.  L.  Ins.  Co.  v.  Montgomery,  116 
Ga.  799,  43  S.  E.  79;  New  York  Life  Ins.  Co.  v.  Baker,  83  Fed.  647, 
27  C.  C.  A.  658;  Kansas  Mut.  Life  Ins.  Co.  v.  Whitehead,  123  Ky.  21, 
93  S.  W.  609,  13  Ann.  Cas.  301 ;  Williams  v.  St.  Louis  Life  Ins.  Co., 
189  Mo.  70,  87  S.  W.  499;  Teeter  v.  United,  etc.,  Ins.  Ass'n,  159  N. 
Y.  411,  54  N.  E.  72;  Thompson  v.  Fidelity  Mut.  Life  Ins.  Co.,  116 
Tenn.  557,  92  S.  W.  1098,  6  L.  R.  A.  (N.  S.)  1039,  115  Am.  St.  Rep. 
823;  Patterson  v.  Natural  Premium  M.  L.  Ins.  Co.,  100  Wis.  118, 
75  N.  W.  980,  42  L.  R.  A.  253,  69  Am.  St.  Rep.  899. 

We  note  that  with  great  earnestness  the  appellant  contends  that 
"false  and  fraudulent  representations  of  an  applicant  for  life  insur- 
ance, which  are  made  warranties,  will  defeat  recovery,"  but  it  must 
not  be  overlooked  that  there  is  no  charge  of  fraud  against  the  appellee 
herein,  except  through  that  part  of  the  application  in  which  it  is  pro- 
vided that  the  insured  for  "any  person  claiming  any  interest,  in  the 
policy"  warranted  all  of  his  statements  and  answers  to  be  true,  and 
also  that  the  effort  to  plead  this  is  made  after  the  limitation  provided 
in  the  contract,  which  limitation  was  certainly  an  inducement  held  out 
by  the  company  to  augment  the  sale  of  its  contract.  The  incontestable 
clause  is  construed  by  us  to  be  binding  upon  the  appellant,  and  to  mean 
just  what  it  says,  that,  "after  one  year  from  the  date  of  issue,  this 
policy  shall  be  incontestable  if  the  premiums  have  been  duly  paid." 

The  next  question  for  consideration  is :  What,  if  any,  interest  did 
appellee,  as  beneficiary,  take  or  have  in  this  policy  at  the  time  of  its 
issuance,  delivery,  and  acceptance,  and,  if  she  had  any  interest  therein, 
how  w^as  it  disposed  of  ?  At  the  threshold  of  this  branch  of  the  case, 
we  feel  that,  as  here  presented,  this  is  a  new  question  in  this  jurisdic- 
tion, and  in  so  saying  we  are  not  unmindful  of  the  many  cases  so 
ably  presented  by  the  appellant  on  this  issue,  but  we  cannot  concur  in 
the  expression :  "The  law,  as  it  has  been  declared,  will  have  to  be 
changed,  and  the  authorities  overruled  before  any  other  conclusion 
can  be  reached."  And  we  might  here  say  that  we  quite  agree  with 
appellant  in  its  expression  that  "the  abandonment  and  rescission  of  a 
contract  of  life  insurance  by  mutual  agreement  between  the  insurer 
and  the  insured  puts  an  end  to  the  contract" — that  is,  so  far  as  the  in- 
surer and  the  insured  are  concerned — but  what  about  a  third  person 


Sec.  2)  LIFE  INSURANCE  625 

for  whose  benefit  the  contract  by  its  express  terms  was  made,  and 
who  is  not  only  not  a  party  to  the  agreement  of  abandonment  and  re- 
scission, but  who  has  no  knowledge  of  it?-"     *     *     * 

In  most  of  the  jurisdictions  of  this  country,  except  Wisconsin,  the 
authorities  seem  to  be  uniform  that  in  an  ordinary  life  insurance  policy 
made  payable  to  a  beneficiary  and  which  does  not  authorize  a  change 
of  beneficiary  the  named  beneficiary  has  an  absolute,  vested  interest 
in  the  policy  from  the  date  of  its  issuance,  delivery,  and  acceptance. 
Kline  V.  National  Ben.  Ass'n,  111  Ind.  462^65,  11  N.  E.  620,  60  Am. 
Rep.  703  ;  Damron  v.  Penn  Mutual  Life  Ins.  Co.,  99  Ind.  478  ;  Wilburn 
V.  Wilburn,  S3  Ind.  55 ;  Masons'  Union  Life  Ass'n  v.  Brockman,  20 
Ind.  App.  206-214,  50  N.  E.  493 ;  Franklin  Life  Ins.  Co.  v.  Galligan, 
71  Ark.  295,  73  S.  W.  102,  100  Am.  St.  Rep.  73 ;  Lanier  v.  Eastern 
Life  Ins.  Co.,  142  N.  C.  14,  54  S.  E.  786;  Preston  v.  Connecticut 
Mutual  Life  Ins.  Co.,  95  Md.  101,  51  Atl.  838;  Lockwood  v.  Michigan 
Mut.  Life  Ins.  Co.,  108  Mich.  334,  66  N.  W.  229.  And,  where  a 
policy  or  contract  of  life  insurance  contains  the  right  of  the  insured 
to  change  the  beneficiary,  such  right  must  be  exercised  specifically  in 
the  manner  provided  in  such  policy  or  contract.  Farra  v.  Braman, 
171  Ind.  529-542,  86  N.  E.  843;  Mason  v.  Mason,  160  Ind.  191-196, 
65  N.  E.  585;  Holland  v.  Taylor,  111  Ind.  121,  12  N.  E.  116;  Smith 
V.  Nat.  Benefit  Soc,  123  N.  Y.  85,  25  N.  E.  197,  9  L.  R.  A.  616;  Arnold 
V.  Empire  Life  Ins.  Co.,  3  Ga.  App.  685,  60  S.  E.  470 ;  2  May  on  In- 
surance, §  399  E;  Bliss  on  Life  Insurance  (2d  Ed.)  §§  318,  337. 

While  we  understand  that  the  appellant  insists  that  in  such  a  policy 
or  contract  (where  the  insured  has  the  right  to  change  the  beneficiary) 
the  beneficiary  does  not  have  a  vested  or  indefeasible  interest,  but  that 
the  interest  of  the  beneficiary  is  conditional  and  subject  to  the  exercise 
of  such  right  by  the  insured,  or  is  subservient  to  the  conditions  and 
limitations  reserved  by  the  insured,  we  do  not  understand  appellant  as 
claiming  or  insisting  that  the  beneficiary  in  such  policy  has  absolutely 
no  interest.  It  seems,  as  we  view  it,  that  in  such  a  policy  or  contract 
the  beneficiary  has  some  interest,  and  that  the  insured  has  reserved 
to  himself  a  power  with  the  right  of  exercise  to  the  extent  of  de- 
feating or  cutting  off  the  interest  of  the  beneficiary  by  a  strict  com- 
pliance with  the  terms  of  such  power  as  in  the  contract  or  policy  writ- 
ten ;  that  the  interest  therein  taken  and  owned  by  the  beneficiary  upon 
the  issuance,  delivery,  and  acceptance  of  the  policy  was  a  defeasible, 
vested  interest. 

In  the  case  of  Farra  v.  Braman,  supra,  on  page  540  of  171  Ind.,  on 
page  847  of  86  N.  E.,  the  court  in  quoting  from  Holland  v.  Taylor, 

2  6  The  court  here  distiuguishes  the  following  eases  cited  by  defendant  in 
support  of  its  contention:  Equitable  Life  Ins.  Co.  v.  iStough,  45  lud.  App. 
411,  89  N.  E.  612  (1909);  Eagle  v.  New  York  Life  Ins.  Co.,  48  Ind.  App.  284, 
91  N.  E.  814  (1910):  Hopkins  v.  Northwestern  Life  Assurance  Co.,  99  Fed. 
199,  40  C.  C.  A.  1  (1900). 

Vance  Ins. — 40 


G26  RIGHTS   TJNDKU   THE   CONTRACT  (Ch.  9 

supra,  referring  to  the  relation  of  the  beneficiary  to  the  contract,  said : 
"It  would  be  saying  too  much  to  say  that  she  had  no  right.  *  *  * 
So  long  as  the  contract  remained  as  executed,  she  had  the  right  of  a 
beneficiary,  subject  to  be  defeated  by  change  of  beneficiary  by  the 
insured.  So  long  as  it  remained  as  executed,  the  assured  had  reserved 
to  himself  the  pozver  to  change  the  beneficiary  and  that  was  the  extent 
of  his  right  in,  or  power  over,  the  certificate  or  the  aynount  agreed  to 
he  paid  at  his  death."  (Italics  ours.)  Again  on  page  541  of  171  Ind., 
on  page  848  of  86  N.  E.,  the  same  court,  referring  to  the  case  of  Mason 
V.  Mason,  supra :  "There  are  cases  *  *  *  j^  which  the  principles 
of  equity  may  be  invoked  to  aid  a  defective  exercise  of  pozver  by  the 
insured  in  making  a  change  in  the  beneficiary;"  and  again,. in  referring 
to  the  case  then  under  consideration :  "In  the  case  at  bar  there  is  no 
room  for  invoking  the  aid  of  equity,  as  there  is  no  element  of  fraud 
therein,  and  there  is  no  defective  exercise  by  the  assured  of  the  pozver 
or  right  to  change  the  original  beneficiary."  (Italics  ours.)  As  to  the 
beneficiary  having  an  interest  and  that  the  right  reserved  by  the  insured 
to  change  the  beneficiary  is  the  right  to  exercise  a  power,  see  Isgrigg, 
Ex'r,  V.  Schooley,  125  Ind.  94,  25  N.  E.  151.  In  .the  case  of  Holder 
V.  Prudential  Insurance  Co.,  77  S.  C.  299,  57  S.  E.  853,  the  court  held 
that  the  rights  of  the  beneficiaries  became  vested  as  soon  as  the  in- 
sured and  the  insurer  entered  into  the  contract,  and,  although  the  policy 
reserved  to  the  insured  the  right  to  change  the  beneficiary,  the  insured 
had  no  right  to  surrender  the  policy  for  the  purposes  of  cancellation. 
In  the  case  of  Washington  Life  Ins.  Co.  v.  Berwald,  97  Tex.  Ill, 
76  S.  W.  442,  1  Ann.  Cas.  682,  the  court  uses  this  language:  "The 
wife  has  an  insurable  interest  in  her  husband's  life,  which  she  may 
insure,  taking  a  policy  payable  to  herself  or  to  her  children ;  therefore, 
it  cannot  be  said  that  the  insurance  procured  by  the  husband  for  the 
wife  is  a  mere  gratuity.  It  is  to  protect  an  existing  interest,  as  well 
as  the  performance  of  the  duty  to  the  wife.  It  is  a  contract  about  a 
matter  of  interest  to  the  wife,  and  she  can  pay  the  premiums  herself 
in  case  her  husband  fails  to  do  so.  *  *  *  If  she  has  such  an 
interest  in  the  contract  that  she  might  protect  it  against  the  wishes  of 
her  husband  and  the  insurance  company  by  making  payments  accord- 
ing to  the  terms  of  the  contract,  she  is  not  a  stranger  to  it,  and  surely 
her  interest  is  of  a  character  that  she  cannot  be  deprived  of  it  without 
her  consent,  except  by  her  failure  to  see  that  the  terms  of  the  contract 
are  complied  with."  In  the  case  of  Freund  v.  Freund,  218  111.  189,  at 
page  201,  75  N.  E.  925,  at  page  929,  109  Am.  St.  Rep.  283,  the  Supreme 
Court  of  that  state,  quoting  Thomas  v.  Thomas,  131  N.  Y.  205,  30 
N.  E  61,  27  Am.  St.  Rep.  582,  and  other  New  York  cases,  says :  "In 
the  present  case  *  *  *  ^\^q  right  of  the  assured  to  change  the 
beneficiary  is  a  qualified  right;  that  is,  subject  to  the  consent  of  the 
company  and  to  the  indorsement  upon  the  policy  by  the  company  at  its 
home  office.  The  tendency  of  the  decisions  when  carefully  examined 
is  to  sustain  the  rule  that  a  change  of  beneficiary  cannot  be  accomplish- 


Sec.  2)  LIFE  INSURANCE  027 

ed  except  by  compliance  with  the  provisions  *  *  *  Jn  {]^q  contract 
for  such  change." 

In  the  case  of  Arnold  v.  Empire  Mut.  Annuity  &  Life  Ins.  Co.,  3 
Ga.  App.  695,  60  S.  E.  470,  the  court  says :  "The  beneficiary  of  an 
insurance  poHcy  has  a  vested  right  in  the  contract  of  insurance,  which 
cannot  be  diminished  or  affected  by  subsequent  agreements  between 
the  insurer  and  the  insured,  which  are  not  stipulated  or  provided  for 
in  the  original  contract.  The  vested  right  of  the  beneficiary  is  subject 
to  be  divested  only  in  accordance  with  express  provisions  of  the  con- 
tract permitting  a  change  of  beneficiary."  And,  after  reviewing  and 
citing  a  great  number  of  authorities,  the  court  concluded  the  question 
by  asserting  that  "the  true  rule  w^ould  seem  to  be  that  laid  down  by 
May  on  Insurance,  §  3990,  and  that,  'if  there  is  express  provision  for 
a  change,  *  *  *  ^  j^g^  designation  may  be  made  in  the  mode  pre- 
scribed, but  courts  lean  to  upholding  a  designation,  if  clear,  though  de- 
fective in  form.'  Those  courts  which  hold  that  the  interest  of  the 
beneficiary,  during  the  life  of  the  insured,  is  merely  an  expectancy, 
when  the  insured  has  the  right  to  change  the  beneficiary,  hold  never- 
theless that  the  change-  must  be  made  in  strict  conformity  with  the 
provisions  of  the  policy  upon  that  subject  in  order  to  divest  the  interest 
of  the  beneficiary  named  therein.  We  have  heretofore  alluded  to  the 
fact  that  the  policy  in  this  case  provided  for  a  change  of  beneficiary, 
but  that  the  right  of  the  plaintiff  in  error  was  not  divested  by  any 
attempt  to  comply  with  this  condition  of  the  contract.  That  the  ben- 
eficiary of  a  contract  of  life  insurance  has  a  vested  right  in  the  con- 
tract (though  it  may  be  divested  by  the  selection  under  the  special  pro- 
vision of  the  contract  of  a  new  beneficiary)  admits  of  no  question." 
Smith  V.  Head,  75  Ga.  757. 

In  Townsend  v.  Townsend,  127  Ky.  230,  105  S.  W.  937,  16  L.  R.  A. 
(N.  S.)  316,  the  court  said:  "The  only  reservation  to  the  insured  was 
the  right  to  surrender  the  policy  at  the  end  of  the  first  ten  years,  or 
at  the  end  of  any  subsequent  five  years,  and  to  receive  in  cash  its  then 
surrender  value,  and  this  right  continued  only  for  thirty  days  im- 
mediately following  the  ten  and  five  year  terms  mentioned.  Unless, 
then,  this  right  was  exercised  at  the  time  and  in  the  manner  expressed 
in  the  policy,  the  interest  of  the  named  beneficiaries  continued  unaffect- 
ed by  it.  Their  interest  was  vested,  subject  to  be  defeated  only  (1) 
if  they  died  before  the  insured ;  and  (2)  if  he,  at  the  time  and  in  the 
manner  expressed  in  the  policy,  exercised  his  option  to  surrender  it  in 
exchange  for  its  then  cash  surrender  value.  It  was  not  within  the 
power  of  the  insured,  or  zvitliin  his  and  the  insurer's  power,  to  alter  the 
terms  of  the  contract  so  as  to  affect  the  interests  of  the  beneficiaries. 
The  insured  had  not  the  right  to  assign  the  policy  to  another,  for  value 
or  not,  nor  had  he  the  right  to  pledge  it  as  collateral  to  secure  his  own 
indebtedness."    (Italics  ours.) 

The  contract  of  insurance  in  this  case  was  delivered  and  accepted 
on  December  9,  1907,  was  in  the  possession  of  the  appellee,  the  bene- 


028  EIGHTS  UNDER  THE  CONTRACT  (Ch.  9 

ficiary,  and  was  not  surrendered  to  the  company.  On  November  30, 
1908,  the  appellant  paid  to  the  insured  $140.45  in  consideration  of  the 
execution  of  a  release.  Appellee  was  not  a  party  to  such  release,  and 
acquired  no  knowledge  of  it  until  December  8,  1908,  when  appellant 
returned  the  check  of  the  agent  of  the  insured  and  appellee,  and 
notified  appellee  that  such  contract  had  been  canceled  and  requested 
the  surrender  of  the  policy.  It  seems  to  us  that  a  pertinent  inquiry 
here  would  be,  Who  had  the  title  to  the  policy  on  November  30,  1908? 
Certainly  some  sort  of  a  title  thereto  was  in  the  appellee,  and,  whatever 
that  title  was,  she  could  be  divested  of  it  only  by  a  strict  compliance 
with  the  conditions  of  the  contract  as  therein  provided,  or  by  some 
act  or  proceeding  to  which  appellee  was  a  party  so  that  she  would 
be  bound  thereby.  From  the  foregoing  we  conclude  that  the  attempt  to 
cancel  the  policy  and  terminate  the  liability  of  the  appellant  to  this 
beneficiary  was  not  in  accord  with  the  specific  terms  of  the  contract; 
that  a  change  of  beneficiary  as  provided  therein  contemplated  the  con- 
tinuance of  the  contract  and  did  not  contemplate  the  complete  annul- 
ment and  determination  thereof ;  that  the  beneficiary  upon  the  issuance, 
delivery,  and  acceptance  of  the  policy  of  insurance  took  such  a  de- 
feasible vested  interest  therein  as  under  this  contract  was  not  to  be 
divested  by  the  agreement  between  the  insurer  and  the  insured  can- 
celing the  policy;  and  that  the  trial  court  did  not  err,  therefore,  in  sus- 
taining demurrers  to  the  first,  third,  fourth,  and  sixth  paragraphs  of 
appellant's  answer  to  appellee's  complaint. 

The  judgment  of  the  Marion  superior  court  is  therefore  affirmed.-^ 

2  7  See,  in  accord,  Johnson  v.  New  York  Life  Ins.  Co.  (Colo.)  138  Pac.  414 
(1913);  Arnold  v.  Empire  Life  Ins.  Co.,  3  Ga.  App.  685,  60  S.  E.  470  (1008); 
Holder  v.  Prudential  Ins.  Co.,  77  S.  C.  299,  57  S.  E.  853  (1907).  See  especial- 
ly the  interesting  case  of  Lanier  v.  Insurance  Co.,  142  N.  C.  15,  54  S.  E. 
786  (1906),  in  which  it  was  held  that  at  the  suit  of  a  beneficiary  on  a  life 
policy  the  insurer,  setting  up  a  change  of  beneficiary  under  a  term  of  the 
policy  allowing  it,  has  the  burden  of  proving  that  such  change  has  been 
made  in  compliance  with  the  terms  of  the  policy. 

The  contrary  doctrine,  that  the  beneficiary  of  a  policy  providing  for  a 
change  of  the  beneficiary  by  the  insured  has  only  an  expectancy,  and  not 
a  vested  interest,  is  well  expressed  by  Gray,  Circuit  Judge,  in  Hopkins  v. 
Northwestern  Life  Assurance  Co.,  99  Fed.  199,  40  C.  C.  A.  1  (1900),  as  fol- 
lows: "The  control  over  the  contract  of  insurance  given  to  the  insured,  in- 
dependent of  the  will  of  the  beneficiary,  makes  impossible  the  existence  of 
such  permanent  or  vested  interest  in  such  beneficiary  during  the  lifetime  of 
the  insured.  The  right  of  the  beneficiary  is  inchoate,  and  a  mere  expectancy, 
during  such  lifetime,  and  does  not  become  vested  until  the  death  of  the 
insured  happens  with  the  policy  unchanged."  See,  in  accord,  Atlantic  Mutual 
Life  Ins.  Co.  v.  Gannon,  179  Mass.  291,  60  N.  E.  933  (1901). 

Similar  to  the  clause  allowing  a  change  of  beneficiary,  in  their  effect  upon 
the  interest  of  the  beneficiary,  are  the  provisions  permitting  a  surrender  of 
the  policy  for  its  cash  value  by  the  insured,  and  conditions  requiring  that 
in  order  to  receive  the  amount  of  the  policy  the  beneficiary  must  survive 
the  insured.  As  holding  that  in  such  cases  the  interest  of  the  beneficiary  is 
vested,  though  subject  to  be  divested  in  the  manner  specified  in  the  policy, 
see  Townsend's  Assignee  v.  Townsend,  127  Ky.  230,  105  S.  W.  937,  16  L. 
R.  A.  (N.  S.)  316  (1907)  ;  Wallace  v.  Mutual  Benefit  Life  Ins.  Co.,  97  Minn. 
27,  106  N.  W.  84,  3  L.  R.  A.  (N.  S.)  478  (1906).     In  United  States  Casualty 


Sec.  2)  LIFE  INSURANCE  029 


SUPREME  CONCLAVE,  ROYAL  ADELPHIA,  v.  CAPPELLA 

et  al. 
(Circuit  Court  of  the  United  States,  E.  D.  Michisan,  1890.     41  Fed.  1.) 

This  was  a  bill  of  interpleader  to  settle  the  title  to  a  certain  bene- 
fit certificate.  The  certificate  in  question,  which  was  for  the  sum  of 
$3,000,  was  originally  issued  October  17,  1885,  to  Leo  F.  Kratzsch, 
and  made  payable  to  his  sister  Emma,  in  accordance  with  the  laws  of 
the  order,  one  of  which  provided  as  follows :  "A  member  may  at  any 
time,  when  in  good  standing,  surrender  his  benefit  certificate,  and  a 
new  one  shall  be  issued,  payable  to  such  beneficiary  or  beneficiaries 
as  such  member  may  direct,  in  compliance  with  the  laws  and  usages 
of  the  order,  and  the  payment  of  a  fee  of  fifty  cents.  Said  surren- 
der and  direction  must  be  made  in  writing,  signed  by  the  member, 
and  forwarded  under  the  seal  of  the  subordinate  conclave,  with  the 
benefit  certificate,  to  the  supreme  secretary."  This  certificate  was  duly 
transferred  by  the  insured  to  Miss  Cappella,  his  aunt,  one  of  the  de- 
fendants in  the  action,  who  had  loaned  him  $400  and  cared  for  him 
during  illness.  Later  Leo  Kratzsch,  desiring  to  change  the  certifi- 
cate so  that  his  father,  the  other  defendant  in  the  action,  should  re- 
ceive $2,000,  and  Miss  Cappella  $1,000,  directed  the  latter  to  send  the 
policy  to  the  supreme  secretary  and  have  the  beneficiaries  changed 
accordingly.  Miss  Cappella,  however,  did  not  do  as  requested,  but,  re- 
taining the  policy,  wrote  the  insured  that  it  was  best  to  leave  matters 
as  they  were. 

On  the  14th  of  September,  Leo,  being  then  very  near  his  end, 
signed  and  duly  executed  and  acknowledged  an  instrument  in  writ- 
ing, directed  to  the  supreme  secretary  of  the  plaintiff,  requesting  plain- 
tiff to  change  his  certificate  in  accordance  with  his  original  agreement 
with  Miss  Cappella,  and  stating  that  he  could  not  make  an  actual  sur- 
render of  the  certificate  then  in  force,  because  the  same  was  in  pos- 
session of  the  defendant  Cappella.  This  instrument  was  duly  at- 
tested by  the  secretary  of  Carpenter  Conclave,  No.  17,  sealed  with 
the  seal  of  the  conclave,  and  on  the  18th  of  September  delivered  to 
and  received  by  the  supreme  secretary  of  the  plaintiff,  together  with 
the  fee  of  fifty  cents  required  by  the  rules  of  the  order.     On  the  19th 

Co.  V.  Kacer,  169  Mo.  301,  69  S.  W.  370,  58  L.  R.  A.  436,  92  Am.  St.  Rep. 
641  (1902),  the  policy  was  made  payable  to  the  daughters  of  the  insured 
"if  surviving."  The  insured  and  his  daughter  perished  in  a  common  dis- 
aster. It  was  held  that,  in  the  absence  of  proof  that  the  daughter  did  not 
survive,  her  representatives,  and  not  those  of  the  father,  were  entitled  to 
the  insurance  money,  inasmuch  as  the  right  of  the  daughter  was  not  con- 
tingent, but  vested,  subject  to  be  divested. 

In  Supreme  Council  Royal  Arcanum  v.  Kacer,  96  Mo.  App.  93,  69  S.  W. 
671  (1902),  upon  the  same  state  of  facts,  the  same  controversy  arose  between 
the  representatives  of  the  insured  and  of  the  beneticiary  in  respect  to  the 
proceeds  of  a  certificate  in  a  nuitual  benefit  association.  It  was  held  that 
the  burden  was  on  the  beneficiary's  representatives  to  prove  her  survivor- 
ship, since  in  mutual  benefit  insurance  the  beneficiary  has  no  vested  rights. 


030  RIGHTS   UNDER  THE   CONTRACT  (Ch.  9 

of  September  the  insured  died  at  the  residence  of  his  father.  Due 
proof  having  been  made  of  his  death,  the  plaintiff  audited  the  claim 
upon  which  it  became  liable,  by  reason  of  his  death,  at  the  sum  of 
$2,910,  being  the  amount  of  the  certificate,  less  the  sum  of  $90  paid 
prior  to  his  death.  Suits  having  been  begun  by  Miss  Cappella  in 
this  court,  and  by  the  defendant  Julius  Kratzsch  in  the  State  court 
at  Milwaukee,  plaintiff  filed  this  bill  of  interpleader  to  compel  defend- 
ants to  litigate  their  respective  claims  upon  the  fund,  and  paid  into 
court  the  amount  of  the  certificate  as  audited. ^^ 

Brown,  J.  This  is  one  of  a  class  of  cases  which  have  become  quite 
common  within  the  past  twenty-five  years,  arising  out  of  an  inexpen- 
sive method  of  insurance,  by  which  persons  in  moderate  circumstances 
may,  by  the  payment  of  a  small  monthly  assessment,  secure  a  provi- 
sion for  themselves  or  their  families  in  case  of  sickness,  accident,  or 
death.  Much  of  the  law  applicable  to  ordinary  cases  of  life  insur- 
ance is  equally  applicable  here.  In  a  few  particulars,  however,  it  seems 
to  be  somewhat  less  favorable  to  the  person  for  whose  benefit  the  pol- 
icy is  taken  out.  For  instance,  in  case  of  an  ordinary  policy,  the  right 
of  a  person  for  whose  benefit  the  policy  is  issued  cannot  be  defeated 
by  the  separate  and  joint  acts  of  the  assured  and  the  company,  with- 
out the  consent  of  the  beneficiary.  Bliss,  Ins.,  §  318;  while  it  is  en- 
tirely well  settled  that  in  cases  of  this  description  the  beneficiary  has 
no  vested  interest  in  the  benefit  certificate  until  the  death  of  the  in- 
sured member.  Up  to  this  time  he  may  change  his  designation  of 
beneficiary  at  will,  against  the  consent  of  such  beneficiary,  even  though 
the  latter  may  have  advanced  the  money  to  pay  the  assessments  upon 
the  certificate.  Bac.  Ben.  Soc.  §  306;  Lamont  v.  Association  (C.  C.) 
30  Fed.  817;  Wendt  v.  Legion  of  Honor,  72  Iowa,  682,  34  N.  W. 
470;  Association  v.  Montgomery,  70  Mich.  587,  38  N.  W.  588,  14 
Am.  St.  Rep.  519;  Fisk  v.  Union,  11  Atl.  84;  Hellenberg  v.  District 
No.  1,  94  N.  Y.  580;  Society  v.  Burkhart,  110  Ind.  192,  10  N.  E.  79, 
11  N.  E.  449;  Holland  v.  Taylor,  111  Ind.  121,  12  N.  E.  116;  La- 
mont V.  Grand  Lodge  (C.  C.)  31  Fed.  177;  Schillinger  v.  Boes,  85 
Ky.  357,  3  S.  W.  427;  Knights  of  Honor  v.  Watson,  64  N.  H.  517, 
15  Atl.  125;  Beatty's  Appeal,  122  Pa.  428,  15  Atl.  861;  Byrne  v. 
Casey,  70  Tex.  247,  8  S.  W.  38. 

In  making  such  change  of  beneficiary,  however,  the  insured  is 
bound  to  do  it  in  the  manner  pointed  out  by  the  policy  and  the  by- 
laws of  the  association,  and  any  material  deviation  from  this  course 
will  invalidate  the  transfer.^**  Thus,  if  the  certificate  provides  that 
no  assignment   shall   be  valid  unless   approved  by   the   secretary,   an 

2  8  The  statement  of  facts  has  been  condensed. 

2  9  See  Berg  v.  Damkoehler,  112  Wis.  587,  88  N.  W.  606  (1902);  Provident 
Life  Assurance  Co.  of  New  York  v.  Dees,  120  Ky.  285,  86  S.  W.  522  (1905); 
Canavan  v.  John  Hancock  Mutual  Life  Ins.  Co.,  39  Misc.  Rep.  782,  81  N.  Y. 
Supp.  301  (1902)  ;  Freund  v.  Freund,  218  111.  189.  75  N.  E.  925,  109  Am.  St. 
Rep.  283  (1905),  applying  the  same  rule  to  regular  life  insurance  contracts. 


Sec.  2)  LIFE   INSURANCE  631 

assignment  without  such  approval  will  be  invalid.  Harman  v.  Lewis 
(C.  C.)  24  Fed.  97,  s.  c,  530.  So,  if  it  be  provided  that  such  change 
must  be  made  on  a  prescribed  form  or  blank,  the  signature  to  which 
shall  be  attested  before  a  notary,  and  the  change  entered  upon  the 
books,  an  assignment  to  a  creditor  as  collateral  security,  not  made 
upon  the  prescribed  blank,  and  of  which  the  association  had  no  notice 
until  after  the  death  of  the  member,  was  held  to  be  fatally  defective. 
Association  v.  Brown  (C.  C.)  33  Fed.  11.  So,  where  the  certificate 
required  every  surrender  to  be  in  writing,  attested  by  the  reporter 
under  the  lodge  seal,  it  was  held  that  a  conditional  surrender  of  the 
same  by  the  holder,  not  to  take  efifect  until  after  his  death,  and  not 
made  in  the  presence  of  or  attested  by  such  lodge  reporter,  was  in- 
valid. Supreme  Lodge  v.  Nairn,  60  Mich.  44,  26  N.  W.  826.  See, 
also,  Wendt  v.  Legion  of  Honor,  72  Iowa,  682,  34  N.  W.  470;  El- 
liott V.  Whedbee,  94  N.  C.  115;  Mellows  v.  Mellows,  61  N.  H.  137; 
Highland  v.  Highland,  109  111.  366.  So,  if  the  by-laws  fix  definitely 
the  manner  of  changing  the  beneficiary  by  his  action  during  his  life, 
an  attempt  to  divert  the  benefit  by  will  has  usually  been  held  to  be 
abortive.  Holland  v.  Taylor,  111  Ind.  121,  12  N.  E.  116;  Stephenson 
V.  Stephenson,  64  Iowa,  534,  21  N.  W.  19;  Insurance  Co.  v.  Miller, 
13  Bush  (Ky.)  489;  Vollman's  Appeal,  92  Pa.  50;  Renk  v.  Herrman 
Lodge,  2  Dem.  Sur.  (N.  Y.)  409;  Daniels  v.  Pratt,  143  Mass.  216,  10 
N.  E.  166. 

There  are,  however,  three  exceptions  to  this  general  rule  requiring 
an  exact  conformity  with  the  regulations  of  the  association: 

(1)  If  the  society  has  waived  a  strict  compliance  with  its  own  rules, 
and,  in  pursuance  of  the  request  of  the  insured  to  change  his  bene- 
ficiary, has  issued  a  new  certificate  to  him,  the  original  beneficiary  will 
not  be  heard  to  complain  that  the  course  indicated  by  the  regulations 
was  not  pursued.  This  naturally  follows  from  the  fact  that,  having 
no  vested  interest  in  the  certificate  during  the  lifetime  of  the  assured, 
he  has  no  right  to  require  that  the  rules  of  the  association,  which  are 
framed  alone  for  its  own  protection  and  guidance,  are  not  complied 
with.  Martin  v.  Stubbings,  126  111.  387,  18  N.  E.  657,  9  Am.  St.  Rep. 
620 ;  Splawn  v.  Chew,  60  Tex.  532 ;  Manning  v.  Ancient  Order,  86 
Ky.  136,  5  S.  W.  385,  9  Am.  St.  Rep.  270;  Society  v.  Lupoid,  101  Pa. 
Ill;  Brown  v.  Mansur,  64  N.  H.  39,  5  Atl.  768;  Knights  of  Honor 
V.  Watson,  64  N.  H.  517,  15  Atl.  125 ;  Byrne  v.  Casey,  70  Tex.  247,  8 
S.  W.  38;  Titsworth  v.  Titsworth,  40  Kan.  571,  20  Pac.  213.^°  The 
case  of  Wendt  v.  Legion  of  Honor,  72  Iowa,  682,  34  N.  W.  470,  ap- 
pears upon  its  face  to  lay  down  a  different  rule,  but  upon  examination 
it  will  be  seen  that  the  change  was  attempted  to  be  made  by  a  paper 
which  the  insured  called  his  last  will,  but  which  was  no  will  in  law ; 

30  The  same  mle  has  been  held  applicable  to  defective  changes  of  benefi- 
ciary in  old  line  policies.  See  Dausherty  v.  Daugherty,  152  Ky.  732,  154  S. 
W.  9  (1913)  ;  John  Hancock  Mutual  Life  Ins.  Co.  v.  White,  20  R.  I.  457,  40 
Atl.  5   (1S9S). 


632  RIGHTS   UNDER  THE  CONTRACT  (Ch.  0 

and  the  court  held  that,  the  interest  of  the  beneficiary  having  become 
vested  by  the  death  of  the  insured,  they  had  acquired  rights  which 
could  not  be  cut  off,  except  in  the  manner  prescribed  in  the  contract. 
This  case,  evidently,  has  no  application  to  a  change  made  prior  to  the 
death  of  the  insured. 

(2)  If  it  be  beyond  the  power  of  the  insured  to  comply  literally  with 
the  regulations,  a  court  of  equity  will  treat  the  change  as  having  been 
legally  made.  Thus,  in  the  case  of  Grand  Lodge  v.  Child,  70  Mich. 
163,  38  N.  W.  1,  the  insured  made  his  betrothed  the  beneficiary,  and 
subsequently  lost  his  certificate.  His  beneficiary  having  married  an- 
other, he  made  a  statement  of  the  loss,  and  applied  for  a  reissue  of 
the  certificate,  making  his  son  the  beneficiary.  His  application  was 
refused.  The  rules  of  the  organization  required  the  change  to  be  in- 
dorsed on  the  original  certificate,  but,  by  the  advice  of  the  officers,  he 
attempted  to  make  the  change  of  beneficiary  by  giving  a  power  of  at- 
torney to  another  to  collect  the  amount  which  should  accrue  under 
the  certificate.  It  was  held  that  such  acts  constituted  an  equitable 
change  of  beneficiary,  and  that  the  son  was  entitled  to  the  fund.  The 
court  held  that  the  insured  had  done  all  that  he  could,  and  all  that  he 
was  required  in  equity  to  do,  to  change  the  donee  of  the  certificate. 
"The  rules  of  the  order  allowed  him  to  do  this,  and  it  was  not  in  the 
discretion  of  the  order  to  prevent  it.  *  *  *  The  law  never  re- 
quires impossibilities;  and  the  rules  of  the  order,  which  required  the 
certificate  to  be  surrendered  when  a  change  of  the  beneficiary  was 
made,  that  it  might  be  indorsed  upon  the  certificate,  could  only  be  con- 
strued as  requiring  that  to  be  done  when  the  certificate  was  in  ex- 
istence. The  existence  of  the  right  to  share  in  the  benefits  of  the 
order,  and  to  direct  who  should  receive  the  fund  in  case  of  the  death 
of  a  member,  was  a  right  vested  in  the  member  as  soon  as  he  became 
entitled  thereto,  and  the  certificate  was  only  evidence  of  the  existence 
of  that  right,  and,  when  that  evidence  was  lost,  the  right  remained, 
and  its  existence  could  be  established  by  any  other  competent  evidence ; 
and  the  same  is  true  of  the  existence  of  the  change  directed  by  the 
member  of  the  beneficiary." 

(3)  If  the  insured  has  pursued  the  course  pointed  out  by  the  laws 
of  the  association,  and  has  done  all  in  his  power  to  change  the  bene- 
ficiary, but,  before  the  new  certificate  is  actually  issued,  he  dies,  a 
court  of  equity  will  decree  that  to  be  done  which  ought  to  be  done, 
and  act  as  though  the  certificate  had  been  issued. ^^  The  case  of  As- 
sociation v.  Kirgin,  28  Mo.  App.  80,  is  an  illustration  of  this  excep- 
tion.   In  this  case  the  insured,  having  met  with  a  fatal  accident,  called 

31  See  Mutual  Life  Ins.  Co.  v.  Lowther,  22  Colo.  App.  622,  126  Pac.  SS2 
(1912)  ;  Daugherty  v.  Daugherty,  152  Ky.  732,  154  S.  W.  9  (1913),  where  the 
same  result  was  reached  in  actions  at  law  on  regular  life  insurance  policies. 
See,  contra,  Freund  v.  Freund.  218  111.  189,  75  N.  E.  925,  109  Am.  St.  Rep. 
283  (1905),  holding  that  the  rights  of  the  beneficiary  became  fixed  at  the 
death  of  the  insured  and  are  unaffected  by  an  incompleted  change  of  bene- 
ficiaries. 


Sec.  2)  LIFE   INSURANCE  633 

a  friend,  and  requested  him  to  take  his  certificate  to  the  association 
and  surrender  it,  pay  the  fee  of  fifty  cents,  and  request  them  to  issue 
a  new  one,  payable  to  his  wife.  This  was  done,  and  a  minute  of  the 
transaction  was  made  on  the  records  of  the  association  for  that  day. 
On  the  following  day  the  insured  died.  It  was  held  that  in  doing  this 
he  had  done  all  that  the  laws  of  the  order  required  to  be  done  on  his 
part  in  order  to  have  a  new  certificate;  that  his  right  to  make  the 
change  was  absolute,  and  that  the  association  had  no  right  to  re- 
fuse his  request ;  and,  further,  that  the  fact  that  the  certificate  was 
issued  after  his  death  was  immaterial,  since  the  certificate  was  not 
the  right  itself,  but  merely  the  evidence  of  the  right.  See,  to  the  same 
efifect,  Mayer  v.  Association,  49  Hun,  336,  2  N.  Y.  Supp.  79 ;  Supreme 
Lodge  V.  Nairn,  60  Mich.  44,  26  N.  W.  826;  Kepler  v.  Supreme 
Lodge,  45  Hun,  274.  The  case  of  Ireland  v.  Ireland,  42  Hun,  212, 
is  distinguishable  from  these  in  the  fact  that  the  insured  made  no 
written  request  for  a  change,  as  required  by  the  rules,  but  merely  de- 
livered the  certificate  to  a  friend,  telling  him  he  wanted  it  changed. 
This  was  manifestly  insufficient. 

We  think  the  case  under  consideration  falls  within  these  exceptions. 
Five  days  before  the  death  of  the  insured,  he  signed  and  acknowledged 
before  a  notary  a  written  application  for  a  change  in  his  certificate 
in  the  form  prescribed  by  the  by-laws,  stating  that  the  original  cer- 
tificate to  Anna  Cappella  was  in  her  possession,  and  beyond  his  con- 
trol. This  application  was  delivered  to  the  secretary  of  the  Carpenter 
Conclave  at  Milwaukee,  who  affixed  the  seal  of  the  conclave,  and  for- 
warded it  to  the  supreme  secretary.  It  is  true,  he  did  not  surren-der 
the  original  certificate,  as  required  by  the  regulations ;  but  he  had 
done  all  in  this  connection  which  was  within  his  power,  or  which  he 
could  reasonably  be  required  to  do.  He  had  requested  defendant  Cap- 
pella to  obtain  it  of  Mueller,  and  deliver  it  tO  the  proper  officer  at  Mil- 
waukee, and  had  taken  her  word  that  she  would  do  so.  She  probably 
went  to  Milwaukee  with  that  intention,  but  upon  calling  upon  Mr. 
Eckstein,  the  collector  of  the  Carpenter  Conclave,  she  says  he  advised 
her  that  it  would  take  four  or  five  weeks  to  make  a  change,  and  she 
had  better  not  do  it.  This  was  before  she  had  obtained  the  certifi- 
cate of  Mueller. 

It  is  but  just  to  Mr.  Eckstein  to  say  that  he  gives  an  entirely  dif- 
ferent version  of  the  transaction,  and  swears  that  she  told  him  that 
she  had  been  prevailed  upon  to  make  the  change  in  the  benefit  certifi- 
cate which  was  entirely  satisfactory  to  her,  saying  that  $1,000  was 
all  she  cared  for,  seeing  that  that  was  the  amount  the  insured  was 
owing  her.  Says  he :  "I  asked  her  whether  she  had  something  writ- 
ten to  that  efifect ;  that  it  should  be  made  in  that  manner,  or  indorsed 
on  the  certificate.  She  said  that  nothing  had  been  indorsed  on  the 
certificate,  but  she  was  perfectly  willing  to  leave  it  as  it  was,  and  to 
give  the  father  bonds  or  some  security  for  the  $2,000." 

Upon  arriving  at  St.  Louis,  she  writes  Leo  that  she  thinks  it  best 


634  RIGHTS   UNDER  THE  CONTRACT  (Ch.  9 

to  leave  it  the  way  it  is,  and  that  she  will  never  cheat  his  father  out 
of  the  money.  Her  purpose  was  illy  concealed  by  this  letter.  Upon 
the  stand  she  explains  this  by  saying  that  Leo  was  being  annoyed  by 
his  father  about  the  certificate,  and  she  wished  to  put  his  mind  at  rest, 
that  he  might  die  in  peace,  and  that  his  father  might  understand  that 
he  was  to  have  the  benefit  of  two-thirds  of  the  certificate.  In  short, 
she  leaves  us  to  infer  that  she  never  really  intended  to  make  the 
change.  Our  impression,  however,  is  that  she  did  intend,  at  first,  to 
comply  with  Leo's  request,  but  was  overpersuaded  by  some  one  to 
change  her  mind.  With  regard  to  the  writing  which  she  received  from 
Leo,  she  first  says  that  it  was  destroyed,  and  then  that  it  was  lost ; 
but,  whichever  it  was,  it  is  clear  that  the  certificate  was  as  much  lost 
to  the  insured  as  if  it  had  been  destroyed. 

While  the  supreme  secretary  may  have  been  justified  in  refusing 
to  issue  a  new  certificate  without  a  surrender  of  the  old  one,  accord- 
ing to  the  requirements  of  the  order,  it  certainly  does  not  lie  in  the 
mouth  of  Miss  Cappella  to  set  up  this  failure  in  a  court  of  equity, 
when  she  herself  is  a  cause  of  it,  and  the  company  has  admitted  its 
liability  by  the  payment  of  the  money  into  court.  No  maxim  of  the 
law  is  founded  upon  more  substantial  justice  than  that  which  declares 
that  no  one  shall  take  advantage  of  his  own  wrong.  Under  the  by- 
laws of  the  company,  the  insured  had  a  legal  right  to  change  his  ben- 
eficiary whenever  he  pleased ;  and  the  consent  of  the  company  does 
not  seem  to  be  required,  much  less  that  of  the  beneficiary.  Were  the 
non-surrender  of  the  certificate  set  up  by  the  company  in  a  common- 
law  action  brought  by  Kratzsch,  it  is  possible  that  the  court  might 
be  compelled  to  hold  that  he  had  failed  to  establish  his  title ;  but  when 
the  company  waives  this  defense,  or  at  least  disclaims  any  interest 
in  the  result  of  the  controversy,  the  objection  comes  with  ill  grace 
from  one  who  is  solely  responsible  for  such  non-surrender.  A  court 
of  equity  is  seldom  embarrassed  by  technicalities,  and  will  make  such 
a  decree  as  the  justice  of  the  case  manifestly  requires.  The  cases 
above  cited,  which  establish  the  proposition  that  the  failure  to  take 
the  proper  steps  to  change  the  designation  can  only  be  taken  ad- 
vantage of  by  the  company  itself,  are  equally  pertinent  to  show  that 
it  cannot  be  made  available,  by  one  standing  in  the  relation  of  Miss 
Cappella  to  this  fund. 

The  case  of  Hainer  v.  Legion  of  Honor,  78  Iowa,  245,  43  N.  W. 
185,  is  instructive  in  this  connection.  In  this  case  the  deceased  had 
made  his  certificate  payable  to  his  mother.  Upon  the  back  was  a 
printed  blank  designed  for  changing  the  designation.  After  the  is- 
suance of  the  certificate,  the  insured  married,  and  subsequently  died, 
leaving  a  will,  in  which  he  bequeathed  one-half  of  the  amount  due 
upon  the  certificate  to  his  daughter.  The  association  appeared,  and 
paid  into  court  the  amount  of  the  certificate.  It  was  held  that  the 
mother,  having  known  of  the  provisions  of  the  will,  and  having  made 
no  objections  thereto,  but,  on  the  contrary,  having  expressed  her  ac- 


Sec.  2)  LIFE   INSURANCE  635 

quiescence  in  the  same,  and  taken  possession  of  certain  real  property 
devised  to  her,  and  otherwise  having  availed  herself  of  the  benefits 
conferred  upon  her  by  the  will,  was  estopped  to  claim  the  full  amount 
of  the  certificate.  The  court  held  that,  although  a  change  of  benefi- 
ciaries by  will  was  not  such  a  compliance  with  the  regulations  of  the 
company  as  would  entitle  the  person  named  in  the  will  to  recover,  yet 
the  company  having  disclaimed  any  interest  in  the  controversy  by  the 
payment  of  the  money  into  court,  the  original  beneficiary  was  estopped 
by  her  conduct  in  taking  under  the  will  to  repudiate  the  provision  by 
which  one-half  of  the  certificate  was  bequeathed  to  the  daughter.  The. 
case  of  Marsh  v.  Supreme  Council,  149  Mass.  512,  21  N.  E.  1070,  4 
L.  R.  A.  382,  is  still  more  direct  authority  to  the  point  that  the  orig- 
inal beneficiary  cannot  avail  herself  of  her  own  misconduct  to  allege 
that  the  insured  did  not  comply  with  the  requirements  of  the  associa- 
tion. 

There  must  be  a  decree  awarding  one-third  of  the  fund  to  defend- 
ant Cappella,  and  the  residue  to  the  defendant  Julius  Kratzsch,  with 
costs  against  Miss  Cappella. 


LAW  V.  GEORGE  NEWNES,  Limited. 

(Scotcli  Court  of  Sessions,   Secoud  Division,  1894.     21  R.  1027,  31  Scot. 

Law  Rep.  888.) 

The  proprietors  of  the  Tit-Bits  newspaper  advertised  that  if  any 
purchaser  of  a  copy  of  Tit-Bits  was  killed  by  accident  while  traveling 
in  a  public  carriage,  having  the  paper  in  his  possession  at  the  tune  of 
his  death,  ilOO.  w^ould  be  paid  to  the  person  who  should  be  decided 
by  the  proprietors  of  the  paper  to  be  the  next  of  kin  of  the  deceased. 
A  person  having  met  his  death  under  the  circumstances  specified,  the 
proprietors  duly  paid  the  sum  promised  to  the  widow  of  the  deceased. 
His  next  of  kin  under  the  law  of  Scotland  thereupon  instituted  these 
proceedings  as  upon  a  policy  of  insurance. ^^ 

Lord  YouxG.  *  *  *  The  appeal  is  brought  in  this  case  on  th^ 
question  whether  there  is  not  here  an  undertaking  by  the  proprietors 
of  Tit-Bits  to  pay  £100.  to  the  next  of  kin,  according  to  the  law  of 
Scotland,  of  the  person  killed  by  the  accident  described  in  the  case. 
The  money  has  been  paid  to  the  widow  of  the  deceased,  and  the  Lord 
Ordinary  says  that  the  widow  is  certainly  not  the  next  of  kin  or  one 
of  the  next  of  kin  according  to  the  law  of  Scotland,  nor,  so  far  as 
he  knows,  according  to  the  law  of  England,  but  that  the  defenders' 
obligation  was,  not  to  pay  the  money  to  the  next  of  kin  according  to 
the  law  of  Scotland  or  according  to  the  law  of  England,  but  to  whom- 
ever should  be  decided  by  the  proprietors  of  Tit-Bits  to  be  the  next 
of  kin  of  the  deceased.     That  was  the  defenders'  obligation,  assum- 

3  2  The  facts  are  restated,  and  a  part  of  Lord  Young's  opinion,  intimating 
that  no  contract  liability  existed  in  the  premises,  is  omitted. 


636  RIGHTS   UNDER  THE   CONTRACT  (Ch.  9 

ing  there  was  any  obligation  upon  them  at  ah.  T  cannot  say  that 
there  was  anything  dishonourable  or  contrary  to  any  legal  obligation 
in  the  proprietors  of  Tit-Bits  saying — "We  think  that  the  widow  is 
the  next  of  kin  of  the  deceased  man,  and  that  she  is  the  most  proper 
person  to  receive  the  £100.  promised  in  the  advertisement."  It  is 
enough  for  us  to  say  that  in  our  opinion  there  was  no  contract  obligation 
enforceable  against  the  proprietors  of  Tit-Bits  by  those  who  are  the 
next  of  kin  of  the  deceased  man  according  to  the  law  of  Scotland, 
In  my  opinion  the  case  should  be  dismissed. ^^     *     *     * 


II.  Assignees 


WARNOCK  V.  DAVIS. 
(Supreme  Court  of  the  United  States,  1881.     104  U.  S.  775,  26  L.  Ed.  924.) 
See  ante,  p.  170,  for  a  report  of  the  case. 


LAKE  V.  NEW  YORK  LIFE  INS.  CO. 

(Supreme  Court  of  Louisiana,  1908.     120  La.  971,  45  South.  959.) 
See  ante,  p.  174,  for  a  report  of  the  case. 


GRIGSBY  V.  RUSSELL. 

(Supreme  Court  of  the  United   States,  1911.     222  U.   S.  149,  32  Sup.  Ct.  58, 
56  L.  Ed.  133,  36  L.  K.  A.  [N.  S.]  642,  Ann.  Cas.  1913B,  863.) 

See  ante,  p.  176,  for  a  report  of  the  case. 

33  Designation  of  Beneficiary. — Only  such  beneficiaries  may  be  designated 
in  mutual  benefit  certificates  as  are  allowed  by  the  rules  of  the  society. 
See  Kirkpatrick  v.  Modern  Woodmen,  103  111.  App.  468  (1902);  Gillam  v. 
Dale,  GO  Kan.  362,  76  Pac.  861  (1904) ;  Supreme  Council  Am.  Legion  of  Honor 
V.   Smith,  45  N.  J.  Eq.  466,   17  Atl.  770  (1889). 

Where  one  of  two  beneficiaries  named  in  a  certificate  was  ineligible,  it  was 
contended  that  the  certificate  was  rendered  thereby  void ;  or  that  in  any 
event  the  eligible  beneficiary  was  entitled  to  only  one-half  the  sum  stipulated 
in  the  certificate.  But  the  court  held  that  she  might  take  the  whole.  See 
Cunat  V.  Supreme  Tribe  of  Ben  Hur,  249  111.  448,  94  N.  E.  925,  31  L.  R.  A. 
(N.  S.)    1192,  Ann.  Cas.  1912A,  213  (1911). 

A  false  description  of  the  beneficiary  will  not  avoid  the  policy  if  the  per- 
son intended  is  clearly  designated.  Thus  in  Mutual  Life  Ins.  Co.  v.  Cum- 
mings,  66  Or.  272,  126  Pac.  982,  133  Pac.  1169,  47  L.  R.  A.  (N.  S.)  252  (1913) 
the  policy  was  payable  to  "E.  M.  Cummings,  his  wife."  The  policy  was  held 
payable  to  the  insured's  paramour,  whom  he  held  out  as  his  wife,  and  not 
to  his  legal  wife  from  whom  he  was  separated.  See  extensive  note,  47  L. 
R.  A.  (N.  S.)  252. 

For  a  collection  of  the  cases  dealing  with  the  designation  of  beneficiaries 
in  mutual  benefit  associations,  see  1  Cooley,  Briefs  on  Insurance,  796-822. 


Sec.  2)  LIFE    INSURANCE  637 


RAHDERS,  MERRITT  &  HAGLER  v.  PEOPLE'S  BANK  OF 

MINNEAPOLIS. 

(Supreme  Court  of  Minnesota,  1911.     113  Minn.  496,  130  N.  W.  16,  Ann. 

Cas.  1912A,  299.) 


See  ante,  p.  179,  for  a  report  of  this  case. 


HARDY  V.  ^TNA  LIFE  INS.  CO. 

(Supreme  Court  of  North  Carolina,  1910.     152  N.  C.  286,  67  S.  E.  767.) 
See  ante,  p.  182,  for  a  report  of  this  case. 


III.  Creditors 


DRYSDALE  v.  PIGGOTT. 

(Court  of  Chancery,  1856.     8  De  Gex,  M.  &  G'.  546.) 

Lord  Justice  Knight  Bruce.^*  In  this  case  Pattison  Drysdale 
had  been  indebted  to  the  defendant,  and  his  father,  the  present  plain- 
tiff, had  become  surety  for  his  son,  to  secure  the  payment  of  the  debt 
by  instalments.  As  a  part  of  this  transaction,  a  policy  had  been  ef- 
fected in  the  name  of  the  creditor  on  the  life  of  the  principal  debtor, 
the  expenses  of  effecting  which,  or  a  large  part  of  them,  had  been 
charged  to  the  principal  debtor,  and  included  in  the  sum  for  which 
his  father  became  surety.  It  was  properly  conceded  on  the  part  of 
the  defendant  that  in  these  circumstances  the  policy  originally  belonged 
to  the  father  and  son,  or  one  of  them,  subject  to  the  right  of  the 
creditor  to  apply  the  money  assured  by  it  in  payment  of  his  debt  if 
necessary.  Subsequently  another  premium  became  due,  after  a  part 
but  not  the  whole  of  the  debt  had  been  paid,  and  then  upon  the  cred- 
itor applying  to  the  father  to  pay  the  premium  the  father  refused  to 
do  so,  and  thereby,  so  far  as  he  was  concerned,  exposed  the  property 
to  total  destruction.  I  will  assume  in  favor  of  the  defendant  that 
this  refusal  was  the  refusal  of  the  son  as  well  as  of  the  father.  Upon 
this  refusal  the  creditor  might  have  left  the  property  to  destruction ; 
he  did  not  do  so,  but  chose  to  preserve  it,  which  preservation  must 
enure  to  the  benefit  of  the  father  and  son. 

It  has  been  ably  argued  for  the  defendant  that  the  refusal  to  pay 
the  premium  was  a  repudiation  of  the  policy — a  giving  up  to  the 
creditor  of  all  the  equitable  title  of  the  father  and  son  to  it.     I  think, 

3  4  The  concurring  opinion  of  Turner,  L.  J.,  is  omitted. 


638  RIGHTS   UNDER  THE   CONTRACT  (Ch.  9 

however,  that  the  conduct  of  the  parties  is  not  to  be  treated  as  hav- 
ing such  an  effect.  If  a  creditor  chooses  to  preserve  a  pledge,  he 
preserves  it  for  the  benefit  of  the  owners,  subject  to  his  lien  for  the 
debt  and  for  the  expenses  incurred  in  preserving  the  pledge.  The 
plaintiff  therefore  is  entitled  to  the  money  assured  1)y  the  policy  on 
repaying  to  the  defendant  his  advances,  with  interest.  There  will  be 
no  costs  at  the  Rolls  or  of  the  appeal,  the  merits  on  each  side  being 
very  small.^^ 


SECTION  3.— RECOVERY  OF  PREMIUMS 


AMERICAN  MUT.  LIFE  INS.  CO.  v.  MEAD. 

(Appellate  Court  of  Indiana,  1906.     39  Ind.  App.  215,  79  N.  E.  526.) 

Action  to  recover  premiums  paid  to  the  defendant  company  on  a 
policy  of  insurance  taken  out  upon  the  life  of  his  mother-in-law.  on 
the  theory  that  such  policy  was  void  ab  initio  for  lack  of  insurable 
interest,  and  was  entered  into  by  the  plaintiff  through  a  misappre- 
hension of  the  law,  of  which  the  defendant  was  aware  at  the  time  it 
issued  the  policy  and  accepted  said  premium  payments.  Judgment 
for  plaintiff. 

Myers,  C.  J.  ^^  *  *  *  Having  determined  that  the  policy  was 
void,  it  necessarily  follows  that  appellant  thereby  incurred  no  risk  or 
liability  by  reason  thereof,  and  without  some  risk  or  liability  any 
assessments  paid  by  appellee  were  without  consideration,   and  must 

3  5  See,  in  accord,  Babcock  v.  Bonnell,  80  N.  Y.  244  (1880);  Crotty  v.  Insur- 
ance Co.,  144  U.  S.  621,  12  Sup.  Ct.  749,  36  L.  Ed.  566  (1892)  ;  Exchange  Bank 
V.  Loh,  104  Ga.  446,  31  S.  E.  4.59.  44  L.  R.  A.  372  (1898). 

"The  law  is  well  settled  in  this  state  that  a  creditor  who,  in  pursuance 
of  a  bona  fide  effort  to  secure  payment  of  his  debt,  insures  the  life  of  his 
debtor  and  takes  the  policy  in  his  own  name  or  for  his  own  benefit,  is  en- 
titled to  the  proceeds  of  the  entire  policy.  Emerick  v.  Coakley,  35  Md.  193 
(1872):  Whitins:  v.  Insurance  Co.,  15  Md.  326  (1860);  Robinson  v.  Hurst,  78 
Md.  59,  26  Ati.  956,  20  L.  R.  A.  761,  44  Am.  St.  Rep.  266  (1893);  Rittler  v. 
Smith,  70  Md.  261,  16  Atl.  890,  2  L.  R.  A.  844  (1889);  Souder  v.  Home  Friend- 
ly Society,  72  Md.  511,  20  Atl.  137  (1890).  In  Rittler  v.  Smith,  supra,  it  is 
said,  the  creditor  is  in  fact  the  owner  of  the  policy,  takes  the  risk  of  the 
continued  solvency  of  the  insurance  company,  and  is  obliged  to  keep  the 
policy  alive  by  paying  the  annual  premiums  during  the  life  of  the  debtor, 
and  the  latter  is  under  no  obligation  to  do  anything,  and  in  fact  does  nothing 
in  this  respect.  If  he  pays  the  debt  to  his  creditor,  he  has  only  discharged 
his  duty,  and  what  interest  has  he  in  the  policy,  or  in  what  his  creditor  may 
recover  upon  it?  And  such  we  find  is  also  the  English  rule.  Dalby  v.  In- 
surance Co.,  15  C.  B.  365  (1854) ;  Ashley  v.  Ashley,  3  Sim.  149  (1829) ;  Bruce 
V.  Garden,  L.  R.  5  Ch.  App.  32  (1869)."— Fitzgerald  v.  Rawlings  Implement 
Co.,  114  Md.  470,  79  Atl.  915,  Ann.  Cas.  1912A,  650  (1911). 

3  6  Portions  of  the  opinion,  dealing  with  a  question  of  pleading  and  decid- 
ing that  the  plaintiff  had  no  insurable  interest  in  the  life  of  his  mother-in- 
law,  in  consequence  of  which  the  policy  was  void,  are  omitted. 


Sec.  3)  RECOVERY  OF  PREMIUMS  639 

be  returned,  provided  the  parties  to  the  contract  were  not  in  pari 
delicto.  Metropolitan  Life  Ins.  Co.  v.  Bowser,  20  Ind.  App.  557,  50  N. 
E.  86;  Metropolitan  Life  Ins.  Co.  v.  McCormick,  19  Ind.  App.  49,  49 
N.  E.  44,  65  Am.  St.  Rep.  392;  Waller  v.  Northern  Assur.  Co.,  64 
Iowa,  101,  19  N.  W.  865;  Joyce  on  Insurance,  §  1390.  If  the  parties 
to  the  contract  were  equally  guilty,  neither  would  have  any  standing 
in  court  to  enforce  an  affirmative  [remedy]  against  the  other;  the 
policy  of  the  law  being  to  leave  them  in  the  position  regarding  their 
rights  under  such  illegal  act  precisely  as  they  leave  themselves.  Hutch- 
ins  V.  Weldin,  114  Ind.  80,  15  N.  E.  804;  Budd  v.  Rutherford,  4  Ind. 
App.  386,  392,  30  N.  E.  1111;  Woodford  v.  Hamilton,  139  Ind.  481, 
39  N.  E.  47;  American,  etc.,  Ins.  Co.  v.  Bertram,  163  Ind.  61,  70  N. 
E.  258,  64  L.  R.  A.  935;  Blattenberger  v.  Holman,  103  Pa.  555,  558; 
Ruse  V.  Mutual,  etc.,  Ins.  Co.,  23  N.  Y.  516. 

But  this  general  rule  has  its  exceptions  "in  cases  where  some  statute 
provides  a  remedy,  or  perhaps  in  cases  of  oppression,  or  peculiar  hard- 
ship, or  those  where  public  policy  clearly  necessitates  the  court's  inter- 
ference," and  cases  where  from  the  facts  disclosed  the  parties  are  not 
in  pari  delicto.  Joyce  on  Insurance,  §  1405 ;  Pomeroy,  Eq.  Jur.  §§  941, 
942.  Consequently  we  are  led  to  inquire  into  the  position  occupied  by 
each  of  these  parties  relative  to  this  illegal  transaction.  For  it  has  been 
said  that  "a  court  of  equity  may,  in  the  furtherance  of  justice  and  of  a 
sound  public  policy,"  grant  relief  to  the  more  innocent  of  the  parties 
involved  in  the  illegality,  upon  the  theory  that  they  are  not  in  pari 
delicto;  "that  is,  both  have  not,  with  the  same  knowledge,  willingness, 
and  wrongful  intent,  engaged  in  the  transaction,  or  the  undertakings 
of  each  are  not  equally  blameworthy."     Pomeroy,  Eq.  Jur.  §  942. 

In  this  latter  section  of  Pomeroy  it  is  also  said  that  this  relief  may 
exist  in  two  distinct  classes  of  cases.  "(1)  It  exists  where  the  contract 
is  intrinsically  illegal,  and  is  of  such  a  nature  that  the  undertakings 
or  stipulations  of  each,  if  considered  by  themselves  alone,  would  show 
the  parties  equally  in  fault,  but  there  are  collateral  and  incidental  cir- 
cumstances attending  the  transaction,  and  affecting  the  relations  of 
the  two  parties,  which  render  one  of  them  comparatively  free  from 
fault.  Such  circumstances  are  imposition,  oppression,  duress,  threats, 
undue  influence,  taking  advantage  of  necessities  or  of  weakness,  and 
the  like,  as  a  means  of  inducing  the  party  to  enter  into  the  agreement, 
or  of  procuring  him  to  execute  and  perform  it  after  it  had  been  volun- 
tarily entered  into.  (2)  The  condition  also  exists  where,  in  the  ab- 
sence of  any  incidental  and  collateral  circumstances,  the  contract  is 
illegal,  but  is  intrinsically  unequal ;  is  of  such  a  nature  that  one  party  is 
necessarily  innocent  as  compared  with  the  other;  the  stipulations,  un- 
dertakings, and  position  of  one  are  essentially  less  illegal  and  blame- 
worthy than  those  of  the  others." 

Respectable  authority  can  be  found  holding  that  the  doctrine  thus 
announced  in  Pomeroy  is  not  applicable  to  life  insurance  contracts. 
But  in  this  jurisdiction  the  principle  thus  declared  has  been  to  a  limited 


040  RIGHTS   UNDER   THE   CONTRACT  (Ch.  9 

extent  applied  to  insurance  contracts.  In  American,  etc.,  Ins.  Co.  v. 
Bertram,  supra,  at  pages  56,  57,  of  163  Ind.,  at  page  260  of  70  N.  E. 
(64  L.  R.  A.  935),  it  is  said :  "The  general  rule  is  that  an  action  will 
not  lie  to  recover  premiums  paid  upon  an  insurance  which  is  illegal 
by  reason  of  the  policy  being  illegal  by  statute,  or  because  of  the  ille- 
gality of  the  adventure  insured" — citing  authorities.  "But  it  is  held 
that  this  rule  does  not  apply  where  there  has  been  no  fraud  on  the 
part  of  the  plaintiff ;  where  the  policy  is  void  because  of  innocent  mis- 
representations ;  where  the  plaintiff  has  been  induced  to  take  out  the 
policy  by  the  fraud  of  the  insurer  and  is  himself  innocent ;  or  where  it 
is  clear  that  the  policy  was  not  a  wagering  contract,  but  was  taken  out 
under  a  mistake  in  regard  to  the  rights  of  the  party  insured."  It 
having  been  made  to  appear  in  both  paragraphs  that  the  contract  was 
illegal,  the  burden  was  upon  appellee  to  exhibit  in  his  complaint  facts 
prima  facie  sufficient  to  bring  his  right  to  the  return  of  premiums  paid 
within  some  exception  to  the  general  rule. 

Turning  to  the  first  paragraph  of  the  complaint,  for  ought  that  ap- 
pears, appellee  made  his  application  for  the  policy  he  received  on  the 
life  of  his  mother-in-law  of  his  own  volition,  and  without  any  induce- 
ment, except  from  motives  of  pure  speculation.  *  *  *  j^  (joes  not 
appear  what  induced  appellee  to  believe  the  contract  was  valid.  If 
this  belief  was  founded  upon  his  ignorance  of  the  law,  then  the  maxim 
"ignorantia  juris  non  excusat"  applies,  and  as  a  general  proposition 
will  be  rigidly  enforced  both  at  law  and  in  equity,  to  the  end  that 
legal  rights  may  be  preserved  and  a  definite  system  established  for  the 
guidance  of  human  conduct.  Courts  should  and  do  proceed  with  great 
caution  in  affording  relief  grounded  on  such  mistakes.  While  many 
cases  are  recorded  where  courts  of  equity  have  afforded  parties  relief 
from  mistakes  of  law,  yet  none  will  be  found  not  supported  by  special 
facts  impelling  a  court  of  equity  to  interfere  to  prevent  an  unconscion- 
able advantage  of  one  party  over  another,  brought  about  solely  by  an 
undue  influence  or  through  inequitable  conduct  practiced  by  the  party 
receiving  the  fruits  of  the  illegal  transaction.  This  principle  of  relief 
is  grounded  upon  a  rule  of  equity  aimed  at  the  wrongdoer,  effective  to 
prevent  such  party  taking  advantage  of  his  own  wrong  against  an  inno- 
cent party.  Stockwell  v.  State,  101  Ind.  1,  8;  Wabash  R.  R.  Co.  v. 
Kelley,  153  Ind.  119,  123,  52  N.  E.  152,  54  N.  E.  752.  The  demurrer 
to  the  first  paragraph  should  have  been  sustained. 

The  facts  averred  in  the  second  paragraph  pertinent  to  the  question 
under  consideration,  in  substance,  show  that  appellant  solicited  appel- 
lee "to  take  a  certificate  of  insurance  issued  by  it  upon  the  life  of  one 
Hannah  Hammond,  who  was  the  mother-in-law  of  the  plaintiff;  that 
defendant  represented  to  the  plaintiff  that  a  certificate  so  taken  by  him 
upon  the  life  of  his  said  mother-in-law  would  be  valid  and  in  full  force 
and  effect  as  between  the  parties,  and  the  plaintiff  believed  such  state- 
ments and  representations  so  made  and  relied  upon  the  same,  and  took 


Sec.  3)  RECOVIORY   OF   PREMIUMS  641 

said  certificate ;  *  *  *  that  appellee  had  no  insurable  interest  in 
the  life  of  the  insured,  and  such  certificate  for  that  reason  was  void, 
as  appellant  well  knew  at  the  time  of  issuing  said  certificate,  and  at  the 
time  of  receiving  from  appellee  payments  of  assessments  and  member- 
ship fee.  From  anything  appearing  in  the  pleading,  the  representation 
of  appellant  relied  on  by  appellee  was  as  to  the  legal  effect  of  a  con- 
tract based  upon  facts  fully  known  to  both  of  the  parties.  They  seem 
to  have  been  upon  an  equal  footing  as  to  the  facts  and  opportunities 
of  knowing  the  law  applicable  to  such  contracts. 

But  it  is  averred  that  appellant  knew  its  legal  effect,  and  appellee  did 
not.  Whv  he  relied  upon  the  knowledge  of  appellant  in  this  regard 
does  not  appear.  In  Daily  v.  Board,  165  Ind.  99,  106,  74  N.  E.  977, 
the  court  quotes  with  approval  from  Black  v.  Ward,  27  Mich.  191,  15 
Am.  Rep.  162,  the  following:  "There  is  no  presumption  in  this  country 
that  every  person  knows  the  law.  It  would  be  contrary  to  common 
sense  and  reason,  if  it  were  so."  Therefore  the  fundamental  maxim, 
"Ignorance  of  the  law  will  not  excuse,"  may  in  equity  be  relaxed,  as 
said  in  the  Bertram  Case,  supra,  "where  the  mistake  was  induced  or 
encouraged  by  the  misrepresentations  of  the  other  party  to  the  trans- 
action, and  the  plaintifif,  through  misapprehension  or  mistake  of  the 
law,  assumes  obligations,  or  gives  up  a  private  right  of  property,  upon 
grounds  upon  which  he  would  not  have  acted  but  for  such  misappre- 
hension, a  court  of  equity  may  grant  relief,  if,  under  the  general  cir- 
cumstances of  the  case,  it  is  satisfied  that  the  party  benefited  by  the 
mistake  cannot,  in  conscience,  retain  the  benefit  or  advantage  so  ac- 
quired." Bales  V.  Hunt,  77  Ind.  355;  Parish  v.  Camplin,  139  Ind.  1, 
14,  Z7  N.  E.  607;  Chalfant  v.  Payton,  91  Ind.  202,  20S,  46  Am.  Rep. 
586;  Work  v.  American,  etc.,  Ins.  Co.,  31  Ind.  App.  153,  156,  157,  67 
N.  E.  458. 

What  we  have  said  in  passing  on  the  sufficiencv  of  the  first  para- 
graph is  largely  applicable  to  the  second.  In  our  judgment  the  de- 
murrer to  this  paragraph  should  have  been  sustained. 

Judgment  reversed,  with  instructions  to  sustain  the  demurrer  to  each 
paragraph  of  the  complaint,  with  leave  to  amend. ^^ 

•■»'  See,  in  accord,  Harse  v.  Pearl  Life  Assur.  Co.  [C.  A.,  1904]  1  K.  B.  558. 
reversing  [1903]  2  K.  B.  92. 

The  rule  adopted  in  the  principal  case  seems  to  be  almost  universally  ac- 
cepted when  the  policy  is  rendered  void  by  the  fraudulent  misrepresentations 
or  misconduct  of  the  insured  who  is  seeking  to  recover  premiums  paid.  See 
.^tua  Life  Ins.  Co.  v.  Paul,  10  111.  App.  431  (1SS2):  Schwartz  v.  U.  S.  Ins. 
Co.,  3  Wash.  C.  C.  170,  Fed.  Cas.  No.  12,505  (1S12) :  Elliott  v.  Knights  of 
Modern  Maccabees,  46  Wash.  320,  89  Pac.  929,  13  L.  R.  A.  (N.  S.)  856  (1907) ; 
Wilson  V.  Ducket,  3  Burr.  1361  (1762). 

But  as  a  general  rule,  contra  to  the  principal  case,  the  insured  is  allowed 
to  recover  premiums  paid  on  a  policy  void  ab  initio  for  some  cause  not  in- 
volving any  fraud  on  his  part.  See  Connecticut  Mutual  Life  Ins.  Co.  v. 
Pyle,  44  Ohio  St.  19,  4  N.  E.  465,  58  Am.  Rep.  781  (1886) ;  Delavigne  v.  T'nit- 
ed  States  Insurance  Co.,  1  Johns.  Cas.  (N.  Y.)  310  (1800).  In  Metropolitan 
Life  Ins.   Co.  v.  Blesch    (Ky.)   58  S.  W.  436  (1900),  it  was  flatly  held  that, 

ViNCE  Ins.— 41 


G42  RIGHTS   UNDER   TOE   CONTUACT  (Ch.  9 

iindor  facts  similnr  to  those  of  the  principal  case,  the  insured  might  recover 
l)remiiinis  jiaid   under  a   mere  mistake  of  law. 

Tliore  certainly  should  he  a  recovery  when  there  has  heen  fraud  or  over- 
reaching on  the  part  of  the  insurer  or  its  agents.  See  British  Workmen's  & 
General  Assurance  Co.  v.  CuidilTe,  18  Times  I..  H.  42."..  r.O'J  (l!)()li) ;  M(d)onald 
V.  Metropolitan  Life  Ins.  Co.,  68  N.  H.  4,  38  Atl.  500,  73  Am.  St.  Rep.  548 
(1894). 

The  plaintiff  should  also  he  granted  a  recovery  when  the  policy  has  been 
wrongfully  rescinded  by  the  insurer.  See  Slocum  v.  Northwestern  National 
Life  Ins.  Co.,  !;}"»  Wis.  2SS.  n.".  N.  W.  790,  14  L.  II.  A.  (N.  S.)  1110,  12S  Am. 
St.  Rep.  1028  (1908);  Summers  v.  Mutual  Life  Ins.  Co.,  12  Wyo.  .•JOO.  75 
Pac.  937,  no  L.  R.  A.  812,  109  Am.  St.  Rep.  992  (1904);  Iloghen  v.  isietropolitan 
Life  Ins.  Co..  69  Conn.  503.  38  Atl.  214.  61  Am.  St.  Rep.  .53  (1897):  Mailhoit 
V.  Metropolitan  Life  Ins.  Co.,  87  Me.  374,  32  Atl.  989,  47  Am.  St.  Rep.  336 
(1895). 

A  return  or  tender  of  premiums  paid  is  not  a  condition  precedent  to  the 
insurer's  defense  that  the  policy  is  void  ah  initio  by  reason  of  the  insured's 
fraud  or  breach  of  condition  (United  States  Life  Ins.  Co.  v.  Smith,  34  C.  C. 
A.  506,  92  Fed.  503  [1899] ;  National  Mut.  Fire  Ins.  Co.  v.  Duncan,  44  Colo. 
472,  98  Pac.  634,  20  L.  R.  A.  [N.  S.]  .'UO  [1908]:  Provident  Sav.  Life  Assur. 
Soc.  v.  Whayne,  131  Ky.  84,  93  S.  W.  1049  [1906]),  unless  such  return  is  re- 
quired bv  the  terms  of  the  policv  (Continental  Life  Ins.  Co.  v.  Bushy.  3  Will- 
son,  Civ.'  Cas.  Ct.  App.  [Tex.]  §  101  [1890] ;  note,  13  L.  R.  A.  [N.  S.]  884),  or  by 
statute  (Lavin  v.  Empire  Life  Ins.  Co.,  101  Mo.  App.  434,  74  S.  W.  366  [1903]). 

But  it  is  otherwise  where  the  insurer  by  affirmative  proceedings  asks  the 
cancellation  of  a  policy  because  of  the  insurer's  breacli  of  condition.  In  such 
case,  asking  equity,  he  must  offer  equity  and  tender  premiums  paid.  See 
American  Cent.  Life  Ins.  Co.  v.  Rosenstein  (Ind.  App.)  88  N.  E.  97  (1909) ; 
Modern  Woodmen  v.  Angle,  127  Mo.  App.  94,  104  S.  W.  297  (1907);  Whit- 
tinghau  v.  Thornburgh,  2  Vern.  206  (1690) ;  DeCosta  v.  Scandret,  2  P.  Wms. 
170  (172.3);  Prince  of  Wales,  etc.,  Ass'n  Co.  v.  Palmer,  25  Beav.  605  (1858). 
This  rule  has  been  held  applicable,  even  thougli  the  policy  expressly  stipulates 
that  the  premiums  paid  shall  be  forfeited  upon  breach  of  condition.  See 
Metropolitan  Life  Ins.  Co.  v.  Freedman,  159  Mich.  114,  123  N.  W.  547,  32 
L.  R.  A.  (N.  S.)  298  (1909). 

Policy  Payable  to  Beneficiary. — When  a  policy  payable  to  a  third  party 
as  beneficiary  is  wrongfully  rescinded  by  the  insurer,  the  right  to  recover 
the  premiiims  paid  is  in  the  insured,  who  paid  them,  and  not  in  the  bene- 
ficiary. See  Slocum  v.  Northwestern  Nat.  Life  Ins.  Co.,  135  Wis.  288,  115 
N.  W.  796,  14  L.  R.  A.  (N.  S.)  1110,  128  Am.  St.  Rep.  1028  (1908) ;  McDonald 
V.  Metropolitan  Life  Ins.  Co.,  68  N.  H.  4,  38  Atl.  500,  73  Am.  St.  Rep.  548 
(1894) ;  Sullivan  v.  Metropolitan  Life  Ins.  Co.,  174  Mass.  467,  54  N.  E.  879. 
75  Am.  St.  Rep.  365  (1899). 


Sec.  4)  SUBROGATION  643 

SECTION  4.— SUBROGATION 


CASTELLAIN  v.  PRESTON.«» 

(Court  of  AppoMl,  1883.     L.  R.  11  Q.  B.  D.  380.) 

Appeal  of  the  plaintiff  from  the  judgment  of  Chitty,  J.,  in  favour 
of  the  defendants.  The  facts  are  fully  stated  in  the  report  of  the 
proceedings  before  Chitty,  J.,  8  Q.  B.  D.  613,  and  it  is  necessary 
here  only  to  briefly  recapitulate  them. 

The  plaintiff  sued  on  behalf  of  the  London,  Liverpool  &  Globe  In- 
surance Company  to  recover  a  sum  of  £330.  with  interest  since  the 
25th  of  September,  1878.  On  the  25th  of  March,  1878,  the  defend- 
ants, as  owners  of  certain  lands  and  buildings  in  Liverpool,  effected 
an  insurance  on  the  buildings  against  loss  by  fire,  and  they  kept  the 
policy  on  foot  by  payment  of  the  premiums  until  after  the  fire  here- 
inafter mentioned  occurred.  The  policy  was  in  the  usual  form,  giving 
the  insurers  the  option  of  reinstating  the  property.  On  the  31st  of 
July,  1878,  the  defendants  contracted  to  sell  the  land  and  the  build- 
ings to  their  tenants,  Messrs.  Rayner,  for  the  sum  of  £3100.,  and 
they  received  a  deposit.  The  contract  provided  that  the  time  of  the 
completion  should  be  such  day  within  two  years  from  the  date  as 
the  vendors  should  name.  On  the  15th  of  August  in  the  same  year 
a  fire  occurred  damaging  part  of  the  buildings.  A  claim  was  made 
on  behalf  of  the  defendants,  and  after  negotiation  as  to  the  sum  to 
be  paid,  the  amount  of  the  claim  was  ultimately  fixed  at  £330.,  and 
that  sum  was  in  fact  paid  on  the  25th  of  September,  1878,  by  the 
insurers,  who  were  at  that  time  ignorant  of  the  existence  of  the  con- 
tract for  sale.  On  the  25th  of  March,  1879,  the  defendants  named 
the  5th  of  May  as  the  day  of  completion,  and  on  the  following  12th 
of  December  the  conveyance  was  executed  and  the  balance  of  the 
purchase-money  paid.     *     *     * 

Brett,  L.  J.  In  this  case  the  action  is  brought  by  the  plaintiff 
as  representing  an  insurance  company  against  the  defendants  in  re- 
spect of  money  which  has  been  paid  by  that  company  to  the  defend- 
ants on  account  of  the  loss  by  fire  of  a  building.  The  defendants  were 
the  owners  of  property  consisting  partly  at  all  events  of  a  house,  and 
the  defendants  had  made  a  contract  of  sale  of  that  property  with 
third  persons,  which  contract  upon  the  giving  of  a  certain  notice  as 
to  the  time  of  payment  would  oblige  those  third  persons,  if  they  ful- 
filled the  contract,  to  pay  the  agreed  price  for  the  sale  of  that  prop- 

38  This  action  was  brought  in  consetiuence  of  the  judgment  in  Rayner  v. 
Preston,  ante,  p.  643. 


044  RIGHTS   VNDIOU   THE   CONTRACT  (Cll.  0 

erty,  a  part  of  which  was  a  house,  and  according  to  the  pecuharity 
of  such  a  sale  and  purchase  of  land  or  real  property  the  vendees 
would  have  to  pay  the  purchase-money,  whether  the  house  was,  be- 
fore the  date  of  payment,  burnt  down  or  not.  After  the  contract 
was  made  with  the  third  persons,  and  before  the  day  of  payment,  the 
house  was  burnt  down.  The  vendors,  the  defendants,  having  insured 
the  house  in  the  ordinary  form  with  the  plaintiff's  company,  it  is  not 
suggested  that  upon  the  house  being  burnt  down  the  defendants  had 
not  an  insurable  interest.  They  had  an  insurable  interest,  as  it  seems 
to  me,  first,  because  they  were  at  all  events  the  legal  owners  of  the 
property ;  and,  secondly,  because  the  vendees  or  third  persons  might 
not  carry  out  the  contract,  and  if  for  any  reason  they  should  never 
carry  out  the  contract,  then  the  vendors,  if  the  house  was  burnt  down, 
would  suffer  the  loss.  Upon  the  happening  of  the  fire  the  defend- 
ants made  a  claim  on  the  insurance  company  represented  by  the 
plaintiff,  and  were  paid  a  certain  sum  which  represented  the  damage 
done  to  the  house.  After  that,  the  contract  of  sale  between  the  de- 
fendaitts  and  the  third  persons,  the  vendees  of  the  property,  was  car- 
ried out,  and  the  full  amount  of  the  purchase-money  was  paid  by 
the  third  persons  to  the  defendants  notwithstanding  the  fire.  Under 
those  circumstances  the  plaintiff"  representing  the  insurance  company 
brings  this  action ;  I  do  not  say  that  he  brings  it  to  recover  back  the 
money  which  has  been  paid  by  the  insurance  company  (for  that  ex- 
pression of  opinion  would  rather  interfere  with  the  form  of  the  ac- 
tion), but  he  brings  the  action  in  respect  of  that  money. 

The  question  is  whether  this  action  is  maintainable.  The  case  was 
tried  before  Chitty,  J.,  and  he,  in  a  very  careful  and  elaborate  judg- 
ment, 8  Q.  B.  D.  613,  at  p.  615,  has  come  to  the  conclusion  that  the 
insurance  company  cannot  recover  against  the  defendants  in  respect 
of  the  money  paid  by  them.  It  seems  to  me  that  the  foundation  of 
his  judgment  is  this,  that  he  considers  that  the  doctrine  of  subroga- 
tion of  the  insurer  into  the  position  of  the  assured  is  confined  within 
limits,  which  prevent  it  from  extending:  to  the  present  case.  I  must 
now  consider  whether  I  can  agree  with  him. 

In  order  to  give  my  opinion  upon  this  case,  I  feel  obliged  to  revert 
to  the  very  foundation  of  every  rule  which  has  been  promulgated  and 
acted  on  by  the  courts  with  regard  to  insurance  law.  The  very  foun- 
dation, in  my  opinion,  of  every  rule  which  has  been  applied  to  insur- 
ance law  is  this,  namely,  that  the  contract  of  insurance  contained  in 
a  marine  or  fire  policy  is  a  contract  of  indemnity,  and  of  indemnity 
only,  and  that  this  contract  means  that  the  assured,  in  case  of  a  loss 
against  which  the  policy  has  been  made,  shall  be  fully  indemnified, 
but  shall  never  be  more  than  fully  indemnified.  That  is  the  funda- 
mental principle  of  insurance,  and  if  ever  a  proposition  is  brought 
forward  which  is  at  variance  with  it,  that  is  to  say,  which  either  will 
prevent   the   assured   obtaining  a   full  indemnity,  or  which   will  give 


Sec.  4)  SUBROGATION  645 

to  the  assured  more  than  a  full  indemnity,  that  proposition  must  cer- 
tainly be  wrong.     *     *     '•' 

I  have  mentioned  the  doctrine  of  notice  of  abandonment  for  the 
purpose  of  coming  to  the  doctrine  of  subrogation.  That  doctrine  docs 
not  arise  upon  any  of  the  terms  of  the  contract  of  insurance;  it  is 
only  another  proposition  which  has  been  adopted  for  the  purpose  of 
carrying  out  the  fundamental  rule  which  I  have  mentioned,  and  it  is 
a  doctrine  in  favour  of  the  underwriters  or  insurers  in  order  to  pre- 
vent the  assured  from  recovering  more  than  a  full  indemnity ;  it  has 
been  adopted  solely  for  that  reason.  It  is  not,  to  my  mind,  a  doc- 
trine applied  to  insurance  law  on  the  ground  that  underwriters  are 
sureties.  Underwriters  are  not  always  sureties.  They  have  rights 
which  sometimes  are  similar  to  the  rights  of  sureties,  but  that  again 
is  in  order  to  prevent  the  assured  from  recovering  from  them  more 
than  a  full  indemnity.  But  it  being  admitted  that  the  doctrine  of  sub- 
rogation is  to  be  applied  merely  for  the  purpose  of  preventing  the 
assured  from  obtaining  more  than  a  full  indemnity,  the  question  is, 
whether  that  doctrine  as  applied  in  insurance  law  can  be  in  any  way 
limited.  Is  it  to  be  limited  to  this,  that  the  underwriter  is  subrogated 
into  the  place  of  the  assured  so  far  as  to  enable  the  underwriter  to 
enforce  a  contract,  or  to  enforce  a  right  of  action?  Why  is  it  to 
be  limited  to  that,  if  when  it  is  limited  to  that,  it  will,  in  certain  cases, 
enable  the  assured  to  recover  more  than  a  full  indemnity?  The 
moment  it  can  be  shown  that  such  a  limitation  of  the  doctrine  would 
have  that  effect,  then,  as  I  said  before,  in  my  opinion,  it  is  contrary 
to  the  foundation  of  the  law  as  to  insurance,  and  must  be  wrong. 
And,  with  the  greatest  deference  to  my  Brother  Chitty,  it  seems  to 
me  that  that  is  the  fault  of  his  judgment.  He  has  by  his  judgment 
limited  this  doctrine  of  subrogation  to  placing  the  insurer  in  the  posi- 
tion of  the  assured  only  for  the  purpose  of  enforcing  a  right  of  ac- 
tion, to  which  the  assured  may  be  entitled.  In  order  to  apply  the  doc- 
trine of  subrogation,  it  seems  to  me  that  the  full  and  absolute  mean- 
ing of  the  word  must  be  used,  that  is  to  say,  the  insurer  must  be 
placed  in  the  position  of  the  assured.  Now  it  seems  to  me  that  in 
order  to  carry  out  the  fundamental  rule  of  insurance  law,  this  doc- 
trine of  subrogation  must  be  carried  to  the  extent  which  I  am  now 
about  to  endeavour  to  express,  namely,  that  as  between  the  under- 
writer and  the  assured  the  underwriter  is  entitled  to  the  advantage 
of  every  right  of  the  assured,  whether  such  right  consists  in  con- 
tract, fulfilled  or  unfulfilled,  or  in  remedy  for  tort  capable  of  being 
insisted  on  or  already  insisted  on,  or  in  any  other  right,  whether  by 
way  of  condition  or  otherwise,  legal  or  equitable,  which  can  be,  or 
has  been  exercised  or  has  accrued,  and  whether  such  right  could  or 
could  not  be  enforced  by  the  insurer  in  the  name  of  the  assured  by 
the  exercise  or  acquiring  of  which  right  or  condition  the  loss  against 
which  the  assured  is  insured,  can  be,  or  has  been  diminished. 


G46  BIGHTS   UNDER   THE   CONTRACT  (Ch.  9 

That  seems  to  me  to  put  this  doctrine  of  subrogation  in  the  largest 
possible  form,  and  if  in  that  form,  large  as  it  is,  it  is  short  of  fulfilling 
that  which  is  the  fundamental  condition,  I  must  have  omitted  to 
state  something  which  ouglit  to  have  been  stated,  lint  it  will  be  ob- 
served that  1  use  the  words  "of  every  right  of  the  assured."  I  think 
that  the  rule  does  require  that  limit.  In  Burnand  v.  Rodocanachi,  7 
App.  Cas.  333,  the  foundation  of  the  judgment  to  my  mind  was,  that 
what  was  paid  by  the  United  States  government  could  not  be  consid- 
ered as  salvage,  but  must  be  deemed  to  have  been  only  a  gift.  It 
was  only  a  gift  to  which  the  assured  had  no  right  at  any  time  until 
it  was  placed  in  their  hands.  *  *  *  This  enlargement,  or  this  ex- 
planation, of  what  I  consider  to  be  the  real  meaning  of  the  doctrine 
of  subrogation,  shews  that  in  my  opinion  it  goes  much  further  than 
a  mere  transfer  of  those  rights  which  may  at  any  time  give  a  cause 
of  action  either  in  contract  or  in  tort,  because  if  upon  the  happening 
of  the  loss  there  is  contract  between  the  assured  and  a  third  person, 
and  if  that  contract  is  immediately  fulfilled  by  the  third  person,  then 
there  is  no  right  of  action  of  any  kind  into  which  the  insurer  can  be 
subrogated.  The  right  of  action  is  gone ;  the  contract  is  fulfilled. 
In  like  manner  if  upon  the  happening  of  a  tort  the  tort  is  immedi- 
ately made  good  by  the  tort  feasor,  then  the  right  of  action  is  gone; 
there  is  no  right  of  action  existing  into  which  the  insurer  can  be  sub- 
rogated. It  will  be  said  that  there  did  for  a  moment  exist  a  right 
of  action  in  favour  of  the  assured,  into  which  the  insurer  could  have 
been  subrogated.  But  he  cannot  be  subrogated  into  a  right  of  action 
until  he  has  paid  the  sum  insured  and  made  good  the  loss.  Therefore 
innumerable  cases  would  be  taken  out  of  the  doctrine,  if  it  were  to 
be  confined  to  existing  rights  of  action.  And  I  go  further  and  hold 
that  if  a  right  of  action  in  the  assured  has  been  satisfied,  and  the 
loss  has  been  thereby  diminished,  then,  although  there  never  was  nor 
could  be  any  right  of  action  into  which  the  insurer  could  be  subro- 
gated, it  would  be  contrary  to  the  doctrine  of  subrogation  to  say 
that  the  loss  is  not  to  be  diminished  as  between  the  assured  and  the 
insurer  by  reason  of  the  satisfaction  of  that  right. 

I  fail  to  see  at  present  if  the  present  defendants  would  have  had 
a  right  of  action  at  any  time  against  the  purchasers,  upon  which  they 
could  enforce  a  contract  of  sale  of  their  property  whether  the  build- 
ing was  standing  or  not,  why  the  insurance  company  should  not  have 
been  subrogated  into  that  right  of  action.  But  I  am  not  prepared  to 
say  that  they  could  be,  more  particularly  as  I  understand  my  learned 
Brother,  who  knows  much  more  of  the  law  as  to  specific  performance 
than  I  do,  is  at  all  events  not  satisfied  that  they  could.  I  pass  by  the 
question  without  solving  it,  because  there  was  a  right  in  the  defend- 
ants to  have  the  contract  of  sale  fulfilled  by  the  purchasers  notwith- 
standing the  loss,  and  it  was  fulfilled.  The  assured  have  had  the  ad- 
vantage therefore  of  that  right,  and  by  that  right,  not  by  a  gift  which 


Sec.  4)  SUBROGATION  647 

the  purchasers  could  have  declined  to  make,  the  assured  have  recov- 
ered, notwithstanding  the  loss,  from  the  purchasers,  the  very  sum  of 
money  which  they  were  to  obtain  whether  this  building  was  burnt 
or  not.  In  that  sense  I  cannot  conceive  that  a  right,  by  virtue  of 
which  the  assured  has  his  loss  diminished,  is  not  a  right  which,  as 
has  been  said,  affects  the  loss.  This  right  which  was  at  one  time 
merely  in  contract,  but  which  was  afterwards  fulfilled,  either  when 
it  was  in  contract  only,  or  after  it  was  fulfilled,  does  affect  the  loss  ,* 
that  is  to  say,  it  affects  the  loss  by  enabling  the  assured,  the  vendors, 
to  get  the  same  money  which  they  would  have  got  if  the  loss  had  not 
happened. 

While  I  am  applying  the  doctrine  of  subrogation  which  I  have  en- 
deavoured to  enunciate,  I  think  it  due  to  Chitty,  J.,  to  point  out  what 
passages  in  his  judgment  require  some  modification.  8  O.  B.  D.  at 
p.  617.  I  find  him  reading  this  passage:  "I  know  of  no  foundation 
for  the  right  of  underwriters,  except  the  well  known  principle  of 
law,  that  where  one  person  has  agreed  to  indemnify  another,  he  will, 
on  making  good  the  indemnity,  be  entitled  to  succeed  to  all  the  ways 
and  means  by  which  the  person  indemnified  might  have  protected  him- 
self against  or  re-imbursed  himself  for  the  loss."  That  is  a  quota- 
tion from  Lord  Cairns  in  Simpson  v.  Thomson,  3  App.  Cas.  279,  at 
p.  284.  The  learned  judge  then  goes  on:  "What  is  the  principle  of 
subrogation?  On  payment  the  insurers  are  entitled  to  enforce  all  the 
remedies,  whether  in  contract  or  in  tort,  which  the  insured  has  against 
third  parties,  whereby  the  insured  can  compel  such  third  parties  to 
make  good  the  loss  insured  against."  That  is,  as  it  seems  to  me,  to 
confine  this  doctrine  of  subrogation  to  the  principle  that  the  insurers 
are  entitled  to  enforce  all  remedies,  whether  in  contract  or  in  tort. 
I  should  venture  to  add  this — "and  if  the  assured  enforces  or  receives 
the  advantage  of  such  remedies,  the  insurers  are  entitled  to  receive 
from  the  assured  the  advantage  of  such  remedies."  Then  when  we 
come  to  this  illustration,  "Where  the  landlord  insures,  and  he  has  a 
covenant  by  the  tenant  to  repair,  the  insurance  ofiice,  on  payment  in 
like  manner,  succeeds  to  the  right  of  the  landlord  against  his  tenant." 
I  would  add  this — "and  if  the  tenant  does  repair,  the  insurer  has  the 
right  to  receive  from  the  assured  a  benefit  equivalent  to  the  benefit 
which  the  assured  has  received  from  such  repair."  Then,  dealing  with 
the  case  of  Bumand  v.  Rodocanachi,  7  App.  Cas.  333,  the  learned 
judge  cites  the  opinion  of  Bramwell,  L.  J.,  8  Q.  B.  D.  at  p.  618.  He 
says  that  Bramwell,  L.  J.,  in  his  judgment  held  that  it  was  not  salvage, 
but  "that  in  the  circumstances  the  sum  received  by  the  shipowner  was 
but  a  pure  gift,  and  there  was  no  right  on  the  part  of  the  insurers 
to  recover  any  part  of  it  over  against  him."  I,  for  myself,  venture 
to  add  this  as  the  reason,  "because  there  was  no  right  in  the  assured 
to  demand  the  compensation  from  the  American  government."    There 


048  RIGHTS    UNDKIt   THE   CONTRACT  (Cll.  1) 

was  no  right  to  dcmaiid  it;  it  was  bestowed  and  received  as  a  pure 
gift. 

Darrell  v.  Tibbitts,  5  Q.  B.  D.  560,  seems  to  me  to  be  entirely  in 
favour  of  the  plaintiff  in  this  case.  I  shall  not  retract  from  the  very 
terms  which  I  used  in  that  case.  It  seems  to  me  that  in  Darrell  v. 
Tibbitts,  5  Q.  B.  D.  560,  the  insurers  were  not  subrogated  to  a  right 
of  action  or  to  a  remedy.  They  were  not  subrogated  to  a  right  to 
enforce  the  remedy,  but  what  they  were  subrogated  into  was  the  right 
to  receive  the  advantage  of  the  remedy  which  had  been  applied, 
whether  it  had  been  enforced  or  voluntarily  administered  by  the  per- 
son who  was  bound  to  administer  it.  That  seems  to  me  to  be  the 
doctrine.  Then  with  regard  to  the  passage  5  Q.  B.  D.  at  p.  563 : 
"The  doctrine  is  well  established  that  where  something  is  insured 
against  loss,  either  in  a  marine  or  a  fire  policy,  after  the  assured  has 
been  paid  by  the  insurers  for  the  loss,  the  insurers  are  put  into  the 
place  of  the  assured  with  regard  to  every  right  given  to  him  by  the 
law  respecting  the  subject-matter  insured."  I  wish  to  explain  that 
that  was  a  distinct  clause,  and  it  was  so  intended  by  me  when  I 
stated  it.  I  then  mentioned  contracts :  "And  with  regard  to  ev- 
ery contract  which  touches  the  subject-matter  insured,  and  which 
contract  is  affected  by  the  loss  or  the  safety  of  the  subject-matter 
insured  by  reason  of  the  peril  insured  against."  I  fail  to  conceive  any 
contract  which  gives  a  right  over  the  thing  insured,  which  is  not  af- 
fected by  the  loss  or  safety  of  it,  and  if  it  is  necessary  to  bring  the 
present  case  within  those  terms,  it  seems  to  me  that  the  contract  of 
purchase  and  sale  was  affected  by  that  loss. 

I  will  not  go  further  with  the  judgment  of  Chitty,  J.,  except  to 
say  this,  that  at  the  end  my  learned  Brother  has  put  it  thus,  that  "the 
only  principle  applicable  is  that  of  subrogation  as  understood  in  the 
full  sense  of  that  term."  8  O.  B.  D.  at  p.  625.  There  I  agree  with 
him,  only  my  view  of  the  full  sense  is  larger  than  that  which  he 
adopted.  "And  that  where  the  right  claimed  is  under  a  contract  be- 
tween the  insured  and  third  parties,  it  must  be  confined  to  the  case 
of  a  contract  relating  to  the  subject-matter  of  the  insurance,  which 
entitled  the  insurers  to  have  the  damages  made  good."  I  think  it 
would  be  better  expressed  in  this  way — "which  entitles  the  assured  to 
be  put  by  such  third  parties  into  as  good  a  position  as  if  the  damage 
insured  against  had  not  happened."  If  it  is  put  in  that  sense,  it  seems 
to  me  to  be  consistent  with  the  proposition  which  I  laid  down  at 
the  beginning  of  what  I  have  said,  and  to  cover  this  case.  I  will  re- 
peat it,  "which  entitles  the  assured  to  be  put  by  such  third  parties 
into  as  good  a  position  as  if  the  damage  insured  against  had  not  hap- 
pened." 

The  contract  in  the  present  case,  as  it  seems  to  me,  does  enable  the 
assured  to  be  put  by  the  third  party  into  as  good  a  position  as  if  the 
fire  had  not  happened,  and  that  result  arises  from  this  contract  alone. 


Sec.  4)  SUBROGATION  649 

Therefore,  according  to  the  true  principles  of  insurance  law,  and  in 
order  to  carry  out  the  fundamental  doctrine,  namely,  that  the  assured 
can  recover  a  full  indemnity,  but  shall  never  recover  more,  except, 
perhaps,  in  the  case  of  the  suing  and  labouring  clause  under  certain 
circumstances,  it  is  necessary  that  the  plaintiff  in  this  case  should 
succeed.  The  case  of  Darrell  v.  Tibbitts,  5  Q.  B.  D.  560,  has  cut  av^^ay 
every  technicality  which  would  prevent  a  sound  decision.  The  doc- 
trine of  subrogation  must  be  carried  out  to  the  full  extent,  and  car- 
ried out  in  this  case  by  enabling  the  plaintifif  to  recover.^^ 
Judgment  reversed. *° 


LEYDEN  V.  LAWRENCE. 

(Court  of  Chancery  of  New  Jersey,  1911.     79  N.  J.  Eq.  113,  81  Atl.  121.) 
See  ante,  p.  594,  for  a  report  of  the  case. 


FIRE  ASSOCIATION  OF  PHILADELPHIA  v.  WELLS. 

(Court  of  Chancery  of  New  Jersey,  1914.    90  Atl.  244.) 

Bill  by  the  Fire  Association  of  Philadelphia  against  Thomas 
Wells.     Decree  for  complainant. 

Defendant  was  the  owner  of  certain  buildings  and  their  contents, 
which  have  been  totally  destroyed  by  fire  caused  by  the  negli- 
gence of  a  railroad  company.  The  buildings  were  protected  by 
fire  insurance  written  by  complainant  company  to  the  amount  of 
$2,000.  After  the  fire  complainant  company  paid  the  $2,000  insur- 
ance to  defendant,  and  received  from  defendant  a  receipt  for  the 
money,  in  which  receipt  defendant  formally  assigned  to  complain- 
ant his  claim  against  the  railroad  company  to  that  amount.  There- 
after defendant,  without  the  knowledge  of  complainant,  made  a 
settlement  with  the  railroad  company,  whereby  he  received  from 
that  company  $5,000  and  executed  a  general  release,  discharging 
the  railroad  company  from  all  liability  by  reason  of  the  fire. 

Complainant  now  seeks  to  recover  from  defendant  its  loss  of 
$2,000. 

3  9  Part  of  the  opinion  of  Brett,  L.  J.,  and  the  concurring  opinions  of 
Cotton,  L.  J.,  and  Bowen,  L.  J.,  are  omitted. 

•10  The  American  courts  have  manifested  an  unwillingness  to  extend  the 
rule  of  subrogation  as  far  as  was  done  in  the  principal  case.  See  Foley  v. 
Insurance  Co.,  152  N.  Y.  131,  134,  46  N.  E.  318,  43  L.  R.  A.  664  (1897) ;  Heller 
V.  Royal  Insurance  Co.,  177  Pa.  262,  35  Atl.  726,  34  L.  R.  A.  600  (1896); 
Insurance  Co.  v.  Updegraff,  21  Pa.  513  (1853) ;  King  v.  State  Ins.  Co.,  7 
Cush.  (Mass.)  1,  54  Am.  Dec.  683  (1855);  Internatioual  Trust  Co.  v.  Board- 
man,  149  Mass.  158,  161,  21  N.  E.  239  (1889) ;  William  Skinner  &  Sons'  Dock 
Co.  V.  Houghton,  92  Md.  68,  48  Atl.  85,  84  Am.  St.  Rep.  485  (1900);  Washing- 
ton Fire  Ins.  Co.  v.  Kelly,  32  Md.  421,  3  Am.  Rep.  149  (1870).  See  Richards 
on  Insurance  (3d  Ed.)  66-69. 


G50  RIGHTS   UNDER   TOE  CONTRACT  (Cll.  9 

By  way  of  defense  defendant  claims  that,  when  he  accepted  the 
insurance  money  and  executed  the  subrogation  receipt  in  behalf 
of  complainant,  he  was  informed  by  the  agent  who  paid  him  the 
money  that  he  would  be  privileged  to  settle  with  the  railroad  com- 
pany for  the  balance  of  his  loss,  and  also  claims  that  in  making 
his  settlement  with  the  railroad  company  he  settled  for  only  the 
balance  of  his  loss,  and  at  that  time  apprised  the  railroad  company 
of  the  fact  that  he  had  received  the  $2,000  insurance  money,  and 
had  executed  a  subrogation  receipt  to  complainant  insurance  com- 
pany for  that  amount. 

Leaming,  V.  C.  (after  stating  the  facts  as  above).  It  was  complain- 
ant's right  and  privilege  to  pay  to  defendant  the  amount  of  the 
insurance,  and  by  that  payment  to  become  subrogated  to  defend- 
ant's claim  against  the  railroad  company  to  the  extent  of  the 
amount  paid.  No  "subrogation  receipt"  or  other  receipt  or  agree- 
ment was  necessary;  subrogation  arose  from  the  act  of  payment, 
and  not  from  the  convention.  Monmouth  Co.  Fire  Ins.  Co.  v. 
Hutchinson,  21  N.  J.  Eq.  (6  C.  E.  Gr.)  107;  Weber  v.  Morris  & 
Essex  R.  R.  Co.,  35  N.  J.  Law  (6  Vr.)  409,  413,  10  Am.  Rep.  253; 
Sheldon  on  Subrogation,  §  6.  But  a  writing  vv^as  executed.  That 
writing  w^as  signed  by  defendant,  and  formally  acknowledged  by 
him  before  a  notary  public.  It  sets  forth  the  payment  of  the 
insurance  money,  and  assigns  to  complainant  defendant's  claim 
against  the  railroad  company  to  the  amount  of  the  payment.  The 
receipt  does  no  more  than  state  the  exact  conditions  which  would 
have  existed  by  operation  of  law  without  a  receipt.  Defendant 
claims  that  he  was  induced  to  accept  the  insurance  money  and 
sign  the  receipt  by  a  statement  of  the  insurance  agent  that  the 
payment  and  receipt  would  not,  in  any  way,  interfere  with  defend- 
ant collecting  the  balance  of  his  loss  from  the  railroad  company. 
The  writing  which  was  executed  is  silent  touching  any  such  priv- 
ilege to  be  extended  to  defendant,  and  the  agent  denies  that  any 
such  statement  was  made.  But  the  views  which  I  entertain  ren- 
der it  wholly  immaterial  whether  any  such  statement  was  made 
or  not. 

While  defendant  claims  to  have  made  settlement  with  the  rail- 
road company  for  only  the  balance  of  his  claim,  and  claims  to 
have  fully  apprised  the  railroad  company  of  the  circumstances 
that  the  insurance  money  had  been  theretofore  paid  to  him,  he 
in  fact  executed  to  the  railroad  company  a  written  general  release 
of  liability  from  all  claims  resulting  from  the  fire ;  in  order  to 
procure  his  own  money  he  consented  to  formally  release  the  rail- 
road company  from  its  liability  to  complainant,  and  did  this  with- 
out the  knowledge  or  consent  of  complainant.  In  making  that  set- 
tlement and  in  executing  that  instrument  defendant  was  not  act- 
ing in  ignorance  of  his  rights  and  duties  in  the  slightest  degree; 
the    settlement  was   made   under   the    immediate   direction   of   his 


Sec.  4)  SUBROGATION  651 

counsel.  Touching-  that  settlement,  his  counsel  has  testified  as 
follows:  "He  [defendant]  came  to  my  office  for  the  purpose  of 
getting  me  to  go  with  him  to  the  railroad  company.  ,  I  went.  It 
was  stated  on  that  occasion  to  the  railroad's  agents,  Mr.  Brister, 
their  general  agent,  being  present,  and  one  or  two  others,  that 
Mr.  Wells  [defendant]  had  accepted  $2,000  from  the  insurance 
company,  and  that  he  had  signed  subrogation  receipts.  It  was 
then  stated  by  me  to  the  railroad  company  what  Mr.  Wells  has 
testified  to  here  before  this  court;  it  was  further  stated  by  me 
to  the  railroad  company  that  they  were  running  some  risk  of  a 
lawsuit  in  this  matter,  to  which  Mr.  Brister  replied  he  would  take 
the  responsibility  of  that  and  take  care  of  it." 

Under  these  circumstances,  and  with  full  appreciation  of  the 
fact  that  complainant  was  the  equitable  owner  of  a  part  of  his 
claim  against  the  railroad  company,  defendant  executed  a  formal 
instrument,  releasing  the  railroad  company  from  all  liability  for 
the  losses  occasioned  by  the  fire,  and  now  seeks  to  repudiate  the 
terms  and  appropriate  effect  of  his  own  deliberative  written  in- 
strument, and  to  hold  against  the  terms  of  his  own  declarations 
by  the  claim  that  he  informed  the  railroad  company  that  he  had 
assigned  a  part  of  his  claim  to  complainant,  and  in  fact  made  set- 
tlement of  the  balance  only.  It  must  be  assumed  that,  under  the 
circumstances  narrated,  some  purpose  existed  for  the  execution 
of  an  instrument  which  in  terms  released  complainant's  claim,  for, 
as  already  stated,  defendant  knew  that  he  had  no  right  to  release 
complainant's  claim  without  first  receiving  from  the  railroad  com- 
pany, for  complainant,  complainant's  money;  whatever  that  pur- 
pose may  have  been,  the  legal  effect  of  the  act  was  to  place  in  the 
hands  of  the  railroad  company  an  instrument  which  was  operative- 
as  a  bar  to  complainant's  recovery  of  its  claim  against  the  rail- 
road company  unless  complainant  should  be  able  to  establish  as  a 
fact,  to  the  satisfaction  of  a  jury  in  an  action  against  the  railroad 
company,  that  prior  to  the  execution  of  that  instrument  the  rail- 
road company  had  been  apprised  of  complainant's  rights.  It  thus 
appears  that  defendant  not  only  had  no  right  to  execute  the  release 
of  complainant's  claim,  but  necessarily  knew  that  he  had  no  such 
right,  and,  under  the  circumstances  of  the  settlement,  as  disclosed 
by  the  testimony  of  his  counsel,  necessarily  knew  that  the  release 
which  he  executed  was  operative  as  a  prima  facie  bar  to  complain- 
ant's right  of  recovery  against  the  railroad  company. 

It  may  well  be  doubted  whether  a  person  who  has  sustained 
a  loss,  and  who  holds  partial  indemnity  from  a  company  who  is 
entitled  to  be  subrogated  to  the  amount  of  the  indemnity,  is  priv- 
ileged, as  against  the  indemnifying  company,  to  make  a  compro- 
mise settlement  with  a  company  who  is  primarily  liable  for  the 
whole  loss,  without  the  knowledge  or  co-operation  of  the  indemni- 
fying company.     Commercial  Union  Assurance  Co.  v.  Lister,  L. 


G52  Rir.iiTs  iNDKu  Till':  oontuact  (Cli.D 

R.  9  Chancery  A])|)cal  Cases,  483.  But  it  is  entirely  clear  that  the 
owner  of  the  legal  title  to  the  two  concurrent  claims,  in  making 
such  settlement  without  the  knowledge  or  co-o])eration  of  the  in- 
demnifying company,  whether  the  settlement  should  be  of  the 
whole  claim  or  only  of  that  part  in  excess  of  the  amount  of  the 
indemnity,  assumes  the  burden  of  equitable  duties  to  the  indemni- 
fying company,  which  are  at  least  coextensive  with  all  rights  which 
the  indemnifying  company  could  assert  or  preserve  if  present  and 
participating  in  the  settlement.  In  such  circumstances  the  exe- 
cution of  a  release  of  complainant's  claim  was  not  only  a  breach 
of  the  trust  assumed  and  a  substantial  injury  to  the  enforcement 
of  complainant's  rights,  but  plainly  imposed  upon  defendant  a 
further  duty  to  apprise  complainant  of  his  acts  in  the  premises, 
to  the  end  that  the  prima  facie  bar  to  complainant's  recovery  which 
he  had  wrongfully  created  could  be  removed.  That  duty  was  not 
performed,  and  the  statute  has  now  run.  In  executing  the  general 
release  under  the  circumstances  stated,  defendant  has  equitably 
denied  himself  the  defense  that  he  settled  for  only  the  balance  of 
his  loss. 

I  am  convinced  that  defendant's  conduct  in  making  settlement 
with  the  railroad  company  without  the  knowledge  or  co-operation 
of  complainant,  and  in  executing  a  general  release  to  the  railroad 
company  in  consideration  of  the  money  by  him  received  at  that 
settlement  without  apprising  complainant  of  the  facts  which  he 
now  asserts,  is  operative  to  render  him  presently  liable  to  com- 
plainant in  this  suit  for  that  part  of  the  loss  paid  by  complainant. 
I  will  advise  a  decree  to  that  efifect. 


FAYERWEATHER  et  al.  v.  PHENIX  INS.  CO. 

(Court  of  Appeals  of  New  York,  1890.     118  N.  Y.  324,  23  N.  E.  192, 
6  L.  R.  A.  805.) 

Appeal  from  Superior  Court  of  New  York  City,  General  Term. 
Action  by  Daniel  B.  Fayerweather  and  Henry  S.  Ladew  against 
the  Phenix  Insurance  Company.  A  judgment  dismissing  the  com- 
plaint was  affirmed  by  the  General  Term  of  the  Superior  Court,, 
and  plaintiffs  appeal. 

FoLi^E^TT,  C.  J.  The  plaintiffs  were  the  owners  of  211  bales  of 
leather,  which  the  Old  Dominion  Steam-Ship  Company  undertook 
to  transport  by  its  steamer  Guyandotte  from  Norfolk,  Va.,  to  New 
York,  and  deliver  to  the  owners.  The  vessel  reached  New  York 
June  17,  1885,  with  the  leather  safe  on  board,  and  within  twenty- 
four  hours  after  arrival  she  sunk  at  her  dock  through  the  negli- 
gence of  the  employees  of  the  steamship  company.  By  this  acci- 
dent the  leather  was  injured,  as  it  is  agreed,  to  the  plaintiffs'  dam- 
age in  the  sum  of  $1,295.32.     In  considering  this  case  the  liability- 


Sec.  4)  SUBROGATION  653 

of  the  carrier  to  the  owners  of  the  leather  for  this  loss  will  be 
iissumed. 

The  bill  of  lading-  under  which  the  leather  was  shipped  contained 
this  provision :  "It  is  further  stipulated  and  agreed  that  in  case 
of  any  loss,  detriment,  or  damage  to  be  sustained  by  any  of  the 
property  herein  receipted  for  during  such  transportation,  whereby 
any  legal  liability  or  responsibility  shall  or  may  be  incurred  by 
the  terms  of  this  contract,  that  company  alone  shall  be  held  an- 
swerable therefor  in  whose  actual  custody  the  same  may  be  at  the 
time  of  happening  of  such  loss,  detriment,  or  damage,  and  the  carrier 
so  liable  shall  have  the  full  benefit  of  any  insurance  that  may  have 
been  effected  upon  or  on  account  of  said  goods." 

The  defendant  insured  the  plaintiffs  against  the  loss  sustained 
by  them,  by  an  open,  time,  marine  policy,  which  contained  these 
provisions :  "In  the  event  of  loss,  the  assured  agrees  to  subrogate 
to  the  insurers  all  their  claims  against  the  transporters  of  said  mer- 
chandise, not  exceeding  the  amount  paid  by  said  insurers.  *  *  * 
In  case  of  any  agreement  or  act,  past  or  future,  by  the  insured, 
whereby  any  right  of  recovery  of  the  insured,  against  any  persons 
or  corporations,  is  released  or  lost,  which  would,  on  acceptance 
of  abandonment  or  payment  of  loss  by  this  company,  belong  to 
this  company,  but  for  such  agreement  or  act,  or  in  case  this  in- 
surance is  made  for  the  benefit  of  any  carrier  or  bailee  of  the 
property  insured  other  than  the  person  named  as  insured,  the 
company  shall  not  be  bound  to  pay  any  loss ;  but  its  right  to  retain 
or  recover  the  premium  shall  not  be  affected." 

This  action  is  prosecuted  by  the  assured  owners  to  recover  from 
the  insurer  their  loss  so  sustained ;  and  it  is  defended  on  the  ground 
that  the  owners  violated  the  provision  of  the  contract  of  insurance 
above  quoted  by  contracting  with  the  carrier,  without  the  insurer's 
knowledge,  that  the  carrier,  in  case  of  liability  for  loss,  should  have 
the  benefit  of  the  insurance,  and,  in  effect,  that  the  insurer,  on 
paying  the  owners'  loss,  should  be  deprived  of  its  right  to  be 
subrogated  to  the  owners'  right  of  action  against  the  carrier  for 
injury  to  the  leather.  When  goods  in  the  hands  of  a  common  car- 
rier for  transportation  are  insured  by  the  owner,  and  are  subse- 
quently lost  or  injured  under  circumstances  rendering  the  carrier 
liable  to  the  owner  for  the  damages,  and  the  insurer  pays  the  loss 
to  the  owner,  the  insurer,  in  the  absence  of  stipulations  between 
the  carrier  and  owner  defeating  the  right,  is  entitled  to  be  sub- 
rogated to  the  rights  and  remedies  of  the  owner  against  the  car- 
rier. Hall  V.  Railroad  Co.,  13  Wall.  367,  20  L.  Ed.  594;  Insurance 
Co.  V.  Railway  Co.,  73  N.  Y.  399,  29  Am.  Rep.  171 ;  Sheld.  Subr. 
§  329.  But  the  struggle  between  carriers  and  insurers  to  escape 
the  liability  imposed  under  the  usual  bills  of  lading  and  policies, 
by  casting  the  burden  of  the  loss  upon  the  other  by  the  insertion 
of  unusual  and  astute  provisions  in  their  respective  contracts  with 


054  RIGHTS   UNDKR  THE   CONTRACT  (Ch.  9 

the  owner,  has  rendered  this  simple  ride  of  law  quite  inai)plicable 
to  many  of  the  cases  arising  under  such  special  contracts. 

The  provision  quoted  from  the  bill  of  lading  cut  off  the  insurer's 
right  to  be  subrogated  to  the  rights  and  remedies  of  the  owner 
against  the  defaulting  carrier.  Insurance  Co.  v.  Calebs,  20  N.  Y. 
173;  Piatt  v.  Railroad  Co.,  52  N.  Y.  Super.  Ct.  496,  affirmed  108 
N.  Y.  358,  15  N.  E.  393;  Insurance  Co.  v.  Transportation  Co.,  10 
Diss.  18.  Fed.  Cas.  No.  11,112,  affirmed  117  U.  S.  312,  6  Sup.  Ct.  750, 
29  L.  Ed.  873,  and  118  U.  S.  210,  6  Sup.  Ct.  1176,  30  L.  Ed.  128. 
It  has  been  held  (Jackson  Co.  v.  Insurance  Co.,  139  Mass.  508,  2 
N.  E.  103,  52  Am.  Rep.  728),  in  an  action  by  the  owner  against 
the  insurer  for  the  recovery  of  a  loss  covered  by  the  policy,  and 
caused  by  the  actionable  negligence  of  the  carrier,  that  a  stip- 
ulation between  the  owner  and  carrier,  giving  the  latter  the  ben- 
efit of  an  insurance  upon  the  goods,  is  not  a  defense  to  the  insurer, 
and  that  a  provision  in  the  policy  "that  this  insurance  shall  be  void 
in  case  the  policy,  or  the  interest  insured  thereby,  shall  be  sold, 
assigned,  transferred,  or  pledged  without  the  consent  in  writ- 
ing of  the  insurer,"  is  not  violated  by  the  agreement  between  the 
owner  and  carrier  that  the  latter  should  have  the  benefit  of  any 
insurance  on  the  goods  carried. 

In  Inman  v.  Railway  Co.,  129  U.  S.  128,  9  Sup.  Ct.  249,  32  L. 
Ed.  612,  the  defendant,  a  common  carrier,  transported  cotton,  un- 
der a  bill  of  lading  which  contained  a  stipulation  that  the  carrier 
incurring  any  legal  liability  for  the  loss  of  the  cotton  "shall  have 
the  benefit  of  any  insurance  which  may  have  been  effected  upon 
or  on  account  of  said  cotton."  The  owners  insured  the  cotton 
under  policies  which  contained  this  stipulation :  "And  any  act 
of  the  insured  waiving  or  transferring,  or  tending  to  defeat  or 
decrease,  any  such  [the  insurer's]  claim  against  the  carrier,  or 
such  other  person  or  persons,  whether  before  or  after  the  insurance 
was  made  under  this  policy,  shall  be  a  cancellation  of  the  liability 
of  the  said  insurance  company  for  or  on  account  of  the  risk  in- 
sured for  which  loss  is  claimed.  In  event  of  loss  the  assured  agrees 
to  subrogate  to  the  insurers  all  their  claims  against  the  transporters 
of  said  cotton,  not  exceeding  the  amount  paid  by  said  insurers." 
The  cotton  was  lost  by  the  negligence  of  the  carrier.  The  insur- 
ers adjusted  the  loss,  but  did  not  pay  the  owner,  agreeing  with 
him  that  he  should  sue  the  carrier  without  prejudice  to  his  claims 
under  the  policies,  and  that  interest  should  be  allowed  upon  the 
claim  as  adjusted  until  it  could  be  collected.  The  assured  owner 
sued  the  carrier,  which  defended  on  the  ground  that  by  the  stipu- 
lation in  the  bill  of  lading  it  was  entitled  to  the  insurance  effected 
on  the  cotton,  which  the  owner  had  nullified  by  accepting  a  policy 
containing  the  stipulation  quoted.  It  was  held  that  the  stipula- 
tion in  the  policy  was  not  a  defense. 

It  is  unnecessary  to  determine  whether  the  reasons  given  for  the 


Sec.  4)  SUBROGATION  655 

judgment  in  the  case  last  cited  can  be  harmonized  with  the  reasons 
given  for  the  judgments  in  the  previous  cases  hereinbefore  cited, 
because  none  of  the  cases  determine  the  precise  question  presented 
in  the  case  at  bar.  The  plaintiffs  in  this  action  expressly  stipulated 
that  they  would  make  no  agreement,  nor  do  any  act,  whereby 
their  right  of  action  against  the  carrier  for  losing  or  injuring  the 
leather  should  be  released  or  cut  off,  and  that,  in  case  the  carrier 
became  liable  to  the  plaintiffs  for  losing  or  injuring  the  leather, 
the  defendant,  the  insurer,  on  paying  the  loss,  should  be  subro- 
gated to  their  right  of  action  against  the  carrier.  By  the  contract 
entered  into  between  the  plaintiffs  and  the  carrier,  the  rights  stip- 
ulated for  by  the  insurer  have  been  wholly  nullified  and  cut  off, 
which  defeats  the  plaintiffs'  right  to  recover  on  the  policy.  Car- 
stairs  V.  Insurance  Co.  (C.  C.)  18  Fed.  473. 

The  judgment  should  be  afffrmed,  with  costs.  All  concur,  except 
HaighT,  J.,  not  voting. 

Judgment  affirmed. 


PFEILER  V.  PENN  ALLEN  PORTLAND  CEMENT  CO.  et  al. 
(Supreme  Court  of  Pennsylvania,   1913.     240  Pa.  468,  87  Atl.   623.) 

Bill  in  equity  by  Ludwig  Pfeiler  against  the  Penn  Allen  Portland 
Cement  Company  and  another.  From  a  decree  sustaining  a  de- 
murrer and  dismissing  the  bill,  plaintiff  appeals.     Affirmed. 

Per  Curiam.  The  plaintiff  obtained  a  judgment  in  an  action  for 
personal  injuries  against  the  Penn  Allen  Portland  Cement  Com- 
pany, which  became  insolvent  and  was  adjudged  a  bankrupt.  He 
filed  a  bill  for  subrogation  to  the  rights  of  the  cement  company 
under  an  indemnity  policy  of  accident  insurance  issued  to  it  by  the 
^tna  Life  Insurance  Company,  and  for  a  decree  requiring  the  in- 
surance company  to  pay  to  him  the  amount  of  his  judgment  against 
the  cement  company.  The  court  sustained  a  demurrer  and  dis- 
missed the  bill. 

The  insurance  policy  provided  that :  "No  action  shall  lie  against 
the  company  to  recover  for  any  loss  or  expense  under  this  policy 
unless  it  shall  be  brought  by  the  assured  for  loss  or  expense  actual- 
ly sustained  and  paid  in  money  by  him  after  actual  trial  of  the  issue, 
nor  unless  such  action  is  brought  within  two  years  after  payment  of 
such  loss  or  expense."  The  cement  company  has  paid  nothing  and 
under  the  express  terms  of  its  contract  it  is  not  entitled  to  recover 
from  the  insurance  company.  Since  it  has  no  right  of  action,  there 
is  nothing  to  which  the  plaintiff  could  be  subrogated.  For  this 
reason  the  bill  was  dismissed  by  the  learned  judge  of  the  common 
pleas,  and  in  the  decree  entered  we  fully  concur. 

The  decree  is  affirmed,  at  the  cost  of  the  appellant.*^ 

*i  Life  and  Accident  Insurance. — It  is  well  settled  that  the  doctrine  of 
s-torogation  has  no  application  to  life  insurance  since  it  does  not  in  any 


(156  CONSTRUCTION   OF   TOLICY — PROriCKTY   INSURANCE  (Cll.  10 


CHAPTER  X 

CONSTRUCTION  OF  THE  POLICY-PROPERTY 
INSURANCE 


SECTION  1.— CONDITIONS  OPERATIVE  BEFORE  LOSS 
I.  Sole:  AND  Unconditional  Ownership 


PHENIX  INS.  CO.  V.  HILLIARD. 

(Supreme  Court  of  Florida,   191U.     5'J  Fla.  590,  52   South.  799.  138  Am.   St. 

Rep.  171.) 

Appeal  from  an  order  overruling  a  demurrer  to  a  bill  in  equity 
brought  to  reform  and  enforce  a  fire  insurance  policy.  The  bill  al- 
leged in  substance  that  the  complainant  had  purchased  from  the  Malsby 
Company  and  installed  in  her  saw-mill  certain  machinery ;  that  in  order 
to  protect  her  interest  in  such  machinery,  as  well  as  that  of  the  Malsby 
Company,  which  had  reserved  title  till  all  the  purchase  money  should 
be  paid,  she  had  applied  for  insurance;  that,  although  fully  advised  of 
all  the  facts  relating  to  the  ownership  of  such  property,  the  agent  of 
the  defendant  company  had  neglected  to  write  the  policy  issued  so 
that  the  Malsby  Company  would  appear  as  the  owner  of  the  property 
insured,  and  its  interest  be  protected ;  that  the  mistake  in  the  form  of 
the  policy  had  not  been  discovered  until  after  the  property  had  been 
destroyed  by  fire,  etc.  The  prayer  was  for  reformation  and  enforce- 
ment of  the  contract,  and  for  general  relief.  Defendant's  demurrer  to 
this  bill  was  overruled. 

Whitfield,  C.  J.^  (after  stating  facts  in  detail).  *  *  *  jj-,  this 
case  the  policy  expressly  provides  that  it  shall  be  void  unless  otherwise 
indorsed  on  the  policy  "if  the  interest  of  the  insured  be  other  than 
unconditional  and  sole  ownership."  An  allegation  of  the  bill  of  com- 
plaint is  that  Charlotte  Hilliard  requested  the  agent  of  the  insurance 
company  "to  write  a  policy  on  said  described  property  to  protect  her- 
self and  the   said   Malsby  Company  against   loss   by  fire,"   and   that 

proper  sense  indemnify.  See  Mobile  Life  Ins.  Co.  v.  Bra  me,  95  U.  S.  754, 
24  L.  Ed.  580  (1877);  Connecticut  Mut.  Life  Ins.  Co.  v.  New  York  &  N.  H. 
R.  Co.,  25  Conn.  265,  65  Am.  Dec.  571  (1856). 

The  same  principle  is  held  applicable  to  accident  insurance.  See  ^Etna  Life 
Ins.  Co.  V.  J.  B.  Parker  &  Co.,  96  Tex.  287,  72  S.  W.  168,  580,  621  (190.3); 
Gatzweiler  v.  Milwaukee  Electric  R.  &  L.  Co.,  136  Wis.  34,  116  N.  W.  633, 
18  L.  R.  A.  (N.  S.)  211,  128  Am.  St.  Rep.  1057,  16  Ann.  Cas.  633  (1908). 

1  Part  of  the  opinion  is  omitted. 


Sec.  1)  CONDITIONS   OPERATIVE   BEFORE   LOSS  657 

tlirough  inadvertence,  accident,  or  mistake  the  agent  omitted  the  name 
of  the  Malsby  Company  as  the  owner  of  the  machinery.  The  prayer  is 
that  the  poHcy  be  so  corrected  or  reformed  as  to  show  the  Malsby  Com- 
pany to  be  the  owners  of  the  machinery,  and  the  demurrer  to  the  bill 
of  complaint  states  that  as  matter  of  law  the  Malsby  Company  was 
not  the  owner  of  the  machinery. 

Where  a  purchaser  of  personal  property  takes  possession  of  it,  but 
the  title  remains  in  the  vendor  till  the  purchase  price  is  paid  in  full,  the 
vendee  in  possession  has  an  insurable  interest  in  the  property,  even 
though  he  has  not  fully  paid  for  it.  Reed  v.  Williamsburg  City  Fire 
Ins.  Co.,  74  Me.  537.  But  under  the  terms  of  the  policy  the  insured 
must  have  the  "unconditional  and  sole  ownership"  of  the  property. 
The  interest  of  a  purchaser  of  property,  which  he  has  unqualifiedly 
agreed  to  buy,  and  which  the  former  owner  has  absolutely  contracted 
to  sell  to  him  upon  definite  terms,  is  the  "sole  and  unconditional  owner- 
ship" within  the  true  meaning  of  the  ordinary  clause  upon  that  subject 
in  insurance  poHcies,  because  the  vendor  may  compel  the  vendee  to 
pay  for  the  property  and  to  suffer  any  loss  that  occurs.  Insurance 
Co.  of  North  America  v.  Erickson,  50  Fla.  419,  39  South.  495,  2  L. 
R.  A.  (N.  S.)  512,  111  Am.  St.  Rep.  121,  7  Ann.  Cas.  495;  Phenix  Ins. 
Co.  of  Brooklyn,  N.  Y.,  v.  Kerr.  129  Fed.  723,  64  C.  C.  A.  251,  66  L. 
R.  A.  569;  Rumsey  v.  Phenix  Ins.  Co.  (C.  C.)  1  Fed.  396;  8  Words 
and  Phrases,  7154;  2  Cooley  on  Insurance,  1375;  Richardson,  Insur- 
ance (3d  Ed.)  336. 

Appellees  contend  that  this  rule  does  not  apply  to  personal  property, 
and  cite  2  Clements  on  Fire  Insurance,  170.  The  rule  there  announced 
has  some  support  in  cited  cases  where  the  vendor  reserved  the  right 
to  retake  possession  and  ownership  of  the  property.  The  facts  in  this 
case  are  not  of  that  character. 

The  just  and  reasonable  purpose  of  insurance  policies  in  requiring 
the  insured  to  have  the  "unconditional  and  sole  ownership"  of  the 
property  insured  is  to  give  protection  to  only  those  upon  whom  the 
loss  insured  against  would  inevitably  fall  but  for  the  insurance,  and  to 
avoid  taking  risks  for  those  whose  lack  of  interest  or  whose  contingent 
interest  in  the  property  insured  might  tend  to  encourage  carelessness 
or  wrongdoing  in  the  use  or  preservation  of  the  property.  Wager 
policies  are  not  approved  and  should  be  avoided. 

A  conditional  sale  of  personal  property  by  which  the  vendee  takes 
possession  of  the  property  with  an  unconditional  promise  to  pay  for  it. 
but  the  vendor  retains  the  title  till  payment  in  full  of  the  purchase 
price  is  made,  confers  upon  the  vendor  the  absolute  right  of  the  pur- 
chase price,  and  imposes  upon  the  vendee  the  unconditional  obligation 
to  pay  the  purchase  price,  and  also  casts  upon  the  vendee  all  the  risks 
of  loss  incident  to  the  full  and  complete  ownership  of  the  property, 
unless  otherwise  specially  provided  by  contract.  6  Am.  &  Eng.  Ency. 
Law  (2d  Ed.)  455. 
Vance  Ins. — 42 


658  CONSTRUCTION   OF   POLICY PUOPEUTY   INSUUANCB  (Cll.  10 

To  be  "unconditional  and  sole,"  the  interest  or  "ownership"  of  the 
insured  must  be  completely  vested,  not  contingent  or  conditional,  nor  in 
common  or  jointly  with  others,  but  of  sucli  nature  tliat  the  insured 
must  alone  sustain  the  entire  loss  if  the  property  is  destroyed ;  and  this 
is  so  whether  the  title  is  legal  or  equitable.  Hartford  Fire  Ins.  Co.  v. 
Keating,  86  Md.  130,  38  Atl.  29,  63  Am.  St.  Rep.  499. 

By  fair  construction  and  intendment  the  "unconditional  and  sole 
ownership"  of  property  for  the  purj)oses  of  insurance  is  in  those  upon 
whom  the  loss  insured  against  would  certainly  fall,  not  as  a  matter  of 
mere  contract  obligation,  but  as  the  result  of  real  bona  fide  rights  in 
the  property  insured. 

The  contract  of  sale  in  this  case  expressly  reserved  the  title  in  the 
vendor  till  all  the  goods  were  paid  for,  with  a  provision  that  upon  cer- 
tain defaults  and  contingencies  the  vendor  might  take  possession  of  the 
property,  not  for  the  purpose  of  resuming  the  ownership  of  it,  but 
to  sell  it  to  make  the  purchase  price  out  of  it.  The  vendors  were  guar- 
anteed against  any  loss  or  damage  to  the  property  by  fire  or  other 
cause ;  and  as  an  express  stipulation  the  vendee  was  in  no  event  en- 
titled to  a  rescission  of  the  contract  or  to  an  abatement  in  the  price 
for  any  cause.  These  agreements  expressly  fixed  the  rights  of  the 
vendee,  and  the  agreement  to  keep  the  property  insured  for  the  benefit 
of  the  vendor  was  only  an  additional  security  for  the  purchase  price, 
and  did  not  affect  the  vendee's  interest  or  risks  in  the  property. 

While  the  vendor,  the  Malsby  Company,  did  not  have  the  "uncon- 
ditional arid  sole  ownership"  of  the  machinery  when  the  policy  was 
issued,  such  vendor  reserved  the  title  for  the  purpose  of  securing  the 
purchase  price,  and  consequently  had  an  insurable  interest  in  the  ma- 
chinery. 19  Cyc.  588;  13  Am.  &  Eng.  Enc.  Law  (2d  Ed.)  181.  The 
prayer  for  relief  for  the  Malsby  Company  is  on  the  ground  that  it  is 
"the  owner  of  said  *  *  *  machinery" ;  but  it  is  alleged  that  it 
was  mutually  intended  to  enter  into  a  contract  that  would  protect  the 
interests  of  the  insured  "according  to  their  respective  interests."  Un- 
der this  allegation,  admitted  by  the  demurrer,  the  real  interest  of  the 
parties  in  all  the  property  insured  may  be  shown,  and  appropriate  re- 
lief may  be  granted  under  the  general  prayer.  16  Cyc.  224;  18  Enc. 
PI.  &  Pr.  867. 

The  order  appealed  from  is  affirmed,  and  the  cause  is  remanded,  with 
leave  to  amend  if  so  desired. 

Shacki,e;ford  and  CockrelIv,  JJ.,  concur.  Taylor,  Hocke^r,  and 
ParkhilIv,  JJ.,  concur  in  the  opinion. 


Sec.  1)  CONDITIONS  OPERATIVE  BEFORE  LOSS  659 


NANCE  V.  OKLAHOMA  FIRE  INS.  CO. 

(Supreme  Court  of  Oklahoma,  1912.     31  Old.  208,  120  I'ac.  948,  38  L.  R.  A. 

[N.  S.]  42(5.) 

Action  by  L.  A.  Nance  against  the  Oklahoma  Fire  Insurance  Com- 
pany.    Judgment  for  defendant,  and  plaintiff  brings  error.     Affirmed. 

Hayes,  J.-  *  *  *  One  of  the  questions  and  answers  thereto  in 
the  application  is  as  follows :  "Are  you  the  sole  and  undisputed  owner 
of  the  property  to  be  insured?  Answer:  Yes."  All  the  evidence  is  to 
the  effect  that  plaintiff  was  the  sole  and  absolute  owner  of  the  building 
destroyed,  but  that  he  owned  only  an  undivided  half  interest  in  the 
lot  upon  which  the  same  was  situated.  It  is  contended  by  the  insur- 
ance company  that  his  ownership  of  only  one-half  interest  in  the  lot 
renders  the  foregoing  statement  false,  in  that  he  is  not  the  sole  owner 
thereof.  We  do  not  think  this  contention  is  sound.  It  will  be  noted 
that  the  question  does  not  ask  as  to  the  ownership  of  the  lot,  but  as  to 
who  is  the  owner  of  the  property  insured.  The  property  insured  was 
the  building  only.  The  policy  does  not  cover  the  lot  upon  which  it 
stands.  Plaintiff,  according  to  all  the  evidence,  is  the  absolute  owner 
of  the  building,  and  the  answer  made  by  him  to  the  foregoing  question 
was  true.^     *     *     * 


COLLINS  v.  ST.  PAUL  FIRE  &  MARINE  INS.  CO. 

(Supreme  Court  of  Minnesota,  1890.    44  Minn.  440,  46  N.  W.  906.) 

Appeal  by  defendant  from  an  order  of  the  District  Court  for  Sibley 
County,  Edson,  J.,  presiding,  granting  a  new  trial  after  verdict  di- 
rected for  defendant,  in  an  action  to  recover  $600  on  the  policy  men- 
tioned in  the  opinion. 

GiLFiLLAN,  C.  J.  This  is  an  action  on  a  policy  of  insurance  upon 
a  dwelling-house  and  log  barn,  and  sheds  connected  therewith,  situate 
on  section  31,  township  114,  range  25.     Upon  the  trial  the  court  be- 

2  The  statement  of  facts  as  given  by  the  court,  and  portions  of  the  opinion 
dealing  with  the  question  of  proof  of  loss  (printed  post,  p.  700),  and  with  a 
point  of  evidence,  are  omitted. 

3  It  is  well  settled  that  a  conveyance  void  as  to  creditors  because  executed 
fraudulently  will  nevertheless  give  the  grantee  such  title  as  will  be  held  valid 
against  the  insurer  of  the  property,  even  though  the  policy  contain  a  clause 
requiring  sole  and  unconditional  ownership.  See  Steinmeyer  v.  Steinmeyer, 
64  S.  C.  413,  42  S.  E.  184,  59  L,.  K.  A.  319,  92  Am.  St.  Kep.  809  (1902)  ;  Koch- 
ester  Loan  &  Banking  Co.  v.  Liberty  Ins.  Co..  44  Neb.  537,  62  N.  W.  877,  48 
Am.  St.  Rep.  745  (1S95)  ;  Groce  v.  Phoenix  Insurance  Co.,  94  Miss.  201,  48 
South.  298,  22  L.  R.  A.  (N.  S.)  732  (19U9),  in  which  case  it  was  also  held  that 
a  statute  making  conveyances  between  husband  and  wife  void  as  to  "third 
persons"  applied  only  to  such  "third  person"  as  would  be  injured  thereby, 
and  did  not  include  the  insurer  of  the  property  conveyed. 

As  to  the  effect  of  a  mortgage  on  the  "sole  and  unconditional  ownership" 
of  the  moi'tgagor,  see  Union  Assurance  Soc.  v.  Nails,  101  Va.  613,  44  S,  E, 
896,  99  Am.  St.  Rep.  923   (1903)  ;  2  Cooley,  Briefs  on  Insurance,  1394. 


OnO  CONSTRUCTION   OF   POLICY rROPKHTY   INSURANCE  (Cll.  H) 

low  directed  a  verdict  for  the  defendant,  and  after  such  verch'ct,  ui)on 
plaintiff's  motion,  granted  a  new  trial,  and  from  the  order  granting  it 
defendant  appeals.  On  the  case  made  at  the  trial  it  was  impossible 
for  the  plaintiff  to  recover,  for  two  reasons : 

First.  The  house,  barn,  and  sheds,  for  a  loss  n])on  which  a  recovery 
is  sought,  were  not  on  section  31 ;  but  plaintiff  claimed  at  the  trial, 
and  gave  some  evidence  tending  to  show,  that  it  was  the  intention  to 
insure,  by  the  policy,  similar  buildings  on  section  32,  and  that  section 
31  was  inserted  in  the  policy  through  mistake.  If  this  were  true  it 
would  be  good  cause  for  reforming  the  policy  by  inserting  section  32 
instead  of  section  31,  but,  until  so  reformed,  no  recovery  could  be  had 
for  loss  to  the  buildings  on  section  32. 

Second.  Even  if  so  reformed,  no  recovery  could  be  had,  for  the 
policy  provides  that  the  company  shall  not  be  liable  "if  the  interest 
of  the  assured  in  the  property  is  not  one  of  absolute  and  sole  owner- 
ship," and  it  appeared  beyond  controversy  that  the  plaintiff  had  only 
a  life-estate  in  the  property.  Of  course  she  had  an  insurable  interest, 
but  that  interest  was  not  insured.  The  policy  expressly  excluded 
from  its  operation  any  interest  other  than  the  absolute  and  sole  owner- 
ship. 

Order  reversed. 


II.  Change  of  Interest 


GIBB  et  al.  v.  PHILADELPHIA  FIRE  IXS.  CO. 

(Supreme  Court  of  Minnesota,  1894.     59  Minn.  i:U7,  (Jl  X.   \V.  137,  50  Am. 

St.  Kep.   405.) 

Canty,  J.  On  February  29,  1892,  the  plaintiff  Gibb  was  the  owner 
in  fee  simple  of  the  premises  in  question,  subject  to  a  mortgage  of 
$1,200,  held  by  the  plaintiff  Hilles.  On  that  day  defendant  issued  a 
policy  of  insurance  insuring  Gibb  to  the  amount  of  $2,000,  for  three 
years  from  and  after  that  day,  against  loss  by  fire  to  the  buildings  on 
the  premises,  loss,  if  any,  payable  to  Hilles  as  her  interest  may  ap- 
pear; but  providing  that  if,  in  case  of  loss,  the  insurer  is  not  liable 
to  the  mortgagor  or  owner,  it  shall  be  subrogated  to  the  rights  of  the 
mortgagee  under  her  mortgage,  and,  upon  paying  the  full  amount 
due  on  the  mortgage,  shall  receive  an  assignment  of  it.  This  mort- 
gage clause  also  provided  that  the  policy  should  not  be  invalidated  as 
to  the  mortgagee  by  any  act  of  the  owner,  or  by  any  change  in  the 
title  or  ownership  of  the  premises.  On  February  28,  1893,  there  was 
a  loss  by  fire  amounting  to  $1,462.62.  The  plaintiff's  brought  this  ac- 
tion to  recover  this  loss.  The  case  was  tried  by  the  court  without  a 
jury,  and  judgment  was  ordered  in  favor  of  Hilles  for  $1,200,  the 


Sec.  1)  CONDITIONS   OPERATIVE   BEFORE   LOSS  601 

amount  of  her  mortgage,  and  in  favor  of  Gibb  for  the  balance  of  said 
amount  of  the  loss.  From  the  judgment  entered  thereon,  defendant 
appeals. 

The  appellant  concedes  that  the  plaintiff  Hilles  is  entitled  to  recover, 
but  contends  that  a  breach  occurred,  prior  to  the  fire,  which  avoided 
the  policy  as  to  Gibb ;  that  he  is  not  entitled  to  recover ;  and  that  de- 
fendant is  entitled,  on  payment  to  Hilles  of  the  amount  of  her  mort- 
gage, to  be  subrogated  to  her  rights  under  the  mortgage.  The  policy 
contains  the  following  provisions  :  "This  entire  policy,  unless  otherwise 
provided  by  agreement  indorsed  hereon  or  added  hereto,  shall  be  void 
*  *  *  if  any  change  other  than  by  the  death  of  an  insured  take 
place  in  the  interest,  title,  or  possession  of  the  subject  of  insurance 
(except  change  of  occupants  without  increase  of  hazard),  whether  by 
legal  process  or  judgment,  or  by  voluntary  act  of  the  insured,  or  oth- 
erwise." It  is  found  by  the  court:  That  on  March  23,  1892,  plaintiff 
made  a  contract  in  writing  with  one  Maggie  J.  Kelly  whereby  he  sold 
and  agreed  to  convey  to  her  the  premises,  consisting  of  five  lots,  by 
deed  of  warranty,  on  prompt  and  full  performance  by  her  of  the 
agreement,  and  she  agreed  to  pay  therefor  the  sum  of  $2,500, — $300 
cash,  and  $1,000  in  installments  of  $50  every  60  days  thereafter  until 
paid,  the  balance  to  be  paid  by  her  in  assuming  said  mortgage, — she  to 
have  possession  of  the  premises  until  default  in  payment ;  and  in  case 
of  such  default  she  agreed  to  surrender  possession  on  demand,  and  that 
the  agreement  should  be  void  at  the  option  of  the  vendor.  That  at  and 
from  the  time  of  making  the  policy  of  insurance,  until  the  time  of  mak- 
ing the  contract  of  sale,  the  buildings  had  been  unoccupied,  and  that, 
on  the  making  of  said  contract  of  sale,  said  Kelly  entered  into  the  pos- 
session of  the  buildings  and  premises,  and  occupied  the  same  until  the 
time  of  the  fire,  and  made  all  her  payments  during  that  time,  and  was 
not  in  default  in  any  manner  upon  said  contract. 

It  is  contended  by  appellant  that,  by  the  transactions  with  Kelly, 
there  took  place  a  change  in  the  interest,  title,  and  possession  of  Gibb, 
and  the  condition  against  any  such  change  was  broken,  and  the  pol- 
icy avoided  as  to  him.*     It  seems  to  us  that  there  was  a  breach  in  the 

4  Transfers  Between  Partners. — Much  conflict  is  found  as  to  the  effect 
upon  alienation  of  a  transfer  of  interest  between  partners.  The  general  rule 
appears  to  be  that  when  the  transfer  is  between  the  partners  to  whom  the 
policy  was  issued,  so  that  the  moral  hazard  is  not  increased  by  lessening  the 
interest  of  the  insured,  or  when  no  new  personality  is  introduced  into  the 
contract  of  insurance,  there  is  no  violation  of  the  alienation  clause.  See 
Wood  V.  Insurance  Co.,  149  N.  Y.  382,  44  N.  E.  80,  52  Am.  St.  Kep.  783  (189G)  ; 
Virginia  Fire  &  Marine  Ins.  Co.  v.  Thomas,  90  Va.  058,  19  S.  E.  454  (1S94). 
Where,  however,  the  effect  of  the  transfer  is  to  decrease  the  value  of  the 
insured's  holdings,  or  to  introduce  another  party  in  interest,  the  stipulation 
against  change  of  interest  is  violated.  An  instance  of  the  latter  situation  is 
shown  in  the  case  of  Mechanics'  &  Traders'  Insurance  Co.  v.  Davis  (Tex. 
Civ.  App.)  107  S.  W.  175  (1914).  A  portion  of  the  court's  opinion  is  as  fol- 
lows: "The  policy  contained  a  clause,  in  substance,  to  the  effect  that,  unless 
otherwise  provided  by  agreement  indorsed  thereon,  it  should  become  void  in 


662  CONSTRUCTION   OF   POLICY — PROPERTY   INSURANCE  (Ch.  10 

condition  against  any  change  of  interest.  It  is  not  claimed  by  re- 
s])ondents  that  there  was  any  waiver  of  this  condition,  and  the  author- 
ities cited  by  counsel  are  nearly  all  cases  where  the  breach  claimed  was 
not  of  a  condition  against  a  change  of  interest,  but  a  change  of  title. 
It  is  held  by  the  great  weight  of  authority  that,  wliere  the  condition 
is  against  any  change  in  the  title,  there  is  no  breach  unless  there  is  a 
change  in  the  legal  title, — that,  as  long  as  the  insured  retains  the  legal 
title  and  an  insurable  interest  in  the  premises,  the  policy  is  not  avoided 
by  a  transfer  of  the  equitable  title  or  of  equitable  interests ;  but  we 
cannot  apply  this  doctrine  to  a  condition  against  any  change  of  inter- 
est. The  terms  are  not  synonymous,  as  contended  by  counsel.  The 
word  "interest"  is  broader  than  the  word  "title,"  and  includes  both 
legal  and  equitable  rights.  It  is  not  necessary  to  consider  the  question 
of  the  change  of  possession,  except  so  far  as  it  has  an  influence  on  the 
change  of  interest  by  strengthening  and  fortifying  the  interest  accjuired 
by  Kelly. 

This  disposes  of  the  case.  The  plaintiff  Hilles  is  entitled  to  judg- 
ment for  the  sum  awarded  her,  but  upon  payment  of  the  same  the  de- 
fendant is  entitled  to  be  subrogated  to  her  rights  under  her  mort- 
gage, and  the  defendant  is  entitled  to  judgment  against  the  plaintiff 

the  event  of  any  change,  other  than  by  death  of  the  Insured  in  the  interest, 
title,  or  possession  of  the  subject-matter  of  insurance  (except  change  of  oc- 
cupants without  increase  of  hazard),  whether  by  legal  process  or  judgment, 
or  by  voluntary  act  of  the  insured  or  otherwise.  The  uncontradicted  evidence 
showed  that  prior  to  the  lire  appellee  had  sold  a  two-third  interest  in  his 
business  to  G.  H.  Peters  and  R.  S.  Martin,  accepting  a  part  of  the  considera- 
tion therefor,  and  placing  the  former  in  charge  of  his  Waco  house,  of  which 
appellant  had  no  notice  or  knowledge.  We  think  this  sale  was  in  direct  vio- 
lation of  the  contract  of  insurance,  and  defeats  appellee's  right  to  recover 
thereunder.  See  Insurance  Co.  v.  Kansom  (Tex.  Civ.  App.)  61  !S.  W.  144 
(1901)  ;  Assurance  Co.  v.  Bank,  18  Tex.  Civ.  App.  721,  45  S.  W.  737  (189S)  ; 
Foundry  Co.  v.  Assurance  Co.,  135  Mich.  4(57,  98  N.  W.  9,  3  Ann.  Cas.  707 
(1904)  ;  Drennen  v.  Assurance  Co.  (C.  C.)  20  Fed.  657  (1884)  ;  Insurance  Co. 
V.  Riker,  10  Mich.  279  (1862)  ;  Malley  v.  Insurance  Co.,  51  Conn.  222  (1883)  ; 
Osborn  v.  Insurance  Co.,  151  111.  App.  126  (1909) ;  Card  v.  Insurance  Co.,  4  Mo. 
App.  424  (1877) ;  Royal  Ins.  Co.  v.  Martin,  192  U.  S.  149,  24  Sup.  Ct.  247,  48  L. 
Ed.  385  (1904)  ;  Insurance  Co.  v.  Insurance  Co.,  144  N.  T.  195,  39  N.  E.  78, 
26  L.  R.  A.  591,  43  Am.  St.  Rep.  749  (1894)  ;  Bacot  v.  Insurance  €o.,  96  Miss. 
223,  50  South.  732,  Ann.  Cas.  1912B,  262  (1909)  ;  Robinson  v.  Insurance  Co. 
(Ky.)  53  S.  W.  660  (1899).  This  was  a  complete,  and  not  an  executory,  con- 
tract of  sale  as  contended  by  appellee,  nor  is  it  material,  as  he  contends, 
that  he  retained  a  lien  to  secure  part  of  the  purchase  money  on  said  property. 
Assurance  Co.  v.  Bank,  supra.  The  legal  title,  by  reason  of  the  sale,  immedi- 
ately vested  in  his  partners,  and  they  could  have  enforced  the  contract  as 
against  him.  This  being  true,  there  was  a  complete  change  in  the  interest, 
title,  and  possession  of  the  property.  JN'or  is  it  material  that  subsequent  to 
the  tire  he  had  a  settlement  with  his  partners,  by  which  he  paid  back  to 
them  part  of  the  purchase  money  received,  because  after  the  rtre  he  could 
do  nothing  that  would  defeat  appellant's  right  to  insist  on  a  forfeiture  on  ac- 
count of  such  breach  of  the  contract  by  him.  Hence  it  must  be  held  to  have 
avoided  the  same  under  the  provisions  thereof  above  quoted." 

See,  also  Maley  v.  Insurance  Co.,  51  Conn.  222  (1883)  ;  Drennen  v.  Assur- 
ance Corp.  (C.  C.)  20  Fed.  657  (1884),  reversed  on  other  grounds  in  113  U. 
S.  51,  5  Sup.  Ct.  341,  28  L.  Ed.  919   (1885)  ;  Vance  on  Insurance,  453. 


Sec.  1)  CONDITIONS   OPERATIVE   BEFORE   LOSS  663 

Gibb  that  he  take  nothing  by  this  action.  The  judgment  appealed 
from  should  be  reversed,  with  directions  to  enter  judgment  in  con- 
formity with  this  opinion.    So  ordered. 


GARNER  V.  MILWAUKEE  MECHANICS'  INS.  CO. 

(Supreme  Court  of  Kansas,  190«.     73  Kan.  127,  84  Pac.  717,  4  L.  R.  A.   [N. 
S.]  654,  117  Am.  St.  Kep.  460,  9  Ann.  Cas.  4.59.) 

GreIDne,  J.  ^  The  plaintiff  was  defeated  in  an  action  on  an  insur- 
ance policy,  and  to  reverse  the  judgment  he  prosecutes  this  proceed- 
ing. 

The  policy  contained  the  provision  that  it  shall  become  void :  "If 
any  change  other  than  by  the  death  of  the  insured  takes  place  in  the 
interest,  title,  or  possession  of  the  subject  of  insurance  (except  change 
of  occupants  without  increase  of  hazard),  whether  by  legal  process 
or  judgment  or  by  the  voluntary  act  of  the  insured,  or  otherwise." 
When  the  insurance  was  obtained  the  insured  was  the  owner  of  the 
title  to  the  property.  Subsequently  he  entered  into  the  following  con- 
tract :     *     *     * 

[The  contract  provided  that  in  consideration  of  the  conveyance  by 
one  Baker  of  certain  Missouri  farm  land  to  the  plaintiff,  he  was  to  as- 
sume a  mortgage  and  convey  to  Baker  the  property  in  question.  The 
delivery  of  the  deed  was,  however,  to  be  deferred  until  Baker  should 
repay  a  certain  loan  made  to  him  by  the  plaintiff.  By  the  terms  of 
the  contract  possession  of  the  premises  was  to  be  given  to  Baker  im- 
mediately.] 

Baker  deeded  to  plaintiff  the  Missouri  lands,  which  was  the  full 
consideration  to  be  paid  by  him  for  the  insured  property.  The  plain- 
tiff made  no  conveyance,  nor  had  he  delivered  possession  at  the  time 
the  property  was  destroyed  by  fire,  July  29,  1903.  The  defense  was 
that  by  this  contract  a  change  had  taken  place  in  plaintiff's  interest  in 
the  subject  of  insurance,  which,  under  the  condition  quoted,  forfeited 
the  policy.  Forfeitures  are  not  favored  and  will  never  be  enforced 
if  by  a  reasonable  interpretation  of  the  agreement  and  contract  of  the 
parties  they  can  be  avoided.  The  provision  was  intended  to  protect 
the  company  against  any  increased  hazard  resulting  from  a  change 
of  interest,  title  or  possession  of  the  insured.  An  insurance  company 
may  contract  against  such  contingency,  and  if  such  provision  of  the 
contract  is  violated  it  would  have  the  right  to  insist  upon  being  re- 
leased from  liability.  The  company  contracted  for  the  care,  super- 
vision, and  vigilance  of  the  assured  in  protecting  the  property  from 
fire.  This  is  largely  its  security  against  loss,  and  a  disposition  by  the 
assured  of  all  of  his  interest,  title,  or  possession  in  the  property,  or  of 

5  Part  of  the  opinion  is  omitted. 


004  CONSTRUCTION   OK   POLICY PROPEIITY    INSURANCE  (Cll.lO 

such  a  substantial  part  thereof  as  would  entirely  or  partially  abate 
tills  diligence  would  be  a  violation  of  the  contract. 

The  word  "interest"  as  used  in  the  policy  is  not  synonymous  with 
title,  it  means  some  right  different  from  title;  it  cannot  mean  a  great- 
er estate  than  title,  since  title  as  there  used  was  intended  to  mean  the 
entire  estate.  It  must  therefore  have  been  used  with  the  meaning  gen- 
erally attached  to  it,  when  used  in  contradistinction  to  title  as,  "any 
right,  in  the  nature  of  property,  less  than  title."  Anderson's  Law 
Diet.  562.  "In  the  narrower  sense  it  was  used  in  the  English  common 
law  of  real  property,  to  designate  a  right  less  than  an  estate."  Cen- 
tury Diet.  vol.  4,  p.  3142.  This  we  think  is  the  sense  in  which  it  was 
used  in  the  policy.  In  the  interpretation  of  the  policy  this  word  is 
important.  The  form  of  the  policy  was  intended  to  cover  two  classes 
of  risks.  There  are  large  interests  in  real  estate  owned  by  persons 
.who  have  neither  title  nor  possession.  The  form  of  this  policy  is 
adapted  to  the  insurance  of  such  interests,  as  well  as  to  the  insurance 
of  property  where  the  insured  is  the  owner  of  the  title.  Where  the 
insured  is  the  owner  of  only  an  interest  in  the  estate,  the  word  "in- 
terest" used  in  the  forfeiture  clause  has  force,  and  any  change  in  such 
interest  would  forfeit  the  policy;  but  where  the  insured  is  the 
owner  of  the  title  the  word  "interest"  has  no  application.  In  the  lat- 
ter case  if  any  change  takes  place  in  the  title  the  policy  is  forfeited. 

The  insurance  in  the  present  case  was  procured  by  one  owning  the 
title,  as  to  him  only  a  change  in  the  title  would  forfeit  the  policy.  We 
do  not  feel  inclined  to  follow  the  decision  of  Gibb  v.  Philadelphia  Fire 
Ins.  Co.,  59  Minn.  267,  61  N.  W.  137,  50  Am.  St.  Rep.  405,  because 
we  do  not  believe  that  the  word  "interest"  as  used  in  the  policy  in 
that  case,  which  was  the  same  as  the  one  we  are  considering,  is  broad- 
er and  inclusive  of  title ;  and  because  in  that  case  it  was  wholly  un- 
necessary to  define  "interest."  After  Gibb  had  procured  the  insurance 
he  sold  the  insured  property  by  a  written  contract,  and  gave  the  pur- 
chaser possession,  and  he  remained  in  possession  until  the  property 
was  destroyed.  This  of  itself  was  such  a  violation  of  the  express 
terms  of  the  policy  against  change  of  title,  or  possession  as  would  ren- 
der the  policy  void. 

The  main  contention  of  defendant  in  error  is  that  the  contract  be- 
tween Davis  and  Garner  for  the  sale  of  the  insured  property,  having 
been  fully  performed  by  Davis,  is  enforceable  in  equity  against  Gar- 
ner, therefore  it  operated  as  a  present  change  of  interest  in  the  prop- 
erty, within  the  forfeiture  clause  of  the  contract.  A  party  pleading 
a  forfeiture  must  make  it  clear  that  a  forfeiture  has  taken  place ;  he 
cannot  speculate  upon  what  a  court  of  equity  would  do  in  a  given 
case,  or  anticipate  its  decrees,  and  upon  an  assumption  that  his  fore- 
cast is  correct  ask  a  court  to  declare  a  forfeiture.  For  the  purpose  of 
finding  grounds  for  a  forfeiture  courts  of  law  will  not  go  so  far  afield 
as  to  determine  the  enforceability  of  a  contract  in  equity  between 
parties  not  before  it.     If,  however,  this  court  should  believe  that  spe- 


Sec.  1)  CONDITIONS   OrEUATIVE   BEFORE   LOSS  605 

cific  performance  of  that  contract  could  be  decreed  the  relief  asked 
for  by  defendant  would  not  be  granted.  It  is  held  that  an  executory 
contract  to  convey  insured  real  estate  does  not  operate  as  a  forfeiture 
of  the  policy  under  a  provision  that  "it  should  be  void  if  the  interest 
of  the  insured  were  otherwise  than  unconditional  and  sole  ownership" 
(Arkansas  Fire  Insurance  Co.  v.  Wilson,  67  Ark.  553,  55  S.  W.  933, 
48  L.  R.  A.  510,  77  Am.  St.  Rep.  129;  Franklin  Ins.  Co.  v.  Feist,  31 
Ind.  App.  390,  68  N.  E.  188),  or  where  the  condition  of  the  policy  is 
that  it  shall  be  void,  "in  case  of  any  sale  or  transfer,  or  any  change 
in  title  or  possession"  (Browning  v.  Home  Insurance  Co.,  71  N.  Y. 
508,  27  Am.  Rep.  86),  or  "if  any  change  *  *  *  take  place  in  the 
interest,  title,  or  possession  of  the  subject  of  the  insurance"  (Erb  v. 
Insurance  Co.,  98  Iowa,  606,  67  N.  W.  583,  40  L.  R.  A.  845 ;  Home 
Mut.  Ins.  Co.  V.  Tomkies,  96  Tex.  187,  71  S.  W.  812.  814). 

The  judgment  is  reversed,  and  the  cause  remanded.     All  the  Jus- 
tices concurring.® 


WOLF  V.  THERESA  VILLAGE  MUT.  FIRE  INS.  CO. 

(Supreme  Court  of  Wisconsin,  1902.     115  Wis.  402,  91  N.  W.  1014.) 

Cassoday,  C.  J,t  *  *  *  2.  The  more  serious  question  is  wheth- 
er the  policy  was  forfeited  by  reason  of  a  violation  of  the  other  clause 
of  the  provision  of  the  policy  quoted,  to  the  effect  that  the  entire  policy 
should  be  void  "if  any  change"  should  take  place  "in  the  interest,  ti- 
tle, or  possession"  of  the  property,  "whether  by  legal  judgment  or 
process  or  by  voluntary  act  of  the  insured  or  otherwise."  The  answer 
denies  "that  the  plaintifif  owned  or  had  any  interest  in  the  buildings 
or  premises  mentioned  in  said  complaint  at  the  time  of  the  happening 
of  said  loss."  That  is  the  particular  question  litigated  upon  the  trial. 
The  motion  for  a  nonsuit  was  based  upon  a  supposed  change  "in  the 
interest,  title,  or  possession"  of  the  property  after  the  making  of  the 
contract  of  insurance,  and  before  the  fire.  The  defendant  proved, 
and  the  court  found,  and  it  is  undisputed,  that  June  28,  1900,  some 
four  months  prior  to  the  fire,  the  plaintiff  and  his  wife  executed  and 
delivered  to  the  Jos.  Schlitz  Brewing  Company  a  conveyance  of  the 
premises  in  the  form  of  a  warranty  deed,  which  was  recorded  July  9, 
1900.  The  trial  court  found  that  the  deed  was  so  given  "as  security 
on  an  open  account."     It  is  undisputed  that  the  deed  was  so  given  as 

6  The  principal  case  was  aftirmed  in  Pomeroy  v.  ^tna  Ins.  Co..  86  Kan. 
214,  120  Pac.  344.  38  L.  K.  A.  (N.  S.)  142,  Ann.  Cas.  1913C.  170  (1911)  wliere 
it  was  lield  that  even  the  delivery  by  the  insured  of  a  deed  in  escrow  await- 
ing the  fulfillment  of  conditions  precedent,  and  the  possession  of  the  promises 
by  the  vendee,  was  not  such  a  change  in  the  vendor's  interest  as  to  avoid  his 
policy. 

7  The  statement  of  facts  and  a  part  of  the  opinion,  not  relating  to  the  in- 
terest of  the  insured,  have  been  omitted. 


(JOG  CONSTRUCTION    OF   POLICY PROPERTY   INSURANCE  (Ch.  10 

security,  and  that  at  the  time  of  its  delivery  the  Jos.  Schhtz  "Brewing 
Company  gave  back  to  tlie  plaintiff  a  writing,  of  which  the  following 
is  a  copy,  omitting  the  description  and  signatures :  "We  hereby  ac- 
knowledge the  receipt  of  the  warranty  deed  of  *  *  *,  which  we 
are  to  hold  as  collateral  security  to  guarantee  the  payment  of  an  ac- 
count of  M.  J.  Wolf,  and  we  agree  to  deed  back  this  property  upon 
said  M.  J.  Wolf  meeting  all  his  obligations  to  us."  It  also  appears 
from  the  evidence  that  between  the  time  of  the  delivery  of  the  deed 
and  the  fire  the  running  account  was  constantly  changing,  the  lowest 
amount  at  any  time  being  $1,182.78,  and  the  highest  amount  behig 
$1,839.45.  The  trial  court  held,  as  a  conclusion  of  law,  that  the  deed 
from  the  plaintiff  to  the  Joseph  Schlitz  Brewing  Company  "was  a 
mortgage,  and  did  not  invalidate"  the  policy. 

The  defendant  contends  that  the  written  agreement  of  the  Brew- 
ing Company  to  hold  the  deed  "as  collateral  security"  for  "the  pay- 
ment of  an  account"  of  the  plaintiff  and  "to  deed  back"  the  property 
to  the  plaintiff  upon  his  payment  of  his  account,  not  being  recorded, 
was  improperly  received  in  evidence,  and  therefore  should  not  be  con- 
sidered as  supporting  the  findings.  In  support  of  such  contention, 
counsel  rely  upon  section  2243  of  the  Revised  Statutes  of  1898.  That 
section  is  contained  in  the  chapter  entitled  "Of  Alienation  by  Deed, 
and  the  Proof  and  Recording  of  Instruments  Affecting  Title  to  Land." 
It  was  manifestly  intended  to  protect  subsequent  bona  fide  purchasers 
of  real  estate  for  value,  as  prescribed  in  the  two  sections  of  the  stat- 
ute immediately  preceding,  against  such  unrecorded  defeasance.  In 
construing  a  statute,  regard  is  to  be  had  to  the  purpose  of  the  enact- 
ment. Harrington  v.  Smith,  28  Wis.  43 ;  Wisconsin  Industrial  School 
for  Girls  v.  Clark  County,  103  Wis.  651,  79  N.  W.  422.  The  defend- 
ant was  not  a  purchaser  of  the  premises  insured  in  any  sense.  If  the 
conveyance  avoided  the  policy,  it  must  be  by  virtue  of  a  change  "in 
the  interest,  title,  or  possession  of  the"  property  insured,  in  violation 
of  the  forfeiture  clause  in  the  policy.  The  giving  of  the  deed  and 
taking  back  the  defeasance  was  nothing  more  nor  less  than  a  mort- 
gage. Did  the  mere  giving  of  the  mortgage  constitute  such  change? 
This  court  held  several  years  ago  that  an  execution  sale  of  real  es- 
tate is  in  itself  no  ground  of  forfeiture  under  the  condition  in  a  policy 
which  provides  for  the  immediate  termination  of  the  risk,  "if  the  prop- 
erty be  sold  or  transferred,  or  any  alienation  or  change  take  place  in 
the  title  or  possession,  whether  by  legal  process  or  judicial  decree, 
or  voluntary  transfer  or  conveyance."  Hammel  v.  Insurance  Co.,  54 
Wis.  72,  11  N.  W.  349,  41  Am.  Rep.  1.  So  it  has  frequently  been 
held  that  a  mortgage  upon  real  estate  does  not  constitute  a  change  in 
the  title  or  possession  of  the  premises,  within  the  meaning  of  such 
a  clause  in  the  policy.  Insurance  Co.  v.  Spankneble,  52  111.  53,  4  Am. 
Rep.  582;  Insurance  Co.  v.  Walsh,  54  111.  164,  5  Am.  Rep.  115;  In- 
surance Co.  v.  Gibe,  162  111.  251,  44  N.  E.  490;  Nease  v.  Insurance 
Co.,  32  W.  Va.  283,  9  S.  E.  233;    Barry  v.  Insurance  Co.,  110  N.  Y. 


Sec.  1)  CONDITIONS   OPERATIVE   BEFORE   LOSS  667 

1,  17  N.  E.  405;  Bank  of  Glasco  v.  Springfield  Fire  &  Marine  Ins. 
Co.,  5  Kan.  App.  388,  49  Pac.  329. 

But  it  is  contended  that,  although  the  mortgage  did  not  operate  to 
change  the  title  or  possession,  nevertheless  that  it  did  operate  to 
change  "the  interest"  of  the  plaintiff  in  the  property.  At  first  blush 
there  would  seem  to  be  some  plausibility  in  the  contention.  But  it  is 
to  be  remembered  that  in  this  and  most  of  the  states  a  mortgage  is  a 
mere  lien  or  security.  Slaughter  v.  Bernards,  97  Wis.  184,  72  N. 
W.  977;  Cumps  v.  Kiyo,  104  Wis.  656,  80  N.  W.  937.  In  this  last 
case  the  mortgage  consisted  of  a  deed  absolute  in  form  with  a  defea- 
sance back,  as  here.  We  are  not  aware  that  the  precise  question  here 
presented  has  been  determined  in  this  court.  In  Ohio,  under  a  clause 
in  the  policy  substantially  like  the  one  in  question,  it  was  held  that 
the  giving  of  a  mortgage  did  not  avoid  the  policy,  and  that  "the  words 
'title'  or  'possession,'  as  here  used,  mean  an  actual  change  in  law  and 
equity,  and  the  word  'interest'  means  a  change  in  the  insurable  in- 
terest of  the  owner  of  the  property,  neither  of  which  is  affected  by 
the  execution  of  a  mortgage."  Fire  Office  v.  Clark,  53  Ohio  St.  414, 
42  N.  E.  248,  38  L.  R.  A.  562.  In  that  case,  as  here,  the  mortgage  was 
in  the  form  of  a  deed  absolute,  with  a  defeasance.  So  it  has  been 
held  in  Texas  that  "the  execution  of  a  mortgage  on  the  real  estate 
on  which  the  building  insured  is  situated  is  not  a  change  of  interest 
within  the  meaning  of  the  condition  in  a  policy  declaring  the  policy 
forfeited  'if  any  change  other  than  the  death  of  the  insured  take  place 
■  in  the  interest,  title,  or  possession  of  the  subject  of  the  insurance.'" 
Lampasas  Hotel  &  Park  Co.  v.  Phoenix  Ins.  Co.  (Tex.  Civ.  App.)  38 
S.  W.  361 ;  Same  v.  Home  Ins.  Co.,  17  Tex.  Civ.  App.  615,  43  S. 
W.  1081.  It  will  be  observed  that  the  language  of  the  forfeiture  clause 
in  the  policy  in  that  case  was  the  same  as  in  this.  The  same  is  true 
of  the  case  of  Peck  v.  Insurance  Co.,  16  Utah,  121,  51  Pac.  255,  67 
Am.  St.  Rep.  600,  where  the  deed  was  absolute  in  form,  but  given  to 
secure  the  payment  of  a  debt. 

We  must  hold  that  the  giving  of  the  mortgage  did  not  operate  to 
change  the  "interest,  title,  or  possession"  in  the  property  insured,  with- 
in the  meaning  of  the  policy.  The  judgment  of  the  circuit  court  is  af- 
firmed. 


0G8  CONSTRUCTION   OF  POLICY — PROPERTY   INSURANX'E  (Ch.  10 


I  IT.  Vacancy 


HERRMAN  v.  ADRIATIC  FIRE  INS.  CO. 

(Court  of  Appeals  of  New  York,  18S1.     85  N.  Y.  1G2,  39  Am.  Hep-  044.) 

Action  on  a  policy  of  fire  insurance,  providing  that  the  same  should 
be  void  if  the  premises  should  become  vacant  or  unoccupied  and  so 
remain  for  more  than  thirty  days  without  the  consent  of  the  com- 
pany. The  property  consisted  of  a  summer  residence,  with  a  farm- 
house and  bar  on  the  same  premises.  In  November,  as  usual,  the  in- 
sured left  his  country  home  for  the  winter,  but  left  a  family  in  the 
farm-house  in  charge  of  the  premises.  The  insured's  dwelling-house 
was  aired  weekly,  and  he  and  his  wife  visited  it  every  other  week,  but 
only  for  inspection.  In  April  the  dwelling-house  and  some  of  the  out- 
buildings were  burned  while  the  insured  was  away.  There  had  been 
no  consent  to  vacancy  or  unoccupancy  obtained. 

FoLGER,  C.  J.  This  is  an  action  on  a  policy  of  fire  insurance.  The 
property  insured  consisted  of  dififerent  buildings,  and  different  kinds 
of  chattel  property  kept  in  those  buildings,  respectively.  The  differ- 
ent properties  insured,  and  the  different  amounts  put  at  risk,  each  are 
specifically  named  in  the  policy  with  much  minuteness.  The  property 
destroyed  and  for  the  loss  of  which  the  action  is  brought  was  but  parts 
of  the  whole  at  risk,  being  the  dwelling-house,  and  most  of  the  con- 
tents of  it,  and  four  outbuildings,  essential  or  convenient  for  use  with 
the  dwelling. 

The  question  in  agitation  at  the  Trial  Term  and  at  the  General 
Term  was,  whether  the  policy  was  avoided  by  a  breach  of  the  con- 
dition, that  if  the  premises  should  become  vacant  or  unoccupied,  and 
so  remain  for  more  than  thirty  days  without  notice  to,  and  consent 
of,  the  defendant,  in  writing,  the  policy  should  be  void.  The  plain- 
tiff contends  that  the  two  words  "vacant"  and  "unoccupied"  are  syn- 
onyms, and  are  to  be  interpreted  as  having  the  same  meaning,  and 
that  the  meaning  is  empty.  And  then  argues  that,  as  the  dwelling- 
house  was  not  empty,  there  was  no  breach  of  the  condition.  There 
are  doubtless  conditions  of  a  dwelling-house,  or  other  like  structure, 
when  either  word  applied  to  it,  or  both  words  applied  to  it,  will  ex- 
press a  like  state  of  it.  There  are  however,  states  of  it  when  that  will 
not  be  the  case.  It  is  so,  because  the  different  things  that  are  recep- 
tive of  the  epithets  of  vacant  and  unoccupied  are  different  in  their  ca- 
pability and  susceptibility  of  being  filled  or  occupied.  Some  cannot 
have  one  of  those  terms  applicable  to  them,  without  the  other  at  the 
same  time  being  also  applicable.  Some,  from  the  nature  of  the  use 
which  goes  with  the  occupation  of  them,  may  not  be  vacant,  and  yet 
they  will,  in  any  just  use  of  the  term  as  applicable  to  them,  be  unoc- 


Sec.  1)  CONDITIONS   OPERATIVE   BEFORE   LOSS  669 

cupied.  A  dwelling-house  is  chiefly  designed  for  the  abode  of  man- 
kind. For  the  comfort  of  the  dwellers  in  it,  many  kinds  of  chattel 
property  are  gathered  in  it.  So  that,  in  the  use  of  it,  it  is  a  place  of 
deposit  of  things  inanimate  and  a  place  of  resort  and  tarrying  of  be- 
ings animate.  With  those  animate  far  away  from  it,  but  with  those 
inanimate  still  in  it,  it  would  not  be  vacant,  for  it  would  not  be  empty 
and  void.  And  as  a  possible  case,  with  all  inanimate  things  taken  out, 
with  those  animate  still  remaining  in  it,  it  would  not  be  unoccupied 
for  it  would  still  be  used  for  shelter  and  repose.  And  it  is  because, 
in  our  experience  for  the  purpose  and  use  of  a  dwelling-house,  we 
have  come  to  associate  our  notion  of  the  occupation  of  it  with  the  ha- 
bitual presence  and  continued  abode  of  human  beings  within  it,  that 
that  word  applied  to  a  dwelling  always  raises  that  conception  in  the 
mind.  Sometimes,  indeed,  the  use  of  the  word  "vacant,"  as  applied  to 
a  dwelling,  carries  the  notion  that  there  is  no  dweller  therein ;  and 
we  should  not  be  sure  always  to  get  or  convey  the  idea  of  an  empty 
house,  by  the  words  "vacant  dwelling"  applied  to  it.  But  when  the 
phrase  "vacant  or  unoccupied"  is  applied  to  a  dwelling-house,  plainly 
there  is  a  purpose — an  attempt  to  give  a  different  statement  of  the  con- 
dition thereof ;  by  the  first  word,  as  an  empty  house,  by  the  second 
word  as  one  in  which  there  is  not  habitually  the  presence  of  human 
beings.  In  the  case  of  Herrman  v.  Merchants'  Insurance  Company, 
81  N.  Y.  184,  Z7  Am.  Rep.  488,  in  this  court,  in  June  last,  the  decision 
went,  not  on  the  ground  that  the  two  words  were  used  to  mean,  or 
that  they  meant,  the  same  condition  of  the  building,  but  that,  by  the 
use  of  the  copulative  conjunction  with  them,  there  was  a  contract 
framed  of  which  there  was  no  breach,  unless  the  house  was  at  the 
same  time  in  the  double  state  expressed  by  the  phrase ;  that  is,  both 
vacant  and  unoccupied  at  the  time  of  the  fire,  both  empty  and  unused 
for  abode. 

It  is  clear,  from  the  testimony,  that  the  dwelling-house  insured  by 
the  defendant  was  not  occupied  as  such  at  the  time  of  the  fire.  The 
fortnightly  visits  of  the  plaintiff  and  his  wife  to  it  were  not  the  oc- 
cupation that  is  meant  when  a  dwelling-house  is  spoken  of.  The 
weekly  tours  of  inspection  of  the  farmer  and  members  of  his  family 
living  on  the  grounds,  and  his  supervision  of  it  from  his  own  house, 
were  more  useful,  but  they  fell  short  of  being  occupation  of  it.  The 
term  "unoccupied,"  used  in  the  policy,  is  entitled  to  a  sense  adapted 
to  the  occasion  of  its  use,  and  the  subject-matter  to  which  it  is  ap- 
plied.^    It  does  not  need  that  we  go  into  discussion  of  the  good  rea- 

8  In  Robinson  v.  Mennonite  JNlut.  Fire  Ins.  Co.,  91  Kan.  8.50,  1M9  Tae.  420 
(1914),  tlie  evidence  showed  tliat  the  previous  tenants  of  the  hiiildiiiK  insured 
had  moved  out  in  Marcli,  and  that  tlie  owner  thereupon  stored  in  tlie  house 
sundry  articles  of  furniture  preparatory  to  occupying  the  premises  in  the 
fall ;  that  while  engaged  during  the  daytime  in  doing  work  in  the  fields,  he 
occasionally  went  into  the  house  to  eat  his  dinner  that  he  had  carried  with 
him.  The  court  nevertheless  held  that  the  building  was  not  "vacant."  Its 
reasons  are  as  follows :    "The  court  is  not  disposed  to  refine  upon  the  terms 


(i70  CONSTRUCTION  OF  POLICY PROPERTY   INSURANCE  (Cll.  10 

sons  for  exacting  the  condition  on  taking  a  risk  upon  a  dwelling-house. 
It  is  enough  that  the  parties  have  come  into  that  covenant.  It  is  to  have 
a  meaning  fitted  to  the  circumstances  in  which  it  was  made  and  to  the 
subject  to  which  it  related.  We  have  already  said  enough  to  show  our 
opinion  that,  for  a  dwelling-house  to  be  in  a  state  of  occupation,  there 
must  be  in  it  the  presence  of  human  beings  as  at  their  customary  place 
of  abode,  not  absolutely  and  uninterruptedly  continuous,  but  that  must 
be  the  place  of  usual  return  and  habitual  stopi)age.  We  think  that 
a  verdict  of  a  jury  would  not  have  been  allowed  to  stand,  that  found 
that  this  dwelling-house  was  occupied  at  the  time  of  the  fire,  within 
the  terms  of  the  policy. 

But  it  is  said,  that  though  this  may  be  so  in  general,  yet  that  the 
defendant  made  its  contract  with  a  view  to  just  the  state  of  things 
that  existed  with  this  property;  that  it  was  chargeable  with  a  knowl- 
edge of  the  character  and  use  of  the  premises,  and  that  there  would 
be  a  change  of  occupancy,  such  as  in  fact  occurred.  We  cannot  yield 
to  that  view.  It  may  be  that  the  defendant  knew  that  it  was  but  the 
place  of  summer  abode  for  the  plaintiff.  Its  contract  was  issued  in 
the  summer  when  the  property  was  in  strict  occupancy,  and  it  provid- 
ed for  the  coming  of  the  fall,  when  that  occupancy  would  be  aban- 
doned or  modified ;  for  the  policy  was  not  void  at  once  on  a  cessation 
of  occupancy.  That  cessation  must  last  for  thirty  days,  and  be  un- 
notified to  the  defendants  and  continue  thereafter  without  his  consent. 
There  was  opportunity  for  the  plaintiff  to  keep  up  that  indemnity  or 
to  get  other ;  and  to  the  defendant  to  retain  the  risk,  or  to  be  freed 
from  it,  when  that  occupancy  was  about  to  cease,  and  notice  was 
given. 

Nor  are  we  able,  after  much  consideration,  to  agree  with  the  learn- 
ed General  Term  on  the  ground  upon  which  it  put  its  judgment.  The 
condition  of  the  policy  is :  "Or  if  the  above-mentioned  premises  shall 
*  *  *  become  vacant  or  unoccupied  *  *  *  this  policy  shall 
be  void."  As  we  have  above  said,  there  were  several  different  kinds 
and  pieces  of  property  insured,  and,  as  was  indicated  by  the  descrip- 
tion of  them,  the  whole  making  up  a  well-to-do  proprietor's  rural  es- 
tablishment. The  understanding  must  have  been  that  there  was  com- 
prised in  the  whole  the  buildings  on  a  farm  or  county  seat  and  the 
chattel  property  usually  kept  at  such  a  place.  The  contention  is  that 
the  words  "above-mentioned  premises"  are  collective  and  apply  to  all 

'vacant'  and  'unoccupied.'  Of  course,  tbey  are  distinct  words  having  distinct 
meanings,  but  as  applied  to  the  subject  under  consideration  it  adds  nothing 
to  the  thought  to  say  that  a  house  is  'vacant  and  unoccupied.'  Care  and  at- 
tention such  as  will  naturally  result  in  protection  against  the  hazard  covei'ed 
by  the  policy  is  the  matter  in  mind.  This  may  exist  although  contrary  to  the 
defendant's  contention,  a  building  may  not  be  actually  occupied  as  a  present 
place  of  abode.  Without  this  a  building  may  be  vacant  although,  contrary 
to  the  plaintiff's  contention,  it  may  be  far  from  being  empty  of  everything 
but  air.  In  this  case  the  premises  were  occupied  by  the  owner  for  substan- 
tially all  the  pui-poses  of  a  dwelling  place  except  that  sleeping  there  at  night 
was  deferred  and  meals  were  eaten  there  only  occasionally." 


Sec.  1)  CONDITIONS  OPERATIVE  BEFORE   LOSS  671 

the  property  described,  and  the  intent  of  the  condition  is  that  if  all  of 
it  should  be  left  unoccupied,  then  the  policy  would  be  void ;  but  that 
one  or  several,  or  many  of  the  buildings  might  be  unoccupied,  yet,  if 
the  rest  were  occupied,  the  condition  of  the  policy  would  be  saved. 
To  give  this  construction  to  the  phrase  in  question,  it  would  need  to 
carry  it  through  all  the  conditions  in  the  policy,  to  manifest  absurdi- 
ty and  to  an  inconvenient  precedent.  There  is  a  condition  against 
other  insurance,  "on  the  property  hereby  insured."  If  the  plaintiff 
had  over-insured  his  dwelling-house,  would  not  the  condition  have 
been  broken,  as  to  that,  though  he  had  not  increased  that  on  his  kitch- 
en detached?  There  is  a  condition  against  a  change  of  title  of  the 
property.  If  the  plaintiff  had  sold  off  so  many  acres  as  would  in- 
clude the  farmhouse,  would  he  have  retained  his  insurance  on  that 
building  because  he  had  not  transferred  the  whole  premises? 

The  plaintiff  grasps  at  a  two-edged  sword,  when  he  seeks  to  make 
such  application  of  those  general  words  of  the  policy.  He  contends 
that  when  words  are  used  in  the  policy  referring  back  to  the  prop- 
erty described,  they  mean  to  include  the  whole  property.  This  would 
be  to  make  the  contract  of  insurance  entire  and  indivisible ;  and  to 
affect  all  the  property  insured  with  any  act  of  the  insured,  which,  as 
to  any  item  thereof,  worked  a  breach  of  any  condition.  This  is  not 
the  true,  just,  or  equitable  construction.  The  clause  is  not  to  be  used 
distributively,  and  to  be  applied  to  each  singular  of  the  previous  de- 
scription of  the  property,  as  the  kind  of  that  property  and  the  nature 
of  the  use  of  it  may  demand.  It  was  upon  this  principle  that  we 
grounded  our  decision  in  Merrill  v.  Agr.  Ins.  Co.,  7^  N.  Y.  452,  29 
Am.  Rep.  184.  There  we  said :  "Though  there  may  have  been  some 
conduct  of  the  insured  as  to  some  of  the  property,  not  evil  in  itself, 
but  working  a  breach  of  the  condition  in  its  letter,  the  effect  of  that 
breach  may  be  confined  to  the  insurance  upon  that  property,  the  con- 
tract as  to  that  be  held  to  be  avoided,  and  as  to  the  other  subjects 
held  valid."  This  was  the  converse  of  the  proposition  that  we  are  now 
maintaining.  The  case  of  Bryan  v.  Peabody  Ins.  Co.,  8  W.  Va.  605, 
is  not  parallel  with  this.  Therefore,  though  the  farm  premises  and 
some  of  the  buildings  thereon  were  in  actual  human  occupation,  that 
use  of  them  did  not  extend  to  and  take  in  the  dwellings  burned,  so 
as  to  keep  good  tlie  condition  of  the  policy. 

It  is  further  claimed  that  it  was  erroneous  for  the  trial  court  to 
direct  a  verdict  for  the  defendant,  because  all  the  property  burned 
was  not  unoccupied.  Besides,  the  dwelling-house,  there  was  lost  a 
wash-house,  a  wood-house,  a  kitchen  and  a  privy.  It  is  contended  that 
there  was  no  evidence  that  these  were  unoccupied.  The  reasoning  is 
ingenious,  but  it  is  not  convincing.  It  is  said  that  it  does  not  appear 
that  the  occupation  of  these  structures  was  confined  to  the  plaintiff 
or  the  members  of  his  immediate  family  as  it  was  made  up  when  he 
dwelt  upon  the  place,  and  that  it  might  be  that  the  farmer  and  the 
members  of  his  family  might  have  used  and  occupied  them.     Now, 


<)T2  CONSTRUCTION   OF   POLICY PROr'KRTY   INSURANCE  (Ch.  10 

these  out-buildings  were  appurtenant  to  the  dwelling-house;  the  use 
of  them  was  concurrent  with  the  use  of  the  dwelling-house ;  they  were 
parts  of  the  one  domestic  establishment,  and  separate  but  forty  feet 
from  the  main  building.  It  is  too  plain  for  denial,  save  as  a  dernier 
resort,  that  the  occupancy  of  them,  in  habitual  continuous  use  for  the 
purposes  for  which  they  were  built  and  to  which  they  were  put,  began 
when  that  of  the  dwelling-house  began,  and  ended  when  that  ended. 
The  plaintiff  and  the  defendant  made  their  contract  in  such  terms  as 
it  pleased  them  both.  It  may  or  may  not  be  a  strict  and  rigorous  ap- 
plication to  the  facts  of  the  case  of  the  condition  that  we  have  been 
considering;  but  we  cannot,  consistently  with  lasting  principles  of 
construction  and  interpretation,  hold  otherwise  than  that  the  plaintiff 
made  a  breach  of  a  binding  condition,  and  must  abide  the  unfortu- 
nate consequence. 

The  order  of  the  General  Term  should  be  reversed,  and  judgment 
absolute  rendered  in  favor  of  the  defendant  upon  the  verdict,  with 
costs.     All  concur  except  MilliJR,  J.,  not  voting. 

Order  reversed  and  judgment  accordingly. 


FARMERS'  MUTUAL  EQUITY  INS.  SOCIETY  y.  SMITH. 

(Court  of  Appeals  of  Kentucky,  11)14.     158  Ky.  459,  165  S.  W.  675.) 

Appeal  from  Circuit  Court,  Henderson  County. 

Clay,  C.  Plaintiff,  Herbert  Smith,  was  the  owner  of  a  frame 
dwelling  house  which  was  insured  by  defendant.  Farmers'  Mutual 
Equity  Insurance  Society,  for  the  sum  of  $300.  The  policy,  which 
was  to  continue  for  a  period  of  five  years,  contained  the  following 
provision :  ''Insurance  will  not  be  carried  upon  unoccupied  buildings 
unless  covered  by  a  vacancy  permit,  which  will  be  granted  only  on 
the  written  application  filed  with  the  secretary  for  a  period  of  thirty 
days,  with  privilege  of  one  renewal.  The  amount  of  the  insurance 
shall  be  reduced  one-half  during  said  vacancy."  The  house  was  oc- 
cupied by  a  tenant,  who  moved  out  on  Saturday  evening,  April  19, 
1913.  Another  tenant  was  to  take  possession  on  the  following  Mon- 
day, April  21st,  but  was  prevented  from  doing  so  by  the  destruction  of 
the  property  by  fire,  which  occurred  the  same  morning.  Having  re- 
fused to  pay  the  insurance,  plaintiff  brought  this  action  against  the 
defendant  to  recover  on  the  policy.  The  company  defended  on  the 
ground  of  nonoccupancy,  in  violation  of  the  contract.  This  defense 
was  held  insufficient,  and  judgment  was  rendered  in  favor  of  plain- 
tiff.    Defendant  appeals. 

In  construing  exceptions,  warranties,  and  conditions  in  policies  of 
insurance,  it  is  generally  held  that  the  language,  being  that  of  the 
insurer,  selected  by  him  and  intended  for  his  benefit,  must  be  clear 
and  unambiguous,  and  if  of  doubtful  meaning,  the  doubt  will  be  re- 


Sec.  1)  CONDITIONS   OPERATIVE   BEFORE   LOSS  673 

solved  in  favor  of  the  insured.  The  purpose  of  such  conditions  in  a 
poHcy  is  to  restrict  the  insurer's  obHgation,  and,  if  the  meaning  is  not 
clear,  it  is  his  fault  in  not  making  use  of  more  definite  terms  in  which 
to  express  it.  Chandler  v.  St.  Paul,  etc.,  Ins.  Co.,  21  Minn.  85,  18 
Am.  Rep.  385 ;  U.  S.  Mutual  v.  Newman,  84  Va.  52,  3  S.  E.  805 ; 
Olson  V.  St.  Paul,  etc.,  Ins.  Co.,  35  Minn.  437,  29  N.  W.  125,  59 
Am.  Rep.  333.  In  determining  the  effect  of  a  provision  of  a  policy 
avoiding  the  insurance  if  the  premises  become  vacant  or  unoccupied, 
it  is  generally  held  that  the  intention  of  the  parties  will  control,  and 
that  such  intention  will  be  ascertained  from  the  whole  instrument,  the 
subject-matter  of  the  contract,  and  the  situation  of  the  property  in- 
sured. Stout  V.  City  Fire  Ins.  Co.,  12  Iowa,  371,  79  Am.  Dec.  539; 
Georgia  Home  Ins.  Co.  v.  Kinnier,  28  Grat.  (Va.)  88. 

Perhaps  the  most  important  consideration  in  passing  on  a  question 
of  forfeiture  for  vacancy  or  nonoccupancy  is  the  use  which,  under 
the  policy,  may  be  made  of  the  premises  insured.  Where  it  is  oc- 
cupied by  the  owner  as  a  residence,  it  cannot  be  said  to  be  within 
the  contemplation  of  the  parties  to  the  contract  that  the  premises 
shall  never  become  vacant  or  unoccupied,  even  for  a  very  brief  period 
of  time.  The  company  knows  that  the  owner  will  sometimes  be  away 
on  a  visit,  or  be  temporarily  absent  for  some  necessary  purpose. 
So,  too,  where  the  property  is  occupied  by  a  tenant,  it  must  neces- 
sarily be  within  the  contemplation  of  the  parties  to  the  contract  that 
occasionally  it  will  be  vacant  for  a  short  and  reasonable  interval  of 
time  between  the  outgoing  of  one  tenant  and  the  incoming  of  another. 
While  there  is  a  lack  of  uniformity  in  the  decisions  on  the  question, 
and  many  of  the  courts  hold  that  a  forfeiture  is  incurred  even  in  case 
of  the  temporary  absence  of  the  owner,  or  a  short  period  of  time 
between  the  exchange  of  tenants,  yet  many  of  the  courts  hold  that, 
under  the  circumstances  above  set  forth,  a  forfeiture  will  not  be  ad- 
judged. 

Thus  in  the  case  of  Franklin  Fire  Ins.  Co.  v.  Kepler,  95  Pa.  492, 
the  absence  of  the  insured  from  his  dwelling  from  Wednesday  until 
Monday  to  attend  a  funeral  was  held  not  to  be  a  breach  of  the  pro- 
vision of  the  policy  against  vacancy  and  unoccupancy.  In  the  case  of 
Eddy  V.  Hawkey e  Ins.  Co.,  70  Iowa,  472,  30  N.  W.  808,  59  Am. 
Rep.  444,  the  tenant  moved  out  on  Tuesday.  On  Wednesday  the 
owner  took  possession  and  commenced  cleaning  the  house,  intending 
to  occupy  it  with  his  family  on  Saturday.  On  Friday  night  the  house 
burned  down.  It  was  held  that  the  house  was  not  vacant.  In  Shackel- 
ton  V.  Sun  Fire  Office  of  London,  England,  55  Mich.  288,  21  N.  W. 
343,  54  Am.  Rep.  379,  the  house  was  occupied  by  a  tenant.  The  ten- 
ant moved  out,  and  the  landlord  at  once  moved  his  own  goods  in  and 
began  to  clean  up,  with  the  intention  of  occupying  the  house  himself. 
Next  day  he  went  away  for  three  days'  absence.  While  cleaning  the 
Vance  Ins. — 43 


074  CONSTRUCTION   OF  POLICY — PROPERTY   INSURANCE  (Ch.  10 

house  he  ate  and  slept  at  a  neighboring  house,  and  after  a  few  days 
went  off  on  a  business  trip.  Wliilc  gone  the  house  was  burned.  It 
was  held  that  the  policy  had  not  become  void  on  the  ground  of  va- 
cancy. In  the  case  of  Laselle  v.  Ins.  Co.,  43  N.  J.  Law,  468,  the 
policy  provided  that  it  should  become  void  "if  the  dwelling  house 
should  become  vacant  and  unoccupied  and  so  remained."  It  was  held 
that  the  mere  absence  of  the  tenant,  who  was  then  occupying  the 
building  as  a  dwelling  house,  on  the  night  of  the  fire  did  not  leave 
*he  building  vacant  or  unoccupied  within  the  sense  of  the  contract. 
In  Moody  v.  Ins.  Co.,  52  Ohio  St.  12,  38  N.  E.  1011,  26  L.  R.  A. 
313,  49  Am.  St.  Rep.  699,  it  was  held  that  a  continuous  use  of  the 
dwelling  house  was  not  necessary  to  constitute  occupancy  within  the 
meaning  of  the  fire  insurance  policy,  but  that  the  family  might  be 
absent  for  health,  pleasure,  business,  or  convenience  for  reasonable 
periods.  In  Doud  v.  Citizens'  Ins.  Co.,  141  Pa.  47,  21  Atl.  505,  23 
Am.  St,  Rep.  263,  it  was  held,  under  a  policy  of  insurance  on  leased 
premises,  containing  a  clause  avoiding  the  policy  if  the  premises  should 
become  vacant  without  the  written  consent  of  the  insurer,  that  a  rea- 
sonable time  should  be  allowed  to  carry  out  a  change  of  tenants  with- 
out imposing  upon  the  insured  the  penalty  of  either  an  intended  or 
permitted  vacation  of  the  premises.  The  same  rule  was  followed  by 
our  Superior  Court  in  the  case  of  Dwelling  House  Ins.  Co.  v.  Walsh, 
10  Ky.  Law  Rep.  282. 

Other  authorities  might  be  added,  but  those  cited  are  sufficient  to 
establish  the  rule  that  is  clearly  applicable  under  the  facts  of  this  case. 
Here  the  tenant  vacated  the  house  on  Saturday  evening.  Another 
tenant  was  to  move  in  on  the  following  Monday.  Early  Monday 
morning  the  house  was  burned.  The  interval  of  time  incident  to  the 
change  of  tenants  was  not  only  not  unreasonable,  but  such  as  the 
parties  to  the  contract  must  have  contemplated  would  necessarily  take 
place. 

Judgment  affirmed. 


IV.  Increase  of  Risk 


KYTE  V.  COMMERCIAL  UNION  ASSUR.  CO. 

(Supreme  Court  of  Massachusetts,  1S89.     149  Mass.  116,  21  N.  E.  361,  3  L. 

K.  A.  508.) 

Action  on  two  policies  of  fire  insurance  in  the  Massachusetts  stand- 
ard form.  The  defendants  answered  that  the  policies  had  been  avoid- 
ed by  an  increase  of  risk.  It  appeared  that  for  some  time  the  in- 
sured had  used  the  premises  for  the  illegal  sale  of  liquor,  but  that 
before  the  fire  a  license  to  sell  the  same  had  been  secured.* 

9  The  statement  of  facts  is  much  abbreviated. 


Sec.  1)  CONDITIONS  OPERATIVE  BEFORE  LOSS  675 

C.  Ali.e;n,  J.  These  policies  were  in  the  form  of  the  Massachu- 
setts Standard  policy,  and  each  provided  that  "This  policy  shall  be  void 

*  *  *  if,  without  such  assent  [namely  the  assent  in  writing  or 
in  print  of  the  company],  the  situation  or  circumstances  affecting  the 
risk  shall,  by  or  with  the  knowledge,  advice,  agency,  or  consent  of 
the   insured,   be    so   altered   as   to    cause   an   increase  of    such    risks, 

*  *  *  or  if  gunpowder  or  other  article  subject  to  legal  restriction 
shall  be  kept  in  quantities  or  manner  different  from  those  allowed  or 
prescribed  by  law."  Various  other  circumstances  were  enumerated 
which  would  also  avoid  the  policy.  At  the  beginning  of  the  trial, 
the  defendant  waived  every  defence  except  increase  of  risk.  The  de- 
fence of  the  illegal  keeping  of  intoxicated  liquors,  as  a  separate  and 
distinct  defence,  was  therefore  waived. 

We  have  to  consider,  in  the  first  place,  whether  the  instructions  re- 
quested by  the  defendant  were  given  in  substance.  The  plaintiff  con- 
tends that  they  were.  The  learned  judge  before  whom  the  case  was 
tried  adopted  in  substance  the  third  and  fifth  instructions  asked  for 
by  the  defendant,  and  thus  instructed  the  jury,  that  if  they  should 
find  that  during  the  time  for  which  these  policies  were  issued  the  plain- 
tiff Kyte,  by  obtaining  a  victualler's  license  and  making  use  of  this 
building  under  said  license,  and  legally  or  illegally  selling 'intoxicat- 
ing liquors  therein,  increased  the  risk,  then  this  policy  became  void 
as  to  the  plaintiff  Kyte,  and  he  should  not  recover  for  his  interest 
therein;  and  if  they  should- find  that  while  these  policies  were  in 
force  intoxicating  liquors  were  kept  and  sold  in  this  building  by  the 
plaintiff  Kyte,  or  with  his  consent  or  knowledge,  and  that  thereby 
the  risk  was  increased,  this  policy  became  void  as  to  his  interest,  and 
he  could  not  recover.  This  was  a  general  and  broad  instruction,  in- 
cluding the  increase  of  risk  by  using  the  premises  as  a  common  vic- 
tualling place,  or  as  a  place  for  selling  intoxicating  liquors  legally 
or  illegally,  and  well  covered  the  general  question  of  the  effect  of  an 
increase  of  risk.  From  this  instruction,  taken  alone,  a  jury  might 
well  have  inferred  that  the  policy  would  be  void  in  case  of  any  such 
increase  of  risk  at  any  time  during  the  time  covered  by  the  policies 
and  before  the  fire. 

But  the  defendant,  in  the  fourth  request  for  instructions,  asked  tor 
a  special  instruction,  adapted  to  the  case  of  a  temporary  increase  of 
risk  which  had  ceased  before  the  time  of  the  fire;  that  is  to  say,  that 
if  the  jury  should  find  that,  by  the  illegal  sale  of  intoxicating  liquors 
in  this  building  by  the  plaintiff  Kyte,  or  by  others  with  his  consent 
and  knowledge,  for  a  certain  portion  of  the  time  for  which  these  pol- 
icies were  issued,  the  risk  was  for  that  period  increased,  this  policy 
would  be  void  as  to  Kyte's  interest,  and  he  could  not  recover,  al- 
though this  increase  was  not  permanent.  The  judge  declined  to  give 
this  ruling,  and  instructed  the  jury,  in  substance,  that  if  that  illegal 
use  was  temporary,  not  contemplated  at  the  time  when  the  policy  was 


676  CONSTRUCTION   OF   POLICY PROPERTY   INSURANCE  (Cll.lO 

taken  by  the  plaintiff,  and  ceased  before  the  fire,  then  the  fact  that 
he  had  made  an  illegal  tise  of  the  premises  in  1882,  which  was  during 
the  time  covered  by  the  policy,  would  not  deprive  the  plaintiff  of  the 
right  to  maintain  the  action;  and  that  his  right  under  the  policy,  if 
suspended  while  the  illegal  use  of  the  building  continued,  would  re- 
vive when  he  ceased  to  use  it  illegally.  This  instruction  did  not  in 
express  terms  mention  the  subject  of  an  increase  of  risk  by  the  illegal 
use  of  the  premises  for  selling  liquor;  but  the  instruction  was  given 
in  the  place  of  the  fourth  request  for  instructions,  and  that  request 
was  refused,  the  judge  saying  that  he  had  given  what  would  be  en- 
tirely inconsistent  with  it.  The  question  is  thus  presented  whether 
the  provision  of  the  policy  that  it  shall  be  void  in  case  of  an  increase 
of  risk  means  that  it  shall  be  void  only  during  the  time  while  the  in- 
crease of  risk  may  last,  and  may  revive  again  upon  the  termination 
of  the  increase  of  risk.  The  provision  is  that  the  policy  shall  be  void 
if  any  one  of  several  circumstances  successively  enumerated  shall  be 
found  to  exist.  Some  of  these  circumstances  relate  to  the  time  of 
issuing  the  policy,  and  others  could  not  arise  till  afterwards.  They 
are  of  different  degrees  of  importance,  some  of  them  going  to  the 
essential  matters  of  the  contract,  and  others  being  comparatively 
trivial  in  character.  The  language  of  the  policy  is  the  same  in  respect 
to  them  all,  that  the  policy  shall  be  void. 

In  Hinckley  v.  Germania  Ins.  Co.,  140  Mass.  38,  1  N.  E.  7Z7 ,  54 
Am.  Rep.  445,  the  policy  was  in  the  same  form  as  those  in  the  present 
cases,  and  for  a  short  time  during  the  term  of  the  policy  the  plaintiff" 
kept  a  bowling  alley  and  billiard  table  without  having  any  license  there- 
for. There  was  no  question  of  increase  of  risk,  or  other  actual 
prejudice  to  the  insurer;  and  under  these  circumstances  two  ques- 
tions arose :  first,  whether  the  plaintiff's  act  fell  within  the  provisions 
that  the  policy  should  be  void  if  gunpowder  or  other  articles  subject 
to  legal  restrictions  should  be  kept  in  a  manner  different  from  that 
allowed  by  law ;  and  secondly,  whether,  assuming  that  the  policy 
would  be  void  during  the  time  of  the  illegal  keeping  of  the  bowling 
alley  and  billiard  table,  it  would  revive  after  such  temporary  use  had 
ceased.  In  deciding  the  case,  the  court  intimated  that  the  plaintiff's 
act  was  not  within  the  meaning  of  the  provision  in  the  policy,  unless 
the  risk  was  thereby  increased,  but  placed  the  decision  upon  the  sec- 
ond ground,  that  the  policy  would  revive.  The  court  now  thinks  it 
would  have  been  better  to  place  the  decision  of  this  part  of  the  case 
solely  upon  the  first  ground,  leaving  it  an  open  question  whether  a 
departure  from  the  terms  of  the  provision  of  the  policy,  without  an 
increase  of  risk,  may  be  deemed  merely  to  suspend,  and  not  absolutely 
to  avoid  the  policy.  However  that  may  be,  we  think  an  increase  of 
risk  entitles  the  insurer  to  avoid  the  policy  absolutely.  The  contract 
of  insurance  depends  essentially  upon  an  adjustment  of  the  premium 
to  the  risk  assumed.     If  the  assured  by  his  voluntary  act  increases  the 


Sec.  1)  CONDITIONS   OPERATIVE   BEFORE   LOSS  677 

risk,  and  the  fact  is  not  known,  the  result  is  that  he  gets  an  insur- 
ance for  which  he  has  not  paid.  In  its  effect  upon  the  company,  it  is 
not  much  different  from  a  misrepresentation  of  the  condition  of  the 
property. 

If  the  provision  stood  alone,  that  in  case  of  any  material  misrepre- 
sentation as  to  the  risk  or  any  voluntary  increase  of  risk  afterwards 
the  policy  should  be  void,  it  could  hardly  be  doubted  that  the  words 
should  be  taken  in  their  natural,  obvious  meaning.  The  fact  that 
with  this  are  coupled  the  other  provisions  above  referred  to,  does 
not  change  its  meaning  with  reference  to  the  effect  and  consequence 
of  an  increase  of  risk.  An  increase  of  risk  which  is  substantial,  and 
which  is  continued  for  a  considerable  period  of  time,  is  a  direct  and 
certain  injury  to  the  insurer,  and  changes  the  basis  upon  which  the 
contract  of  insurance  rests ;  and  since  there  is  a  provision  that,  in 
case  of  an  increase  of  risk  which  is  consented  to  or  known  by  the 
assured,  and  not  disclosed  and  the  assent  of  the  insurer  obtained,  the 
policy  shall  be  void,  we  do  not  feel  at  liberty  to  qualify  the  meaning 
of  these  words  by  holding  that  the  policy  is  only  suspended  during 
the  continuance  of  such  increase  of  risk.  Lyman  v.  State  Ins.  Co., 
14  Allen,  329;   Mead  v.  Northwestern  Ins.  Co.,  7  N.  Y.  530. 

It  follows,  therefore,  that  the  fourth  instruction  which  was  re- 
quested, or  something  in  substance  like  it,  should  have  been  given. 
Upon  the  facts  stated  and  assumed,  the  increase  of  risk,  if  there  was 
one,  continued  for  fifteen  months,  and  could  not  be  treated  as  a  casual,, 
inadvertent,  or  inevitable  thing.     Exceptions  sustained. 


V.  Prohibited  Articles 


HARPER  V.  NEW  YORK  CITY  INS.  CO. 

(Court  of  Appeals  of  New  York,  1S60.     22  N.  Y.  441.) 

Appeal  from  a  judgment  of  the  Superior  Court  of  the  City  of  New 
York  in  favor  of  the  plaintiff. 

The  policy  issued  by  defendant  upon  plaintiffs'  printing  and  book 
materials,  stock,  etc.,  contained  in  a  building  "privileged  for  a  printing- 
offfce,  bindery  and  book-store,"  provided  that  if  camphene  were  used, 
and  a  loss  was  occasioned  thereby,  the  insurer  would  not  be  liable. 
The  jury  found  that  the  use  of  camphene  for  cleaning  ink  rollers,  etc., 
was  according  to  a  general  and  established  usage  in  the  printing  and 
book  business  as  carried  on  by  the  plaintiffs,  and  that  such  use  was 
necessary  in  that  business.  A  loss  was  caused  by  a  lighted  match 
thrown  into  a  pan,  on  the  floor,  containing  camphene.^^ 

10  The  statement  of  facts  is  abbreviated. 


678  CONSTRUCTION   OF  POLICY — ruOPEUTY   INSURANCE  (Ch.10 

CoMSTocK,  C.  J.  The  jury  found,  in  answer  to  interrogatories 
specially  submitted  to  them,  that  the  use  of  camphene  in  the  manner 
proved  was  according  to  a  general  and  established  usage  in  the  print- 
ing and  book  business  as  carried  on  by  the  plaintiffs,  and  that  such  use 
was  necessary  in  that  business.  In  the  written  part  of  the  policy,  the 
subject  of  insurance  is  described  as  the  plaintiffs'  printing  and  book 
materials,  stock,  etc.,  "privileged  for  a  printing  office,  bindery,"  etc. 
The  language  is  identical  with  that  contained  in  the  policy  which  was 
before  us  in  the  case  of  Harper  v.  Albany  Insurance  Co.,  17  N.  Y.  194. 
We  there  held,  for  reasons  which  need  not  be  repeated,  that  the  in- 
surers were  liable  for  loss  occasioned  by  the  necessary  and  customary 
use  of  camphene  in  the  plaintiffs'  business,  although  the  use  of  that 
article  was  prohibited,  in  general  terms,  in  the  printed  conditions  an- 
nexed to  and  forming  a  part  of  the  contract.  In  that  case,  the  printed 
form  of  the  policy,  if  construed  without  reference  to  the  subject  of 
insurance  as  described  in  the  written  part,  prescribed  the  use  or  pres- 
ence of  camphene  for  any  purpose.  In  this  case,  the  printed  condition 
declares,  in  substance,  that  if  the  article  is  used,  and  a  loss  is  occa- 
sioned thereby,  the  insurer  will  not  be  liable.  There  is  no  other  dis- 
tinction between  the  two  cases. 

And  this  distinction  is  not  one  of  principle.  In  the  case  cited,  we 
found  no  irreconcilable  repugnancy  between  the  written  and  printed 
clauses  of  the  contract.  If  such  a  repugnancy  had  been  discovered, 
then,  as  the  court  said,  the  printed  form  must  yield  to  the  more  care- 
ful and  deliberate  written  language  of  the  parties  in  describing  the 
subject  of  insurance,  at  the  very  moment  when  the  policy  was  issued. 
But  it  was  considered,  that  each  clause  might  take  effect ;  by  insuring 
the  plaintiffs'  stock,  with  the  privilege  of  a  printing-office  and  book- 
bindery,  the  use  of  such  materials,  including  camphene,  as  were  neces- 
sary in  that  business  was  allowed ;  otherwise,  the  contract  was  a  mere 
delusion.  But  the  restraining  clause  might,  nevertheless,  have  its  full 
effect  upon  the  use  of  camphene  for  the  purposes  of  light,  and  for  all 
purposes  beyond  its  necessary  connection  with  the  stock  and  business 
insured.  So,  in  this  case,  camphene  must  be  considered  as  a  part  of  the 
stock  insured ;  its  continued  presence  and  use  were  allowed,  because 
the  business  which  required  its  use  was  expressly  privileged.  The 
printed  condition,  exempting  the  underwriters  from  loss  when  occa- 
sioned by  this  article,  should  therefore  be  construed  as  referring  to 
uses  not  within  the  privilege  thus  granted ;  otherwise,  the  two  parts  of 
the  contract  are  repugnant  to  each  other,  and  the  printed  form  must 
yield  to  the  deliberate  written  expression.  An  insurance  upon  the 
plaintiffs'  stock  and  business,  to  be  of  no  effect  if  a  loss  should  be  oc- 
casioned by  the  combustion  of  an  article  constituting  a  part  of  that 
stock,  and  necessarily  used  in  the  business,  would,  I  think,  be  an 
anomalous  undertaking.  Undoubtedly,  such  a  contract  might  be  made : 
a  policy  can  be  so  framed  as  to  allow  the  presence  of  a  dangerous 
article,  and  even  so  as  to  insure  its  value,  while  at  the  same  time  it 


Sec.  1)  CONDITIONS   OPERATIVE   BEFORE   LOSS  679 

might  exempt  the  insurer  from  loss,  if  occasioned  by  the  presence  or 
use  of  the  article ;  but  I  think  it  would  need  very  great  precision  of  lan- 
guage to  express  such  an  intention.  Where  camphene  or  any  hazard- 
ous fluid  is  insured,  and  its  use  is  plainly  admitted,  the  dangers  arising 
from  that  source  are  so  obviously  within  the  risk  undertaken,  that 
effect  should  be  given  to  the  policy  accordingly,  unless  a  different  inten- 
tion is  very  plainly  declared.  And  such  an  intention,  instead  of  being 
hid  away  in  printed  forms,  remote  from  the  principal  contract,  ought 
to  be  found  in  the  deliberate  expressions  which  are  made  use  of  at  the 
time  when  the  contract  is  entered  into. 

Without  doubt,  all  the  printed  conditions  and  specifications  annexed 
to  a  policy  are,  or  at  least  may  be,  a  part  of  it.  But  they  relate  to  in- 
surance in  general,  as  practiced  by  the  underwriter ;  and  upon,  or  with- 
in, those  forms,  the  parties  to  each  policy  actually  issued  write  their 
own  particular  intention.  The  plain  meaning  of  the  written  part 
should,  therefore,  prevail,  and  other  clauses  must  yield,  if  repugnant, 
or  they  must  be  construed  so  as  to  avoid  a  conflict  of  intention.  In 
this  case,  I  think  the  perils  of  keeping  and  using  camphene  were  in- 
sured against,  so  far  as  the  keeping  or  use  of  it  was  permitted  at  all, 
and  that  the  clause  which  exempts  the  insurer  from  liability  should 
be  understood  as  applying  to  the  presence  of  the  article  under  other 
conditions.     The  judgment  should  be  affirmed. 

Sklden,  J.  (dissenting).  Contracts  which  belong  to  an  -extensive 
class,  such  as  charter-parties,  policies  of  insurance,  etc.,  where  all  are 
in  their  main  features  identical,  are  usually  reduced  to  a  prescribed 
formula,  embracing  those  general  provisions  which  are  applicable  to 
most  cases  of  the  class,  and  then  printed,  leaving  blank  spaces  to  be 
filled  up  in  writing,  so  as  to  adapt  the  contract  to  the  particular  case. 
In  construing  such  contracts,  if  there  is  any  repugnancy  between  the 
written  and  the  printed  portions,  the  latter  is  to  be  modified  and  con- 
trolled by  the  former.  In  other  words,  those  general  provisions  which 
were  framed  for  the  class  at  large  must  yield  to  such  as  are  more 
specific,  and  designed  for  the  particular  case. 

This  rule,  which  was  applied  in  Harper  v.  Albany  Mutual  Insurance 
Co.,  17  N.  Y.  194,  and  Bryant  v.  Poughkeepsie  Mutual  Insurance  Co., 
id.  200,  is  equally  applicable  here.  That  portion  of  the  printed  condi- 
tions incorporated  into  the  policy  which  related  to  the  various  articles 
and  kinds  of  business  denominated  hazardous  and  extra  hazardous, 
and  those  which  are  subjected  to  special  rates  of  insurance,  virtually 
prohibited  the  use  of  camphene  upon  the  insured  premises.  But  the 
written  portion  insured  the  plaintiffs  upon  their  printing-office,  bindery, 
and  book-store,  and  upon  the  materials,  stock,  and  machinery  there- 
in ;  and  as  it  appeared  that  camphene  constituted  a  necessary  portion 
of  such  stock,  and  was  essential  to  the  carrying  on  of  the  business  in- 
sured, its  use  was  clearly  authorized  by  this  clause  of  the  policy. 
There  was,  therefore,  a  direct  conflict  between  the  general  provisions 
contained  in  the  printed  conditions  of  the  policy  and  the  written  de- 


680  CONSTRUCTION   OF   POLICY — rnOPERTY   INSURANCE  (Ch.  10 

scription  of  the  particular  subject  of  insurance;  and,  of  course,  the 
latter  must  prevail.  The  use  of  cani])hene,  therefore,  was  authorized, 
and  it  was  itself  insured  as  a  part  of  the  plaintiffs'  stock. 

Thus  far  there  is  no  controversy  between  the  parties,  but  tlie  con- 
test arises  under  another  clause  of  the  policy.  The  eighth  condition 
provides,  that  the  company  "will  not  be  liable  for  loss  or  damage  caus- 
ed by  lightning,  except  that  which  results  from  fire  that  may  ensue 
therefrom;  nor  for  any  loss,  either  by  fire  or  otherwise,  occasioned  by 
the  explosion  of  a  steam-boiler,  or  occasioned  by  camphene  or  other 
inflammable  liquid,  or  by  the  explosion  of  gunpowder."  The  position 
of  the  defendants  is,  that  the  loss,  as  shown  by  the  proofs,  was  "occa- 
sioned by  camphene,"  and  hence  they  are  not  responsible.  It  becomes 
necessary,  therefore,  to  put  a  construction  upon  that  condition  of  the 
policy  which  I  have  just  recited. 

The  counsel  for  the  plaintiffs  contends  that  this  provision  was  only 
intended  to  exempt  the  company  from  liability  for  any  loss  which 
should  be  occasioned  by  camphene  "in  a  relation  or  use  outside  of  the 
description  and  privilege"  contained  in  the  policy.  But  there  are 
serious  difficulties  in  the  way  of  such  a  construction ;  it  is  an  entire 
departure  from  the  language  of  the  provision,  which  is  broad  and 
general,  embracing  every  loss  which  should  be  in  any  way  occasioned 
by  camphene.  To  make  this  interpretation  compatible  at  all  with  the 
terms  of  the  provision,  it  is  necessary  to  interpolate  a  clause  more 
extensive  than  the  entire  provision  as  it  stands.  The  policy  says  the 
insurers  will  not  be  liable  for  any  loss  "occasioned  by  camphene." 
This  is  said  to  mean,  that  they  will  not  be  liable  for  such  a  loss,  pro- 
vided the  camphene  which  caused  the  loss  was  outside  the  insured 
premises,  or  was  used  upon  such  premises  in  a  manner  not  authorized 
by  the  policy.  I  know  of  no  rule  for  the  interpretation  of  contracts 
which  warrants  so  extensive  an  interpolation ;  it  would  make  a  con- 
tract widely  different  from  that  which  would  result  from  the  terms 
used  by  the  parties  themselves. 

The  argument  in  favor  of  this  interpretation  is,  that,  by  force  of 
the  rule  that  the  written  is  to  prevail  over  the  printed  portion  of  the 
policy,  the  defendants  have  not  only  authorized  the  use  of  camphene 
by  the  plaintiffs  for  certain  purposes,  but  have  consented  to  include 
camphene  itself  as  a  part  of  the  plaintiffs'  stock,  among  the  articles 
insured ;  and  that  it  cannot  be  supposed  that  they  intended  to  exempt 
themselves  from  liability  for  a  loss  which  should  be  occasioned  by  one 
of  the  insured  articles,  and  which  was  upon  the  premises  under  the 
precise  circumstances  authorized  by  the  policy. 

The  incongruity  suggested  by  this  argument  is  hardly  sufficient  to 
prevent  our  construing  this  contract  as  the  parties  have  made  it.  What 
repugnance  is  there  between  the  provision  which  authorizes  the  use 
of  camphene  in  the  business  of  the  insured,  and  that  which  exempts 
the  company  from  liability  for  a  loss  "occasioned  by  camphene"?  I 
can  see  none  whatever.     By  the  written  portion  of  the  policy,  the  in- 


Sec.  1)  CONDITIONS   OPERATIVE   BEFORE   LOSS  681 

surers  assumed  a  responsibility  in  regard  to  the  use  of  camphene, 
from  which  they  were  entirely  exempted  by  the  printed  conditions  re- 
lating to  hazardous  and  extra-hazardous  business ;  the  eighth  condi- 
tion comes  in  as  a  modification  of  this  responsibility.  It  operates  as 
a  division  and  mutual  distribution  between  the  insurers  and  the  as- 
sured of  the  risks  resulting  from  the  use  of  this  hazardous  article.  By 
the  two  provisions  combined,  the  insurers  say  to  the  assured,  "we 
will  agree  that  the  mere  presence  of  camphene  upon  the  insured  prem- 
ises, or  its  use  there  in  your  business,  shall  not  vitiate  the  policy ;  but 
if  it  shall  be  the  actual  primary  cause  of  any  loss,  we  will  not  be  held 
responsible."  Such  an  arrangement  is  not  open  to  any  legal  objection, 
but  one  which  the  parties  had  a  perfect  right  to  make,  and  which  seems 
to  me  not  unnatural.  It  does  not  cast  the  entire  risk  upon  either  of 
the  parties,  but  divides  it  between  them.  If  a  fire  occurs  from  some 
other  cause,  and,  in  consequence  of  the  presence  ol  camphene  upon 
the  premises,  it  is  aggravated  and  made  more  destructive  than  it  other- 
wise would  have  been,  the  loss  falls  upon  the  insurers.  If  a  fire  is 
occasioned  by  the  camphene,  and  the  insurers  are  not  able  to  trace  it 
to  that  cause,  the  loss  falls  upon  them.  It  is  only  in  those  cases  where 
the  insurers  are  able  to  show  that  camphene  was  the  original  cause 
of  the  loss,  that  the  risk  is  assumed  by  the  assured.  I  see  nothing, 
either  in  law  or  in  reason,  against  the  making  of  such  a  contract ;  and 
that  is  precisely  the  contract  which  these  parties  have  made,  if  we 
interpret  their  language  according  to  its  natural  import.     *     *     *  ^^ 

Denio  and  ClErke,  JJ.,  also  dissented. 

Judgment  affirmed.^^ 

11  The  remainder  of  the  dissenting  opinion  dealt  with  the  plaintiff's  con- 
tention that  the  loss  was  not  "occasioned  by  camphene.''  but  by  the  match 
that  was  thrown  into  the  camphene.  The  learned  justice  did  not  think  it 
.sound. 

1-  See,  in  accord,  Steinbach  v.  La  Fayette  Fire  Insurance  Co.,  54  N.  Y.  92 
(1S73).  In  this  case  insurance  was  placed  upon  a  stock  of  goods  of  a  Ger- 
man jobber  and  importer,  with  special  permission  to  keep  hrecrackei's. 
"Fireworks"'  were  among  a  class  of  articles  prohibited  by  the  policy  as  spe- 
cially hazardous,  but  nevertheless  the  insured  was  allowed  a  recovery  on 
the  policy  for  a  loss  resulting  from  the  fireworks,  upon  showing  that  they 
were  a  part  of  his  customary  stock  in  trade.  The  United  States  Supreme 
Court,  however,  in  Steinbach  v.  Insurance  Co.,  13  Wall.  183,  20  L.  Ed.  615 
(1871),  on  a  similar  policy  and  on  the  same  facts,  reached  an  opposite  con- 
clusion, holding  that  the  custom  of  such  jobbers  to  keep  fireworks  as  a  part 
of  their  stock  in  trade  could  not  prevail  against  the  express  prohibitions  of 
the  policy. 


G82  CONSTRUCTION   OF  POLICY — PROPERTY   INSURANCE  (Ch.  10 


VI.  Other  Insurance 


KELLEY  V.  PEOPLE'S  NAT.  FIRE  INS.  CO. 

(Supreme  Court  of  Illinois,  l'J14.     262  111,  158,  104  N.  E.  188.) 

Cartwright,  J.  The  People's  National  Fire  Insurance  Company 
issued  its  policy  of  insurance  to  Emma  Kelley,  insuring  against  loss 
or  damage  by  fire  to  the  amount  of  $2,000  on  her  house,  and  $1,000 
upon  the  household  furnishings  of  the  same.  The  house  was  burned 
and  the  personal  property  burned  or  damaged,  and  suit  was  brought 
in  the  circuit  court  of  McLean  county  upon  the  policy  for  the  use  of 
her  trustee  in  bankruptcy.  Judgment  was  rendered  on  the  verdict  for 
a  jury  against  the  insurance  company  for  $2,300,  and,  the  Appellate 
Court  having  affirmed  the  judgment  [181  111.  App.  142],  we  granted  a 
writ  of  certiorari  to  bring  the  record  to  this  court. 

The  policy  contained  provisions  that  it  should  be  void  (1)  if  the  in- 
sured should  make  or  procure  any  other  contract  of  insurance;  (2)  if 
with  the  knowledge  of  the  insured  foreclosure  proceedings  should  be 
commenced;  (3)  if  the  interest  of  the  insured  was  other  than  uncon- 
ditional and  sole  ownership ;  (4)  if  any  change  should  take  place  in  the 
interest,  title,  or  possession  of  the  subject  of  insurance,  whether  by 
legal  process  or  judgment,  or  by  voluntary  act  of  the  insured  or  other- 
wise, and  there  were  pleas  alleging  facts  which  would  render  the  policy 
void  under  these  provisions.  There  was  also  a  condition  that  the  insur- 
ance company  should  not  be  liable  for  a  greater  proportion  of  any  loss 
than  the  amount  of  this  policy  should  bear  to  the  whole  insurance  on 
the  property,  and  it  was  alleged  that  the  plaintiff  had  procured  other 
insurance. 

When  Emma  Kelley  insured  the  property,  she  informed  the  agent 
that  it  was  incumbered  by  two  mortgages  made  to  the  same  party, 
amounting  to  $600,  and  his  report  to  the  insurance  company  showed 
that  fact.  The  mortgages  required  her  to  insure  the  property  for  the 
benefit  of  the  mortgagee  to  the  extent  of  his  interest,  and,  upon  her 
failure  to  do  so,  he  was  authorized  to  procure  insurance.  The  policy 
was  left  with  the  insurance  agent,  and  she  never  saw  it,  but  understood 
that  she  had  complied  with  her  agreement.  She  did  not  procure  any 
other  insurance,  but  the  mortgagee  obtained  a  policy  without  her 
knowledge  or  consent.  When  she  learned  of  it,  she  sent  notice  to  the 
mortgagee  informing  him  of  the  insurance  previously  placed  by  her, 
and  he  promised  to  cancel  the  policy  he  had  procured,  but  did  not  do 
so.  After  the  fire,  the  adjuster  of  the  other  corporation  said  that  his 
company  was  willing  to  pay,  but  she  had  refused  to  recognize  that 
policy  and  never  authorized  it.  The  mortgage  authorized  the  mort- 
gagee to  procure  insurance  only  in  the  event  that  she  failed  to  do  so, 


Sec.  1)  CONDITIONS   OPERATIVE  BEFORE   LOSS  683 

and,  as  she  understood  it,  she  had  already  complied  with  her  agree- 
ment. The  condition  was  not  violated  by  the  unauthorized  act  of  the 
mortgagee,  and,  as  he  had  agreed  to  cancel  the  policy  procured  by 
him,  she  ought  not  to  forfeit  her  insurance.  That  being  so,  the  provi- 
sion limiting  the  liability  of  the  insurance  company  to  her  to  a  pro- 
portionate share  of  the  loss  was  not  applicable  to  the  facts. ^^     *     *     * 

Emma  Kelley  was  the  sole  and  absolute  owner  of  the  premises  when 
the  policy  was  issued,  and  there  was  no  misrepresentation  as  to  the 
title  but  several  judgments  were  recovered  against  her  prior  to  the 
fire,  and  it  is  contended  that  the  judgment  creditors  thereby  acquired 
an  interest  in  her  property  which  rendered  the  policy  void.  An  interest 
or  title  to  property  means  a  legal  interest,  and  no  person  has  an  inter- 
est in  the  property  of  another  simply  because  he  has  a  judgment  under 
which  he  may  acquire  a  title,  if  the  judgment  is  not  paid  or  the  prop- 
erty redeemed  from  a  sale  under  it.  The  recovery  of  a  judgment  does 
not  effect  a  change  in  an  interest  in  or  title  to  property,  but  an  interest 
is  acquired  only  when  there  has  been  a  sale  under  an  execution,  and  the 
title  is  changed  only  when  there  has  been  a  failure  to  redeem  and  a 
conveyance. 

Complaint  is  made  that  the  court  refused  to  admit  in  evidence  an 
assessor's  schedule  giving  a  valuation  of  the  household  goods  for  the 
year  1911,  and  it  is  argued  that  the  schedule  was  admissible  on  the 
question  of  value.  Emma  Kelley  did  not  make  any  return  of  her 
property  for  assessment  that  year,  and  the  schedule  was  not  made  by 
her  or  her  husband  and  appears  to  have  been  made  by  the  assessor. 
There  is  a  conflict  of  authority  whether  a  return  for  taxation  made 
by  the  owner  is  admissible  in  evidence  as  tending  to  show  the  value  of 
property  (Sanitary  District  v.  Pittsburg,  Ft.  Wayne  &  Chicago  Railway 
Co.,  216  111.  575,  75  N.  E.  248),  and  this  court  has  not  had  occasion  to 
settle  that  question,  but  there  is  no  doubt  that  a  return  is  not  ad- 
missible against  an  owner  when  not  made  by  him  or  his  agent.  The 
court  did  not  err  in  that  ruling. 

The  judgment  of  the  Appellate  Court  is  affirmed.  Judgment  af- 
firmed. 


FUNKE  V.  INSURANCE  CO. 

(Supreme  Court  of  Minnesota,   1882.     29  Minn.  347,  13  N.   W.  164,  43  Am. 

'     Kep.  216.) 

Dickinson,  J.  This  action  is  to  recover  upon  a  policy  of  insurance 
issued  by  the  defendant  in  June,  1874,  whereby  the  defendant  insured 
the  dwelling-house  and  furniture  of  the  plaintiff  against  loss  by  fire 
for  a  period  of  seven  years.     The  fire  causing  the  injury  complained 

13  In  the  portion  of  the  opinion  omitted  the  court  held  that  the  failure  of 
the  insurer  to  cancel  the  policy  upon  learning  that  foreclosure  proceedings 
had  been  instituted  constituted  a  waiver  of  the  right  to  avoid  the  policy  on 
that  account. 


G84  CONSTRUCTION   OF  POLICY — PROPERTY   INSIKANCE  (Ch.  10 

of  occurred  in  March,  1880.  The  poHcy  contained  these  conditions: 
"If  the  insured  shall  have,  or  shall  hereafter  make,  any  insurance  in 
any  other  company  on  the  property  hereby  insured,  or  any  part  there- 
of, without  obtaininf,^  the  consent  of  the  secretary  of  this  association, 
*  *  *  the  insured  shall  not  be  entitled  to  recover  from  the  associa- 
tion any  loss  or  damage  which  may  occur  in  or  to  the  property  hereby 
insured,  or  any  part  or  portion  thereof."  In  February,  1879,  while 
this  policy  was  still  in  force,  the  plaintiff  made  application  to  the 
American  Insurance  Company  of  Illinois  for  insurance  upon  the  same 
property,  representing  in  such  aj^plication  that  he  had  no  other  insur- 
ance upon  it.  Thereupon,  and  upon  a  sufficient  consideration,  the  lat- 
ter company  issued  its  policy  of  insurance  upon  said  property  for  the 
period  of  five  years,  which  policy  was,  however,  by  its  terms  rendered 
"void"  by  reason  of  the  prior  and  undisclosed  contract  of  insurance 
with  this  defendant,  although  upon  its  face  it  was  a  valid  contract  of 
insurance.  The  plaintiff  held  the  policy  of  the  American  Insurance 
Company,  and  after  the  loss  in  March,  1880,  made  proofs  of  loss,  and 
claimed  payment  from  that  company.  The  company,  however,  learned 
of  the  prior  insurance  with  this  defendant,  refused  to  pay,  denying 
its  obligation.  No  notice  was  given  to  the  defendant  of  the  subsequent 
insurance  in  the  American  Insurance  Company.  The  court  below  con- 
sidered that  the  plaintiff  had  not  been  guilty  of  actual  fraud  in  the 
premises,  and,  upon  the  facts  here  briefly  stated,  plaintiff  was  held 
entitled  to  recover. 

The  liability  of  the  defendant  depends  upon  the  proper  legal  construc- 
tion of  the  written  contract  of  insurance.  In  the  policy  is  expressed 
the  agreement  of  the  parties,  in  terms  which  must  be  regarded  as  hav- 
ing been  deliberately  chosen  by  themselves,  and  which  we  must  pre- 
sume they  both  understood  and  consented  to.  If  the  condition  respect- 
ing other  insurance  was  violated,  not  in  its  letter,  but  within  the  intent 
and  meaning  of  the  parties,  by  the  making  of  a  subsequent  contract 
of  insurance,  valid  upon  its  face,  but  void  or  voidable,  in  fact,  by 
reason  of  misrepresentation  (not  actually  fraudulent)  on  the  part  of 
the  assured,  then  the  liability  of  the  defendant  was  terminated.  Other- 
wise it  was  not.  We  have,  then,  to  consider  the  meaning  and  force 
of  that  stipulation  in  the  contract. 

The  courts  have  often  been  called  upon  to  construe  similar  provi- 
sions in  the  policies  of  insurance,  and,  in  the  American  courts,  it  has 
generally  been  held  that  policies  containing  conditions  similar  to  that 
in  this  case  were  not  avoided  by  the  making  of  other  contracts  of  in- 
surance which  were  in  fact  void  or  voidable  by  reason  of  the  breach 
of  some  condition  therein,  or  by  reason  of  misrepresentation.  These 
decisions  proceed  upon  a  construction  of  the  contract  which  makes  the 
condition  against  other  insurance  to  mean  only  other  valid  insurance, 
or  a  valid  and  enforceable  contract  of  insurance ;  and  hence  it  is  held 
that  other  contracts  of  insurance,  void  or  voidable  at  the  election  of 
the  insurer,  by  reason  of  the  breach  of  some  condition  therein,  or  even, 


Sec.  1)  CONDITIONS   OrEHATIVE   P.EFOKK    LOSS  685 

as  some  of  the  Courts  hold,  by  reason  of  the  actual  fraud  of  the  in- 
sured, are  not  within  the  condition  construed,  and  do  not  operate  to 
avoid  the  policy. 

We  cannot  yield  assent  to  such  a  construction  of  the  contract.  It 
involves,  in  our  judgment,  a  disregard  of  the  plain  objects  contem- 
plated by  tiie  parties  to  the  contract  when  it  was  made,  and  to  accom- 
plish which  the  condition  against  other  insurance  was  adopted.  It  is 
a  matter  of  common  knowledge,  which  we  may  not  ignore  in  con- 
struing this  contract,  that  it  is  a  settled  policy  of  insurers  against  loss 
by  fire  to  protect  themselves  against  incendiarism  and  negligence,  by 
compelling  the  insured  to  bear  some  part  of  the  risk,  so  that,  if  the 
property  shall  be  destroyed,  he  will  suffer  loss,  notwithstanding  his 
insurance.  To  this  end  the  insurer  limits  the  amount  of  his  own  in- 
surance upon  the  property  to  a  sum  less  .than  its  value,  and  guards 
against  other  insurance  being  effected  upon  the  same  property,  without 
his  consent,  by  stipulations  to  that  effect,  which  are  ordinarily,  as  in 
this  case,  embodied  in  the  written  contract  of  insurance.  Such  provi- 
sions are  for  the  benefit  of  the  insurer,  and  can  have  no  other  object 
or  purpose  than  to  place  the  insured  in  such  a  position  respecting  the 
property  that,  from  considerations  of  self-interest,  he  not  only  will  not 
willfully  burn  it,  but  will  be  watchful  and  careful  in  guarding  against 
fire. 

In  the  case  before  us  it  distinctly  appears  that  what  we  have  spoken 
of  as  a  custom  in  the  business  of  insurance  was  not  departed  from. 
The  policy  provided  that  the  insured  shall  not  be  entitled  to  recover 
more  than  two-thirds  of  the  value  of  the  property  at  the  time  when  loss 
should  occur,  and  that  any  misrepresentation  or  over-valuation  in  the 
application  should  avoid  the  policy ;  and,  in  the  same  connection,  is  the 
condition  respecting  other  insurance,  already  quoted.  It  has  never  been 
claimed,  to  our  knowledge,  that  the  object  of  incorporating  in  con- 
tracts of  insurance  conditions  like  that  under  consideration  was,  or 
could  possibly  have  been,  other  than  that  which  is  above  indicated. 
Considering  now  the  purpose  sought  to  be  accomplished  by  this  con- 
dition, and  which,  if  we  have  interpreted  it  aright,  both  the  parties 
must  be  regarded  as  having  understood  as  we  understand  it,  the  con- 
clusion is  unavoidable  that  in  making  a  subsequent  contract  of  insur- 
ance, for  the  purpose  of  securing  other  or  further  indemnity  in  case  of 
loss  by  fire,  the  plaintiff  did  that  which,  by  the  terms  of  the  contract, 
avoided  it,  although  he  could  not  enforce  a  recovery  upon  such  subse- 
quent contract. 

We  assume  that  the  plaintiff  intended  to  secure  indemnity  by  the 
second  insurance.  It  is  not  consistent  with  human  conduct  that  he 
should  have  paid  a  premium  and  incurred  legal  obligations  knowing 
that  he  secured  no  right  and  no  possibility  of  benefit  in  return.  So 
far  as  concerned  his  conduct  in  the  care  or  destruction  of  tfie  prop- 
erty, it  was  not  important  in  a  legal  sense  whether  in  fact  the  second 
contract  was  enforceable  by  him  or  not.     By  the  very  means  contem- 


G86  CONSTilUCTION   OF   rOLIPY I'ROI'EUTY   INSURANCE  (Cll.  10 

plated  by  llic  ])arlies  and  referred  to  in  the  contract — that  is,  by  con- 
tracting for  other  indemnity  in  case  of  loss  by  fire — he  had  removed 
from  his  mind  all  motives  of  self-interest  in  the  preservation  of  the 
property,  so  far  as  "other  insurance"  could  have  that  effect.  What- 
ever increased  hazard  "other  insurance"  could  cause,  was  effected,  to 
the  full  extent,  if,  in  fact,  plaintiff  supposed  the  second  insurance  valid 
and  enforceable;  and  in  a  less  degree,  perhaps,  if  he  knew  it  to  be  void 
at  the  election  of  the  insurer,  and  that  he  could  not  recover  upon  it 
if  the  facts  avoiding  it  should  be  discovered.  In  either  event,  that 
purpose  which  the  parties  to  this  contract  contemplated,  and  deemed 
so  important  that  they  made  express  conditions  respecting  it,  was  de- 
feated. 

In  the  decisions  which  we  have  above  referred  to,  it  has  been  con- 
sidered that  a  non-enforceable  contract  for  "other  insurance"  is  not 
a  breach  of  the  condition,  because,  in  fact,  it  is  not  insurance.  The 
Supreme  Court  of  New  Hampshire  expresses  the  idea  in  these  words : 
"There  is  an  intrinsic  absurdity  in  holding  that  to  be  an  insurance  by 
which  a  party  is  bound  to  make  good  another-'s  loss  only  in  case  he 
pleases  to  do  it:"  Gale  v.  Belknap  County  Ins.  Co.,  41  N.  H.  170.  Such 
a  construction  of  the  contract  is  not  at  all  necessary  from  a  considera- 
tion of  the  proper  and  natural  import  of  the  word  insurance ;  and  we 
are  unable  to  comprehend  how  it  can  be  regarded  as  expressing  the 
agreement  in  the  minds  of  the  parties  without  disregarding  what  every 
one  must  understand  to  have  been  the  purpose  contemplated.  Con- 
tracts are  not  to  be  so  construed.  The  same  construction  would  make 
a  second  insurance  inoperative  to  terminate  the  liability  of  a  prior 
insurer  under  conditions  like  that  in  this  policy,  if  it  should  appear, 
after  the  loss  had  occurred,  that  the  second  insurer  had  been  from 
the  time  of  making  the  contract  insolvent.  The  word  "insurance,"  in 
common  speech  and  with  propriety,  is  used  quite  as  often  in  the  sense 
of  contract  of  insurance,  or  act  of  insuring,  as  in  that  expressing  the 
abstract  idea  of  indemnity  or  security  against  loss.  In  that  sense  the 
word  was  used  in  this  contract. 

We  are  sustained  in  the  interpretation  of  this  contract,  and  in  our 
conclusion,  by  the  following  authorities :  Carpenter  v.  Providence 
Washington  Ins.  Co.,  16  Pet.  495,  10  L.  Ed.  1044;  Bigler  v.  N.  Y. 
Cent.  Ins.  Co.,  22  N.  Y.  402 ;  Lackey  v.  Georgia  Home  Ins.  Co.,  42 
Ga.  456;  Allen  v.  Merchants'  Mut.  Ins.  Co.,  30  La.  Ann.  1386,  31  Am. 
Rep.  243;  Jacobs  v.  Equitable  Ins.  Co.,  19  U.  C.  Q.  B.  250;  Ramsey 
Cloth  Co.  v.  Mut.  Fire  Ins.  Co.,  11  U.  C.  Q.  B.  516;  Mason  v.  Andes 
Ins.  Co.,  23  U.  C.  C.  P.  Z7 .  See,  also,  Plath  v.  Minn.  Farmers'  Mut. 
Fire  Ins.  Ass'n,  23  Minn.  479,  23  Am.  Rep.  697,  in  which,  under  a 
stipulation  that  if  the  insured  should  mortgage  "the  property"  insured 
it  should  avoid  the  policy,  a  mortgage  of  a  part  only  of  the  property 
was  held  to  have  that  effect.  In  that  case  the  act  of  the  insured  did 
not  violate  the  letter  of  the  contract;  but  in  that  case,  as  in  this,  it  did 


Sec.  1)  CONDITIONS  OPERATIVE  BEFORE  LOSS  687 

violate  its  spirit,  and  tend  to  defeat  the  well-understood  objects  con- 
templated. 

In  some  courts,  in  cases  like  this,  a  distinction  is  made  resting  upon 
the  action  or  election  of  the  subsequent  or  "other"  insurer.  If  such  in- 
surer avails  himself  of  his  legal  right,  and  elects  to  treat  his  contract 
as  invalid,  it  is  held  not  to  avoid  the  first  contract ;  but  if  he  waives 
the  forfeiture,  even  after  the  loss  by  fire  has  occurred,  and  treats  his 
contract  as  valid,  then  such  "other  insurance"  is  deemed  to  have  been 
a  violation  of  the  condition.  See  David  v.  Hartford  Ins.  Co.,  13  Iowa, 
69;  Hubbard  v.  Hartford  Fire  Ins.  Co.,  33  Iowa,  325,  11  Am.  Rep. 
125.  Such  a  distinction  cannot,  in  our  opinion,  be  sustained.  It  makes 
the  validity  of  the  contract  between  two  parties  to  depend,  not  upon 
their  own  agreement,  nor  upon  their  own  acts,  but  upon  what  another 
person,  a  stranger  to  the  contract,  may  do,  even  after  the  liability  upon 
the  contract  had  become  absolute  by  the  destruction  of  the  property, 
if,  in  fact,  there  was  any  obligation.  This  cannot  be.  The  making  of 
the  second  contract  of  insurance  violated  the  terms  of  the  former  con- 
tract, if  at  all,  at  the  time  such  second  contract  was  made.  The  sub- 
sequent affirmance  or  disaffirmance  of  that  contract  by  the  insurer,  as 
he  might  elect,  could  not  affect  the  validity  of  the  former  contract  be- 
tween other  parties.  Most  of  the  authorities  so  hold.  See  Dahlberg 
V.  St.  Louis  Mut.  Ins,  Co.,  6  Mo.  App.  121,  and  cases  cited. 

Order  reversed. 


VII.  Concurrent  Insurance 


OGDEN  V.  EAST  RIVER  INS.  CO. 

(Court  of  Appeals  of  New  York,  1872.     50  N.  Y.  388,  10  Am.  Rep.  492.) 

Action  on  a  policy  of  insurance  for  $3,000  on  plaintiff's  stock  in 
trade,  "contained  in  the  three-story  brick  building  known  as  No.  392 
Washington  street,  in  the  city  of  New  York."  Other  insurance  was 
permitted.  The  policy  provided  that  "in  case  of  loss  the  insured  shall 
not  recover  on  this  policy  any  greater  proportion  of  the  loss  or  dam- 
age sustained  to  the  subject  insured  than  the  amount  hereby  insured 
shall  bear  to  the  whole  amount  insured  on  the  said  property."  The 
plaintiffs,  at  the  time  of  the  fire,  held  fourteen  other  policies,  issued 
by  various  companies,  to  the  amount  of  $47,500,  covering  said  prop- 
erty in  No.  392  Washington  Street  and  a  large  amount  of  other  prop- 
erty owned  by  plaintiffs.  On  the  30th  November,  1864,  all  the  prop- 
erty insured  and  covered  by  said  fifteen  policies  was  destroyed  by  fire. 
The  value  of  the  entire  property  so  destroyed  was  $88,788.83.  The 
value  of  the  property  covered  by  defendant's  policy  was  $16,305.89. 
Judgment  for  plaintiff. 


TiSS  CONSTRUCTION   OF   POLICY PROPERTY   INSURANCE  (Cll.lO 

Rapali.o,  J.  Tlic  clause,  now  usual  in  policies  of  insurance,  which 
l)rovides  for  an  ai)i)ortionment  of  the  loss  in  case  of  other  insurance 
on  the  property,  is  a  part  of  the  contract,  and  must  receive  a  reason- 
able construction.  We  have  no  right  to  engraft  upon  it  the  rules  gov- 
erning suits  for  contribution  among  insurers,  nor  to  restrict  its  op- 
eration to  cases  where  such  suits  could  be  maintained,  but  must  look 
at  the  language  of  the  clause  itself  and  construe  it  as  we  would  any 
other  stipulation  between  the  insurer  and  the  insured. 

We  cannot  adopt  the  view  taken  of  this  clause  in  the  case  of  How- 
ard Ins.  Co.  V.  Scribner,  5  Hill,  298,  where  it  was  held  (in  analogy  to 
the  rule  in  actions  for  contribution)  that  where  a  specific  parcel  of 
property  is  insured  by  one  policy,  and  the  same  property  is  covered 
by  another  policy,  which  also  includes  other  property,  the  latter  pol- 
icy is  to  be  thrown  wholly  out  of  view,  and  does  not  constitute  oth- 
er insurance  within  the  meaning  of  the  clause.  Neither  can  we  agree 
to  the  doctrine  contended  for  by  the  counsel  for  the  appellant,  that 
the  whole  sum  insured  by  the  more  comprehensive  policy  is  to  be  con- 
sfdered  as  so  much  additional  insurance  upon  the  parcel  separately 
insured. 

Where  several  parcels  of  property  are  insured  together  for  an  en- 
tire sum,  it  is  impossible  to  say  as  to  either  of  the  parcels  that  there 
is  no  insurance  upon  it.  Neither  is  it  reasonable  to  assume  that  any 
of  the  parcels  is  insured  for  more  than  its  value  where  the  whole  sum 
insured  is  less  than  the  aggregate  value  of  all  the  parcels  covered  by 
the  policy.  The  difficulty  lies  in  determining  what  part  of  the  whole 
sum  insured  is  to  be  deemed  applicable  to  either  parcel  where  the  pol- 
icy itself  makes  no  separation. 

H  the  entire  property  is  destroyed,  as  in  this  case,  the  rule  laid  down 
in  2  Phillips  on  Insurance,  p.  56,  No.  1263,  a,  and  in  Blake  v.  Exch. 
Mut.  Ins.  Co.,  12  Gray  (Mass.)  265,  carries  out  the  intent  of  the  clause 
and  works  entire  equity  between  the  insurers  and  the  insured,  as  well 
as  between  the  several  insurers.  That  rule  is,  in  substance,  that  for 
the  purpose  of  apportioning  the  loss  in  case  of  over  insurance,  where 
several  parcels  are  insured  together  by  one  policy  for  an  entire  sum, 
and  one  of  the  parcels  is  insured  separately  by  another  policy,  the  sum 
insured  by  the  first  mentioned  policy  is  to  be  distributed  among  the 
several  parcels  in  the  proportion  which  the  sum  insured  by  that 
policy  bears  to  the  total  value  of  all  the  parcels.  Thus  in  round  num- 
bers the  sum  insured  in  this  case  by  the  policies,  other  than  the  de- 
fendant's on  the  property,  as  an  entirety,  was  $47,000.  The  total  val- 
ue of  the  property  covered  by  these  policies  was  $88,000.  In  case  of 
a  total  loss,  each  parcel  should  be  deemed  insured  thereby  for  ^'^/ss 
of  its  value.  The  parcel  separately  insured  by  the  defendant  was 
worth  $16,000,  and  was  insured  by  the  defendant  for  $3,000,  which 
was  equal  to  ^^le  of  its  value.  It  is  manifest  that  there  was  no  over 
insurance,  and  that  consequently  there  is  no  occasion  for  any  appor- 
tionment. 


Sec.  1)  CONDITIONS   OPERATIVE   BEFORE   LOSS  689 

Whether  this  would  be  the  proper  rule  in  case  the  $16,000  parcel 
alone  had  been  destroyed  or  damaged,  it  is  not  now  necessary  to  de- 
termine. In  that  event,  if  the  defendant's  policy  had  not  existed,  the 
whole  loss  would  have  been  recoverable  under  the  $47,000  insurance. 
It  may  be  that  the  rule  for  ascertaining  the  amount  of  insurance  upon 
any  particular  parcel  where  insurances  are  commingled,  as  in  this  case, 
is  dependent  upon  the  extent  of  the  loss,  and  that  whatever  could  be 
recovered  upon  the  more  comprehensive  policy  without  regard  to  the 
other  is  the  amount  to  be  deemed  insured  thereby  on  the  part  injured 
in  case  of  a  partial  loss,  and  that  on  that  basis  an  over  insurance  to 
the  extent  of  the  separate  policy  might  be  established.  By  insuring 
several  parcels  of  property  for  an  entire  sum  the  insured  obtains  the 
advantage,  and  the  insurer  subjects  himself  to  the  liability  of  having 
so  much  of  the  total  sum  insured  as  may  be  necessary  to  compensate 
for  damage  to  any  part  of  the  property  applied  to  that  part,  though  the 
sum  named  in  the  policy  would  have  been  insufficient  to  cover  the  loss 
if  the  whole  had  been  destroyed.  Thus  it  is  left  to  the  result,  in  case 
of  a  partial  loss,  to  determine  what  sum  is  insured  upon  any  particu- 
lar parcel,  the  only  limit  being  its  value.  On  the  other  hand,  it  would 
be  desirable  to  adopt  a  general  rule  applicable  to  all  contingencies. 
We  refrain  from  expressing  an  opinion  now  upon  the  several  phases 
which  might  be  developed  under  an  insurance  of  this  character  in  case 
of  partial  loss,  confining  our  adjudication  to  the  case  before  us,  which 
was  that  of  a  total  loss  of  the  whole  subject  insured  by  all  the  pol- 
icies. 

The  judgment  should  be  affirmed  with  costs.    All  concur. 

Judgment  affirmed.^* 

14  The  great  weight  of  authority  is  in  accord  with  the  principal  case.  See 
Farmers'  Feed  Co.  v.  Scottish  Union  &  National  Ins.  Co.,  17.'}  N.  Y.  241,  65 
N.  B.  1105  (1908)  ;  Stephenson  v.  Insurance  Co.,  116  Wis.  277,  93  N.  W.  19 
(1903).  But  in  Pennsylvania  it  is  uniformly  held  that  other  insurance  is  not 
to  be  regarded  as  concurrent  unless  coextensive.  Meigs  v.  Insurance  Co.,  205 
Pa.  378.  54  Atl.  1053  (1903).  But  see  Meigs  v.  Assurance  Co.  (C.  C.)  126  Fed. 
781  (1904),  applying  the  general  rule  to  exactly  the  same  facts.  See  4  Cooley, 
Briefs  on  Insurance,  3103. 

Vance  Ins. — 44 


GDO  CONSTUUCTION    OF   I'OLICY PUOI'EIITY   INSUUANCE  (Ch.  10 

SECTION  2.— "LOSS  OR  DAMAGE 
I.  What  is  Loss  by  Fire;? 


SCRIPTURE  V.  LOWELL  MUT.  FIRE  INS.  CO. 

(Supreme  Judicial  Court  of  RIassachusetts,  1852.     10  Cush.  ;i;jG,  57  Am. 

Dec.  111.) 

Action  on  a  policy  of  insurance  on  a  dwelling-house  owned  by  plain- 
tiff, but  occupied  by  one  Elbridge  Smith,  whose  minor  son,  without 
plaintiff's  knowledge,  brought  a  cask  of  gunpowder  into  the  attic  and 
fired  it  with  a  match,  doing  considerable  damage.  Perkins,  J.,  in  the 
Court  of  Common  Pleas,  gave  plaintiff  judgment  for  the  total  damage 
done,  on  an  agreed  statement  of  facts,  and  defendants  appealed  to  this 
court. 

CuSHiNG,  J.  The  case  finds  that  a  burning  match  being  applied, 
without  fault  of  the  plaintiff,  to  a  cask  of  gunpowder  in  the  attic  of 
his  house,  the  gunpowder  took  fire,  exploded,  set  fire  to  a  bed  and 
clothing,  charred  and  stained  some  of  the  woodwork,  and  blew  off  the 
roof  of  the  house ;  and  the  only  question  in  the  case  is,  whether  the 
loss  thus  occasioned  to  the  building  is  covered  by  the  conditions  of  an 
ordinary  policy  against  fire.  The  question  may  be  generalized  thus : 
By  the  ignition  of  gunpowder  within  a  dwelling-house,  damage  is 
done  to  the  house,  that  damage  consisting  in  part  of  combustion  and 
in  part  of  explosion.  Is  the  whole  damage  covered  by  a  policy  insur- 
ing "against  loss  or  damage  by  fire?" 

The  very  anomalous  case  of  Austin  v.  Drew,  6  Taunt.  436,  has  been 
adduced  in  argument  and  greatly  relied  upon,  as  having  apparent  an- 
alogy to  this ;  but  when  that  case  is  examined,  the  analogy  disappears. 
The  evidence  there  was,  of  a  building  of  several  stories,  in  each  of 
which  sugar,  in  a  certain  state  of  preparation,  was  deposited  for  the 
purpose  of  being  refined;  and  a  chimney,  running  up  through  the 
building,  formed  almost  one  whole  side  of  each  of  the  stories ;  and 
by  means  of  this  chimney,  heat  was  communicated  to  the  several  rooms 
containing  the  sugar,  and  thus  acted  on  it  chemically.  At  the  top  of 
the  chimney  was  a  register  used  to  shut  in  the  heat  during  the  night. 
The  servant  of  the  assured,  in  lighting  the  fires  in  the  morning,  neg- 
lected to  open  the  register,  in  consequence  of  which,  undue  heat  came 
out  into  the  heating-room,  and  the  sugars  were  thereby  injured.  And 
the  action  pending,  was  to  recover  damage  for  this  under  a  policy  of 
insurance  against  loss  by  fire. 

The  decision  in  Austin  v.  Drew  has  been  assumed  to  establish  that, 
"to  bring  a  loss  within  the  risk  insured  against,  it  must  appear  to  have 
been  occasioned  by  actual  ignition,  and  no  damage  occasioned  by  mere 


Sec.  2)  LOSS   OR  DAMAGE  691 

heat,  however  intense,  will  be  within  the  policy."  2  Marsh,  on  Ins. 
(3d,  Ed.)  790.  This  proposition  is  not  the  point  of  the  case ;  and  it 
cannot  be  sound  law ;  for  it  may  well  happen  that  serious  damage, 
within  the  scope  of  a  fire  policy,  shall  be  done  to  a  building,  or  to  its 
contents,  by  the  action  of  fire  in  scorching  paint,  cracking  pictures, 
glass,  furniture,  mantelpieces,  and  other  objects,  or  heating  and  thus 
actually  destroying  many  objects  of  commerce,  and  yet  all  this  with- 
out actual  ignition — that  is,  visible  inflammation. 

All  these  manifest  errors,  and  the  doubts  they  throw  over  the  case 
of  Austin  V.  Drew,  are  dispelled  at  once  by  the  report  of  it  in  Holt  and 
in  Campbell,  as  it  was  tried  at  Nisi  Prius.  There  it  appears  that  the 
claim  was  for  damage  to  the  sugars  by  overheating  only.  And  Chief 
Justice  Gibbs  said :  "I  am  of  opinion  that  this  action  is  not  maintain- 
able. There  was  no  more  fire  than  always  exists  when  the  manufac- 
ture was  going  on.  Nothing  was  consumed  by  fire.  The  plaintiffs' 
loss  arose  from  the  negligent  management  of  their  machinery.  The 
sugars  were  chiefly  damaged  by  the  heat.  And  what  produced  the 
heat?  Not  any  fire  against  which  the  com.pany  insured,  but  the  fire 
for  heating  the  pans,  which  continued  all  the  time  to  burn  without  any 
excess.  The  servant  forgets  to  open  the  register  by  which  the  smoke 
ought  to  have  escaped  and  the  heat  to  have  been  tempered."  And 
when  one  of  the  jurymen  suggested  that  fires  arising  from  negligence 
of  servants  were  covered  by  fire  policies,  Chief  Justice  Gibbs  assented, 
and  said  it  was  not  the  case  of  a  fire  arising  from  negligence,  for  there 
was  no  fire  except  where  it  ought  to  have  been;  but  it  was  the  case 
of  the  damage  of  an  article  in  the  process  of  manufacture  by  the  un- 
skillful management  of  the  fire  used  as  an  agent  of  the  manufacture. 
Austin  V.  Drew,  4  Campb.  360;   Holt,  N.  P.  126. 

If,  in  Austin  v.  Drew,  the  fire  had  been  where  it  ought  not  to  be, 
if,  even  with  careless  management,  it  had  burned  the  building,  and 
notwithstanding  it  was  fire  maintained  only  for  the  purpose  of  man- 
ufacture, then  all  the  observations  of  the  court  go  to  show  that,  in 
this  instance,  as  in  that  of  the  whaleship  mentioned  in  Emerigon  (1 
Tr.  de  Ass.  436),  the  insurers  would  have  been  held  to  be  liable  for 
the  loss.  This,  therefore,  and  this  only,  as  correctly  stated  by  Beau- 
mont (Ins.  Z7),  is  decided  by  the  case  of  Austin  v.  Drew ;  namely,  that 
where  a  chemist,  artisan,  or  manufacturer,  employs  fire  as  a  chemical 
agent,  or  as  an  instrument  of  art  or  fabrication,  and  the  article,  which 
is  thus  purposely  subjected  to  the  action  of  fire,  is  damaged  in  the 
process  by  the  unskill fulness  of  the  operator,  and  his  mismanagement 
of  heat  as  an  agent  or  instrument  of  manufacture,  that  is  not  a  loss 
within  a  fire  policy.  This,  we  apprehend,  is  good  policy  and  sound 
law.  But  it  does  not  touch  at  all  the  present  case.  It  has  been 
thought  proper  thus  to  analyze  the  case  of  Austin  v.  Drew,  because 
having  been  variously  reported  by  four  different  reporters,  and  pre- 
senting itself  prominently  in  several  of  the  text-books,  but  in  nearly 
all  of  them  with  more  or  less  of  misconception,  it  has  become  the 


092  CONSTRUCTION   OF   POLICY — PROPERTY   INSURANCE  (Cll.  10 

Starting  point,  in  legal  construction,  of  conflicting  lines  of  argument 
leading  to  sundry  false  conclusions,  and,  among  others,  that  of  a  sup- 
posed application  to  the  present  question. 

Some  adjudications  have  also  been  cited  of  questions  arising  in  the 
contingency  of  damage  done  by  lightning.  Thus,  in  Kenniston  v. 
Merrimack  Insurance  Company,  the  Sui)reme  Court  of  New  Hamp- 
shire decided  that  damage  done  by  lightning,  without  any  combustion 
to  indicate  the  presence  of  fire,  is  not  within  the  terms  of  a  policy 
against  "fire  by  accident,  lightning,  or  by  any  other  means" ;  the  court, 
in  a  brief  opinion,  deducing  the  conclusion  from  the  assumed  prem- 
ises that  lightning  per  se  is  not  fire.  14  N.  H.  341,  40  Am.  Dec. 
193.  The  same  conclusion,  upon  similar  facts  and  upon  the  same 
words  of  insurance,  "fire  by  lightning,"  is  elaborately  reasoned  out  in 
a  recent  case  in  New  York,  Babcock  v.  Montgomery  County  Insur- 
ance Company,  6  Barb.  (N.  Y.)  637;  where  it  is  held,  that,  to  consti- 
tute a  loss  within  the  policy,  there  must  be  fire,  or  burning,  and  that 
damage  by  lightning  in  other  forms  is  not  the  risk  intended  by  the  con- 
tract ;  because,  though  caloric  may  generate  electricity,  or  electricity 
caloric,  yet  caloric  and  electricity  are  distinct  things  in  nature. 

The  principle  adjudged  in  the  cases  of  this  class  will  be  readily 
seen  by  reversing  the  question.  Suppose,  not  as  fact  but  as  mere  sup- 
position, a  policy  insuring  against  damage  done  through  electricity 
generated  by  caloric.  Obviously,  this  would  not  cover  damage  done 
by  fire  only,  electricity  not  being  evolved.  So,  in  the  actual  case  re- 
ported, of  insurance  against  fire  produced  by  lightning,  if  the  effects 
be  of  lightning  only,  without  exhibition  of  fire,  it  would  not,  accord- 
ing to  the  above  decision,  be  within  the  policy.  Or  suppose  insur- 
ance on  cattle  against  the  risk  of  death  by  fire  alone.  In  that  as- 
sumption, if  the  cattle  die,  as  they  may,  by  a  stroke  of  lightning,  with- 
out a  burn  or  any  other  action  of  fire  on  their  bodies,  it  would  not  be 
the  risk  contemplated  by  the  contract.     Beaumont  on  Ins.  Zl . 

The  question  of  loss  by  lightning  is  very  summarily  disposed  of  in 
the  older  authorities  by  treating  electricity  as  fire  from  heaven.  See 
1  Emerigon,  c.  12,  §  17,  No.  1,  and  the  authors  there  cited.  But  the 
progress  of  knowledge  has  led  to  juster  notions  of  the  nature  of 
lightning,  and,  of  course,  to  different  conclusions  touching  its  legal  re- 
lations, which  are  correctly  summed  up  by  a  late  writer  as  follows : 
namely,  that  fire  includes  lightning  if  there  be  any  mark  of  fire,  but 
not  otherwise.    Beaumont  on  Ins.  Zl . 

These  cases  of  damage  by  lightning  bear  on  the  present  question, 
therefore,  if  at  all,  only  by  very  distant  analogy.  Neither  of  them 
covers  it  or  has  any  direct  relation  to  it.  To  the  contrary  of  this,  in 
New  York,  at  least,  the  same  courts  which  decide  that  loss  by  light- 
ning merely  is  not  covered  by  a  fire  policy,  decide  that  loss  by  the  ex- 
plosion of  gunpowder  is.  There  is  a  series  of  cases  precisely  in  point 
which  expressly  decide,  or  by  implication  assume,  that  damage  done 
by  the  explosion  of  gunpowder  ignited  within  a  building,  as  well  as 


Sec.  2)  LOSS  OR  DAMAGE  693 

that  done  by  its  combustion,  is  within  the  risk  of  a  fire  policy.  The 
case  of  Grim  v.  Phoenix  Insurance  Company  was  this :  A  vessel,  in- 
sured against  fire,  was  partly  laden  with  gunpowder,  which,  being  ig- 
nited by  carelessness,  the  vessel  was  blown  up  and  totally  lost.  It  was 
argued  by  eminent  counsel,  and  the  opinion  was  given  by  Thompson, 
C.  ].,  and  throughout  the  case  it  seems  to  be  assumed  that  the  loss  was, 
in  respect  to  its  cause,  within  the  policy,  and  the  decision  was  made 
to  depend  on  other  considerations,  13  Johns.  (N.  Y.)  451.  The  same 
conclusion  is  also  assumed  in  the  case  of  Duncan  v.  Sun  Fire  Insur- 
ance Company,  6  Wend.  (N.  Y.)  488,  22  Am.  Dec.  539.  In  the  case 
of  City  Fire  Insurance  Company  v.  Corlies,  the  claim  was  on  a  fire 
policy  for  merchandise  destroyed  not  in  burning,  but  through  the 
blowing  up  of  the  building  wherein  it  was  stored,  by  means  of  gun- 
powder; and  the  court  expressly  adjudged  this  to  be  "a.  loss  by  the 
peril  insured  against,  within  the  meaning  of  the  policy."  21  Wend. 
(N.  Y.)  367,  34  Am.  Dec.  258. 

The  question,  we  admit,  is  a  nice  one.  Upon  careful  reflection, 
however,  we  have  come  to  the  conclusion  that  the  received  opinions 
on  the  subject  and  the  adjudications  referred  to  are  in  accordance 
with  reason  and  principle.  It  seems  not  to  be  denied  that  actual  com- 
bustion, produced  by  the  ignition  of  gunpowder,  is  within  the  pres- 
ent policy.  If,  then,  a  combustible  substance  in  the  process  of  com- 
bustion produces  explosion  also,  it  is  not  easy  to  perceive  why,  of  the 
two  diverse  but  concurrent  results  of  the  combustion,  the  one  should 
be  ascribed  to  fire  any  less  than  the  other.  The  plain  fact  here  is  the 
application  of  fire  to  a  substance  susceptible  of  ignition,  the  conse- 
quent ignition  of  that  substance,  and  immediate  damage  to  the  prem- 
ises thereby.  It  is  no  sufficient  answer  to  say  that  some  of  the  phe- 
nomena produced  are  in  the  form  of  explosion.  All  the  effects,  what- 
ever they  may  be  in  form,  are  the  natural  results  of  the  combustion 
of  a  combustible  substance ;  and,  as  the  combustion  is  the  action  of 
fire,  this  must  be  held  to  be  the  proximate  and  legal  cause  of  all  the 
damage  done  to  the  premises  of  the  plaintiff. 

Our  opinion  excludes,  of  course,  all  damage  by  mere  explosion,  not 
involving  ignition  and  combustion  of  the  agent  of  explosion,  such  as 
the  case  of  steam,  or  any  other  substance  acting  by  expansion  without 
combustion.  See  Perrin's  Administrator  v.  Protection  Insurance  Co., 
11  Ohio,  146,  38  Am.  Dec.  728.  It  likewise  excludes  all  damage  oc- 
casioned but  remotely  or  consequentially  through  the  agency  of  gun- 
powder, such  as  injury  done  to  a  house  by  falling  fragments  in  the 
blasting  of  rocks,  or  the  shattering  of  a  house  by  the  stroke  of  a  can- 
non-ball, in  which  examples  the  shock  of  a  projectile,  and  not  igni- 
tion or  combustion,  is  the  proximate  cause  of  the  damage  done.  We 
recognize  and  accept,  in  the  full  force  of  its  application,  the  maxim : 
"In  jure  non  remota  causa  sed  proxima  spectatur."     Bacon's  Max.  1. 

The  legal  relations  of  marine  insurance  have  been  copiously  dis- 
cussed in  many  express  treatises  of  elaborate  erudition,  and  are  con- 


G94  CONSTRUCTION   OF   POLICY I'UOl'KUTY   INSURANCE  (Ch.lO 

sidered  in  a  great  numljcr  of  judicial  decisions,  in  which  the  whole 
subject  has  been  explored  with  wonderful  acuteness  and  comprehen- 
sion of  logic  and  of  learning;  wliile  fire  insurance,  as  a  branch  of 
legal  knowledge,  is,  comparatively  speaking,  in  its  rudiments.  The 
cases  on  marine  insurance  throw  little  if  any  light  on  the  i)resent  (jues- 
tion,  except  in  so  far  as  they  attempt  to  prescribe  a  rule  for  distin- 
guishing between  what  is  remote  and  what  is  proximate  cause.  The 
conclusion  reached  in  this  discussion,  as  may  be  seen  by  the  latest  in- 
vestigation of  the  point  in  Great  i)ritain,  Montoya  v.  London  Assur- 
ance Co.,  6  Exch.  451,  is  that,  while  for  most  cases  it  is  practicable 
to  draw  the  line,  and  to  formalize  a  rule  between  the  two  classes  of 
causes,  yet,  in  other  cases,  according  to  the  general  law  of  nature, 
the  two  classes  approach  and  run  into  one  another  until  the  distinc- 
tion vanishes ;  and  within  the  limits  of  this  debatable  land  of  differ- 
ences, it  is  necessary  to  apply  judicial  discretion  to  the  particular  ques- 
tions as  they  arise,  just  as  it  is  in  the  not  infrequent  inquiry  whether 
a  thing,  or  the  use  or  measure  of  it,  be  reasonable  or  not.  In  Mon- 
toya V.  London  Assurance  Co.,  it  was  determined  that,  where  the 
lower  part  of  a  cargo  is  damaged  by  sea  water  and,  by  the  evolution 
of  gases  from  the  part  thus  damaged  or  the  propagation  of  heat  aris- 
ing from  fermentation,  the  superior  part  of  the  cargo  be  damaged  al- 
so, the  loss  on  the  latter  is  by  the  perils  of  the  sea,  the  involvement 
of  the  secondary  effect  in  the  primary  one  being  an  example  of  causa 
proxima. 

In  the  present  case  there  is  no  room  for  question  concerning  a  se- 
ries of  causes,  as  whether  primary  or  secondary,  proximate  or  remote ; 
for  the  agent  is  one  and  the  same  throughout,  namely,  fire.  The 
causa  was  burning  powder ;  the  causa  causans  was  a  burning  match ; 
at  each  stage  of  causation  it  was  the  action  of  fire.  Nay,  to  be  exact, 
the  burning  of  the  gunpowder,  like  the  burning  of  the  match,  was  a 
succession  of  several  complex  acts  of  burning,  yet  fire  is  the  agent 
at  each  of  these  distinct  stages  of  causation.  Suppose  there  was  a 
barrel  of  sulphur  in  the  plaintiff's  attic  instead  of  gunpowder,  and 
this  being  ignited  with  a  match,  afterwards  the  fire  had  passed  from 
the  burning  sulphur  to  the  substance  of  the  house.  This  would  be 
recognized  at  once  as  a  case  of  fire.  It  does  not  change  the  legal  re- 
lation of  causes  to  substitute  a  barrel  of  burning  gunpowder  for  a 
barrel  of  burning  sulphur.  The  only  difference  in  the. elements  of 
the  question  is,  that  the  gunpowder,  when  ignited,  consumes  with  more 
of  rapidity  than  sulphur,  and  the  combustion  is  accompanied  or  fol- 
lowed by  explosion.  Still,  the  agent  is  fire,  though  it  acts  in  differ- 
ent ways  upon  the  different  successive  subjects  of  its  action,  beginning 
with  the  match  and  terminating  with  the  plaintiff's  house. 

On  the  other  hand,  cases  are  conceivable,  other  than  by  the  use  of 
gunpowder,  of  explosion  without  any  combustion,  which,  neverthe- 
less, being  the  result  of  the  action  of  fire,  are  still,  it  would  seem, 
within  the  range  of  the  general  principle.    Various  mineral  substanc- 


Sec.  2)  LOSS   OR   DAMAGE  695 

es  exist,  of  value  in  commerce  and  the  arts,  which  explode  by  the  ac- 
tion of  fire,  without  either  ignition  or  combustion.  In  general,  any 
close  vessel  of  whatever  material  composed,  when  filled  with  an  ex- 
pansive fluid,  is  liable  to  explode  by  the  action  of  heat,  though  it  may 
be  that  the  vessel  and  its  contents  are  alike  incombustible.  The  same 
thing  happens,  under  certain  conditions,  to  some  forms  of  wood; 
which,  although  combustible,  may  by  the  action  of  fire  explode,  with- 
out ignition;  or  which,  as  in  the  present  case,  of  a  house,  by  having 
compressed  within  it  some  burning  substance,  which  is  explosive  as 
well  as  combustible,  like  gunpowder,  may  suffer  the  double  injury  of 
combustion  in  part  and  in  part  of  explosion. 

If,  however,  the  question  of  consequential  damage  needed  to  be  ex- 
plored for  the  determination  of  the  present  case,  it  would  serve  to 
confirm  the  conclusion  at  which  we  have  on  other  premises  arrived. 
Thus,  in  Great  Britain,  damage  which  occurs  consequentially  in  the 
case  of  a  fire,  by  reason  of  confusion  of  mind,  as  in  throwing  fragile 
objects  out  of  the  window,  or  by  sudden  terror  from  alarm,  as  in  leav- 
ing open  the  top  of  a  barrel,  and  thus  wasting  the  contents,  is  held  to  be 
loss  by  fire,  according  to  the  usages  of  insurance  offices  or  established 
legal  principle.  Beaumont  on  Ins.  41.  So  it  is  in  the  case  of  a  beam, 
cornice,  or  coving,  removed  to  prevent  the  spread  of  conflagration. 
Id.  We  understand  the  same  to  be  the  rule,  in  the  case,  for  instance, 
of  a  fire  in  the  upper  story  of  a  building,  and  the  destruction  or  dam- 
age of  goods  in  a  lower  story,  not  by  fire,  but  by  the  water  thrown  into 
or  upon  the  building  for  the  purpose  of  extinguishing  the  fire.  All 
these  are  fit  illustrations  of  the  question  of  merely  consequential 
damage. 

In  the  hypothesis  that  fire  is  to  be  regarded  as  causa  proxima  in  the 
present  case  we  can  see  but  one  supposable  defect ;  namely,  the  sug- 
gestion that,  though  it  be  conceded  that  the  explosion  of  burning  gun- 
powder, and  its  effects,  are  the  action  of  fire,  yet  this  particular  ef- 
fect on  the  building  is  not  exhibited  in  the  form  of  igneous  action. 
The  cases  above  supposed,  of  the  shrivelling  of  some  masterpiece  of 
pictorial  art,  the  cracking  or  discoloration  of  a  rich  vase  or  gem,  the 
bursting  of  a  cask  of  wine  through  the  expansion  of  its  contents, 
these,  it  may  be  said,  are  distinctly  cases  of  damage,  without  ignition 
it  is  true,  but  by  the  direct  and  specific  action  of  heat  as  such;  while 
it  is  denied  that  such  is  the  fact  in  the  present  case  of  the  blowing  up 
of  a  dwelling-house  by  the  ignition  of  gunpowder.  We  do  not  think 
the  premises  of  this  argument  are  sustained  by  the  physical  facts  which 
occurred.  If  they  were  so,  then  the  nearest  analogy  would  be  of 
damage  by  smoke ;  that  is,  the  moisture  thrown  off  by  burning  wood, 
and  carrying  with  it  ashes,  empyreumatic  oil,  and  other  constituent 
parts  of  the  wood,  either  in  their  natural  condition,  or  transformed 
by  the  process  of  combustion.  Now  it  is  obvious  that  mere  smoke, 
without  any  direct  action  of  heat,  may  do  great  damage  to  many  kinds 
of  merchandise,  such  as  delicate  textile  fabrics,  esculent  vegetables, 


696  CONSTRUCTION   OF  POLICY — PROPERTY  INSURANCE  (Ch.  10 

articles  of  taste,  and  other  numerous  objects;  and  if  a  dwelling  or  a 
magazine  take  fire,  and  some  parts  of  it  only  be  consumed,  but  the  con- 
tents of  apartments,  to  which  the  actual  fire  does  not  extend,  are  nev- 
ertheless damaged  by  the  smoke  penetrating  into  and  filling  them,  can 
it  be  doubted  that  the  damage  thus  done  is  a  loss  within  the  ordinary 
conditions  of  a  fire  policy?  Semble,  per  Gibbs,  Chief  Justice,  argu- 
endo, in  Austin  v.  Drew,  Holt  N.  P.  127.  Yet,  incontestably,  damage 
by  smoke  is  an  effect,  which  is  not  in  itself  igneous  action,  though  it 
be  the  result  thereof ;  while,  as  we  conceive,  the  explosion  of  gun- 
powder is  igneous  action. 

In  conclusion,  we  think  the  rule,  which  we  propose  for  the  present 
case,  reconciles  all  the  conditions  involved  in  the  question ;  is  con- 
formable to  the  nature  of  things ;  and  constitutes  a  coherent  and  con- 
sistent doctrine,  namely,  that  where  the  effects  produced  are  the  im- 
mediate results  of  the  action  of  a  burning  substance  in  contact  with  a 
building,  it  is  immaterial  whether  these  results  manifest  themselves  in 
the  form  of  combustion,  or  of  explosion,  or  of  both  combined.  In  ei- 
ther case,  the  damage  occurring  is  by  the  action  of  fire,  and  covered 
by  the  ordinary  terms  of  a  policy  against  loss  by  fire. 

Judgment  for  the  plaintiff. 


LYNN  GAS  &  ELECTRIC  CO.  v.  MERIDEN  FIRE  INS. 

CO.  et  al. 

(Supreme  Court  of  Massachusetts,  1893.     158  Mass.  570,  33  N.  E.  690,  20 
L.  R.  A.  297,  35  Am.    St.   Rep.   540.) 

Contract,  against  several  insurance  companies,  upon  concur- 
rent policies  of  the  Massachusetts  standard  form,  insuring  the 
building  and  machinery  of  the  plaintiff  against  loss  or  damage  by 
fire.  At  the  trial,  before  Hammond,  J.,  it  appeared  that  within 
the  period  for  which  the  policies  were  written  a  fire  occurred  in 
the  wire  tower,  so  called,  of  the  plaintiff's  building,  through  which 
the  wires  for  electric  lighting  were  carried  from  the  building, 
which  fire  was  speedily  extinguished,  without  contact  with  other 
parts  of  the  building  and  contents,  and  with  slight  damage  to  the 
tower  or  its  contents ;  that  at  about  the  same  time,  and  in  a  part 
of  the  building  remote  from  the  fire  and  untouched  thereby,  there 
occurred  a  disruption  by  centrifugal  force  of  the  fly-wheel  of  the 
engine  and  of  certain  pulleys  connected  therewith,  by  which  dis- 
ruption the  plaintiff's  building  and  machinery  were  damaged  to 
a  large  amount. 

The  defendants  introduced  evidence  tending  to  show  that  the 
slipping  of  a  belt  was  the  cause  both  of  the  fire  in  the  tower  and 
of  the  disruption  of  the  machinery,  and  that  a  defective  pulley 
might  have  contributed  to  cause  the  disaster.  The  jury  found 
for  the  full  damage  arising  from  the  disruption  of  the  machinery. 


Sec.  2)  LOSS  OR  DAMAGE  697 

and  the  defendant's  alleged  exceptions  to  the  refusal  of  the  court 
to  give  certain  instructions  and  to  certain  parts  of  the  instruc- 
tions that  were  given.  The  substance  of  the  exceptions  is  suffi- 
ciently stated  in  the  opinion  of  the  court. ^^ 

KnowIvTon,  J,  The  only  exception  relied  on  by  the  defendants 
in  these  cases  is  that  relating  to  the  claim  for  damage  to  the 
machinery  used  in  generating  electricity  and  to  the  building  from 
a  disruption  of  the  machinery.  This  machinery  was  in  a  part  of 
the  building  remote  from  the  fire,  and  none  of  it  was  burned.  In 
his  charge  to  the  jury  the  judge  stated  the  theory  of  the  plaintiff 
as  follows:  "The  plaintiff  says  the  position  of  the  lightning  ar- 
resters in  the  vicinity  of  the  fire  was  such  that  by  reason  of  the  fire 
in  the  tower  a  connection  was  made  between  them  called  a  short 
circuit ;  that  the  short  circuit  resulted  in  keeping  back  or  in  bring- 
ing into  the  dynamo  below  an  increase  of  electric  current  that 
made  it  more  difficult  for  this  armature  to  revolve  than  before, 
and  caused  a  higher  power  to  be  exerted  upon  it,  or  at  least  caused 
greater  resistance  to  the  machinery;  that  this  resistance  was  trans- 
mitted to  the  pulley  by  which  this  armature  was  run,  through 
the  belt;  that  that  shock  destroyed  that  pulley;  that  by  the  de- 
struction of  that  pulley  the  main  shaft  was  disturbed  and  the 
succeeding  pulleys  up  to  the  jack-pulley  were  ruptured;  that  by 
reason  of  pieces  flying  from  the  jack-pulley,  or  from  some  other 
cause,  the  fly-wheel  of  the  engine  was  destroyed,  the  governor 
broken,  and  everything  crushed — in  'a  word,  that  the  short  circuit 
in  the  tower  by  reason  of  the  fire  caused  an  extra  strain  upon  the 
belt  through  the  action  of  electricity,  and  that  caused  the  damage." 
The  plaintiff  contended  that  the  short  circuit  was  produced  by 
the  fire,  either  by  means  of  heat  on  the  horns  of  the  lightning  ar- 
resters, or  by  the  flame  acting  as  a  conductor  between  the  two 
horns,  or  in  some  other  way.  The  jury  found  that  the  plaintiff's 
theory  of  the  cause  of  the  damage  was  correct,  and  the  question 
is  whether  the  judge  was  right  in  ruling  that  an  injury  to  the 
machinery  caused  in  this  way  was  a  "loss  or  damage  by  fire," 
within  the  meaning  of  the  policy. 

The  subject-matter  of  the  insurance  was  the  building,  machinery, 
dynamos,  and  other  electrical  fixtures,  besides  tools,  furniture,  and 
supplies  used  in  the  business  of  furnishing  electricity  for  electric 
lighting.  The  defendants,  when  they  made  their  contracts,  under- 
stood that  the  building  contained  a  large  quantity  of  electrical 
machinery,  and  that  electricity  would  be  transmitted  from  the 
dynamos,  and  would  be  a  powerful  force  in  and  about  the  building. 
They  must  be  presumed  to  have  contemplated  such  eifects  as  fire 
might  naturally  produce  in  connection  with  machinery  used  in 
generating  and  transmitting  strong  currents  of  electricity. 

15  The  statement  of  facts  is  much  abbreviated. 


G98  CONSTRUCTION   OF   POLICY rROPERTY    INSURANCE  (Ch.  10 

The  subject  involves  a  consideration  of  the  causes  to  which  an 
eflfect  should  be  ascribed  when  several  conditions,  agencies,  or 
authors  contribute  to  produce  an  effect.  The  defendants  contend 
that  the  application  of  the  princii)le  which  is  expressed  by  the 
maxim,  "In  jure  non  remota  causa  sed  proxima  spectatur,"  relieves 
ihem  from  liability  in  these  cases.  It  has  often  been  necessary 
to  determine,  in  trials  in  court,  what  is  to  be  deemed  the  responsible 
cause  which  furnishes  a  foundation  for  a  claim  when  several  agen- 
cies and  conditions  have  a  share  in  causing  damage,  and  the 
best  rule  that  can  be  formulated  is  often  difficult  of  application. 
When  it  is  said  that  the  cause  to  be  sought  is  the  direct  and  prox- 
imate cause,  it  is  not  meant  that  the  cause  or  agency  which  is  near- 
est in  time  or  place  to  the  result  is  necessarily  to  be  chosen.  Free- 
man v.  Mercantile  Accident  Association,  156  Mass.  351,  30  N.  E. 
1013,  17  L.  R.  A.  753.  The  active  efficient  cause  that  sets  in 
motion  a  train  of  events  which  brings  about  a  result  without  the 
intervention  of  any  force  started  and  working  actively  from  a  new 
and  independent  source  is  the  direct  and  proximate  cause  referred 
to  in  the  cases.  McDonald  v.  Snelling,  14  Allen,  290,  92  Am. 
Dec.  768;  Perley  v.  Eastern  Railroad,  98  Mass.  414,  419,  96  Am. 
Dec.  645;   Gibney  v.  State,  137  N.  Y;  529,  33  N.  E.  143. 

In  IMilwaukee  &  St.  Paul  Railway  v.  Kellogg,  94  U.  S.  469,  474,  24 
L.  Ed.  256,  Mr.  Justice  Strong,  who  also  wrote  the  opinions  in 
Insurance  Co.  v.  Transportation  Co.,  12  Wall.  194,  20  L.  Ed.  378, 
and  in  Western  Massachusetts  Ins.  Co.  v.  Transportation  Co.;  12 
Wall.  201,  20  h.  Ed.  380,  which  are  much  relied  on  by  the  de- 
fendants, used  the  following  language  in  the  opinion  of  the  court : 
''The  primary  cause  may  be  the  proximate  cause  of  a  disaster, 
though  it  may  operate  through  successive  instruments,  as  an  ar- 
ticle at  the  end  of  a  chain  may  be  moved  by  a  force  applied  at  the 
other  end,  that  force  being  the  proximate  cause  of  the  movement, 
or  as  the  oft-cited  case  of  the  squib  thrown  in  the  market-place.  2 
Bl.  Rep.  892.  The  question  always  is.  Was  there  an  unbroken 
connection  between  the  wrongful  act  and  the  injury,  a  continu- 
ous operation?  Did  the  facts  constitute  a  continuous  succession 
of  events  so  linked  together  as  to  make  a  natural  whole,  or  was 
there  some  new  and  independent  cause  intervening  between  the 
wrong  and  the  injury?" 

If  this  were  an  action  against  one  who  negligently  set  the  fire 
in  the  tower,  and  thus  caused  the  injury  to  the  machinery,  it  is 
clear,  on  the  theory  of  the  plaintiff  that  the  negligent  act  of  setting 
the  fire  would  be  deemed  the  active  efficient  cause  of  the  disrup- 
tion of  the  machinery  and  the  consequent  injury  to  the  building. 
It  remains  to  inquire  whether  there  is  a  different  rule  in  an  action 
on  a  policy  of  fire  insurance.  *  *  *  j^  suits  brought  on  pol- 
icies of  fire  insurance,  it  is  held  that  the  intention  of  the  defendants 


Sec.  2)  LOSS   OR   DAMAGE  '699 

must  have  been  to  insure  against  losses  where  the  cause  insured 
against  was  a  means  or  agency  in  causing  the  loss,  even  though  it 
was  entirely  due  to  some  other  active,  efficient  cause  which  made 
use  of  it,  or  set  it  in  motion,  if  the  original  efficient  cause  was  not 
itself  made  a  subject  of  separate  insurance  in  the  contract  between 
the  parties.  For  instance,  where  the  negligent  act  of  the  insured, 
or  of  anybody  else,  causes  a  fire,  and  so  causes  damage,  although 
the  negligent  act  is  the  direct,  proximate  cause  of  the  damage, 
through  the  fire,  which  was  the  passive  agency,  the  insurer  is  held 
liable  for  a  loss  caused  by  the  fire.  Johnson  v.  Berkshire  Ins.  Co., 
4  Allen,  388;  Walker  v.  Maitland,  5  B.  &  Aid.  171;  Waters  v. 
Merchants'  Louisville  Ins.  Co.,  11  Pet.  213,  9  L.  Ed.  691;  Peters 
V.  Warren  Ins.  Co.,  14  Pet.  99,  10  L.  Ed.  371 ;  General  Ins.  Co. 
V.  Sherwood,  14  How.  351,  14  L.  Ed.  452;  Insurance  Co.  v.  Tweed, 
7  Wall.  44,  19  L.  Ed.  65. 

This  is  the  only  particular  in  which  the  rule  in  regard  to  remote 
and  proximate  causes  is  applied  differently  in  actions  on  fire  insur- 
ance policies  from  the  application  of  it  in  other  actions.  A  failure 
sometimes  to  recognize  this  rule  as  standing  on  independent 
grounds,  and  established  to  carry  out  the  intention  of  the  parties  to 
contracts  of  insurance,  has  led  to  confusion  of  statement  in  some 
of  the  cases.  The  difficulty  in  applying  the  general  rule  in  compli- 
cated cases  has  made  the  interpretation  in  some  of  the  decisions 
doubtful ;  but  on  principle,  and  by  the  weight  of  authority  in  many 
well  considered  cases,  we  think  it  clear  that,  apart  from  the  single 
exception  above  stated,  the  question,  What  is  a  cause  which  creates 
a  liability?  is  to  be  determined  in  the  same  way  in  actions  on 
policies  of  fire  insurance  as  in  other  actions.  Scripture  v.  Lowell 
Ins.  Co.,  10  Cush.  356,  57  Am.  Dec.  Ill;  New  York  &  Boston 
Despatch  Express  Co.  v.  Traders'  &  Mechanics'  Ins.  Co.,  132  Mass. 
177,  42  Am.  Rep.  440;  St.  John  v.  American  Ins.  Co.,  11  N.  Y. 
516;  General  Ins.  Co.  v.  Sherwood,  14  How.  351,  14  L.  Ed.  452; 
Insurance  Co.  v.  Tweed,  7  Wall.  44,  19  L.  Ed.  65;  Waters  v. 
Merchants'  Louisville  Ins.  Co.,  11  Pet.  213,  225,  9  L.  Ed.  691; 
Livie  V.  Janson,  12  East,  648 ;  lonides  v.  Universal  Ins.  Co.,  14 
C.  B.  (N.  S.)  259;  Transatlantic  Ins.  Co.  v.  Dorsey,  56  Md.  70,  40 
Am.  Rep.  403 ;  United  Ins.  Co.  v.  Foote,  22  Ohio  St.  340,  10  Am. 
Rep.  735. 

In  the  present  case,  the  electricity  was  one  of  the  forces  of 
nature, — a  passive  agent  working  under  natural  laws, — whose  ex- 
istence was  known  when  the  insurance  policies  were  issued.  Upon 
the  theory  adopted  by  the  jury,  the  fire  worked  through  agencies 
in  the  building,  the  atmosphere,  the  metallic  machinery,  electricity, 
and  other  things ;  and  working  precisely  as  the  defendants  would 
have  expected  it  to  work  if  they  had  thoroughly  understood  the 
situation  of  the  laws  applicable  to  the  existing  conditions,  it  put 


700  CONSTRUCTION   OF  POLICY — PROPERTY  INSURANCE  (Ch.  10 

a  great  strain  on  the  machinery  and  did  great  damage.  No  new- 
cause  acting  from  an  independent  source  intervened.  The  fire 
was  the  direct  and  proximate  cause  of  the  damage  according  to 
the  meaning  of  the  words  "direct  and  proximate  cause,"  as  inter- 
preted by  the  best  authorities. 

The  instructions  to  the  jury  were  full,  clear,  and  correct,  and 
the  defendants'  requests  for  instructions  were  rightly  refused.  Ex- 
ceptions overruled.^* 


SECTION  3.— CONDITIONS  OPERATIVE  AFTER  LOSS 
I.  Proofs  of  Loss 


NANCE  V.  OKLAHOMA  FIRE  INS.  CO. 

(Supreme  Court  of  Oklahoma,  1912.     31  Okl.  208.  120  Pac.  948,  38  L.  R.  A. 

[N.  S.]  426.) 

Action  by  L.  A.  Nance  against  the  Oklahoma  Fire  Insurance  Com- 
pany.    Judgment  for  defendant,  and  plaintifif  brings  error.     Affirmed. 

HayFS,  J.  ^^  *  *  *  The  policy  also  provides  if  a  loss  occurs 
thereunder,  the  assured  shall  give  immediate  notice  of  such  loss  in 
writing  to  the  company,  and  shall,  within  60  days  after  the  fire,  un- 

16  Earthquake  Clause. — The  disastrous  earthquake  and  fire  that  destroyed 
San  Francisco  in  1906  were  the  cause  of  much  litigation  as  to  whether  the 
losses  were  occasioned  by  the  earth(iuake,  within  the  exemption  clauses  of 
the  insurance  policies,  or  whether  the  policies  covered  the  losses.  In  Wil- 
llamsburgh  City  Fire  Ins.  Co.  v.  Willard,  90  C.  C.  A.  392,  164  Fed.  404,  21 
L.  R.  A.  (N.  S.)  103  (1908),  the  court  held  that  the  clause  exempting  the  in- 
surer "for  loss  caused  directly  or  indirectly  by  invasion,  insurrection,  riot, 
civil  war,  or  commotion,  or  military  or  usurped  power,  or  by  order  of  any 
civil  authority,  or  for  loss  or  damage  occasioned  by  or  through  any  volcano, 
earthquake  or  hurricane,  or  other  eruption,  convulsion  or  disturbance,"  was 
to  be  construed  as  meaning  that  only  loss  resulting  directly  from  earthquake 
was  exempted.  Consequently,  where  the  fire  was  communicated  to  the  in- 
sured building  from  other  structures,  where  Its  origin  was  directly  due  to 
the  earthquake  shock,  the  insurance  company  was  liable  for  the  loss  as  being 
directly  caused  by  the  fire,  and  only  indirectly  by  the  earthquake.  See  the 
note  to  Williamsburgh  City  Fire  Ins.  Co.  v.  Willard,  supra,  in  21  L.  R.  A. 
(N.  S.)  103,  discussing  the  following  cases:  Commercial  Union  Assurance  Co. 
V.  Pacific  Union  Club,  95  C.  C.  A.  242,  169  Fed.  776  (1909);  McEvoy  v.  Se- 
curity Fire  Ins.  Co.,  110  Md.  275,  73  Atl.  157.  22  L.  R.  A.  (N.  S.)  964,  132  Am. 
St.  Rep.  428  (1909) ;  Baker  &  Hamilton  v.  Williamsburgh  City  Fire  Ins.  Co. 
(C.  C.)  157  Fed.  280  (l?/07) ;  Henry  Hilp  Tailoring  Co.  v.  Williamsburgh  City 
Fire  Ins.  Co.  (C.  C.)  157  Fed.  285  (1907)  ;  Richmond  Coal  Co.  v.  Commercial 
Union  Assur.  Co.  (C.  C.)  159  Fed.  985  (1908) ;  Board  of  Education  v.  Alliance 
Ins.  Co.,  37  Ins.  Law  J.  530  (1908). 

IT  Only  that  part  of  the  opinion  relating  to  proofs  of  loss  is  printed.  See 
same  case,  ante,  p.   659. 


Sec.  3)  CONDITIONS   OPERATIVE   AFTER   LOSS  701 

less  such  time  is  extended  in  writing  by  the  company,  render  a  state- 
ment to  the  company  at  its  office  in  Muskogee,  signed  and  sworn  to 
by  the  insured,  stating  the  knowledge  and  belief  of  the  insured  as  to 
the  time  and  origin  of  the  fire,  the  property  destroyed,  the  cash  value 
of  each  item,  and  numerous  other  matters  are  required  by  the  policy 
to  be  included  in  said  statement.  This  statement  which  is  known  as 
a  proof  of  loss,  is  required  by  the  policy  to  be  signed  and  sworn  to 
by  the  insured.  The  policy  contains  also  the  following  provision: 
"No  suit  or  action  on  this  policy  for  the  recovery  of  any  claim  shall 
be  sustainable  in  any  court  of  law  or  equity  until  after  full  compli- 
ance by  the  insured  with  all  the  foregoing  requirements,  including  ap- 
praisal. *  *  *  "  fhe  evidence  without  conflict  establishes  that  no 
proof  of  loss  as  required  by  the  policy  has  ever  been  furnished  by 
plaintifif  to  the  company  either  within  the  60  days  after  the  fire  or 
before  the  trial  of  this  cause  in  the  court  below. 

The  policy  contains  other  requirements,  failure  to  comply  with 
which  the  insured  it  is  provided  shall  forfeit  the  policy ;  but  the  pol- 
icy contains  no  stipulation  of  forfeiture  for  failure  to  furnish  the 
proof  of  loss  within  the  60  days  prescribed  by  the  policy.  The  ef- 
fect of  provisions  in  insurance  policies  similar  to  the  one  here  involved 
is  declared  in  Joyce  on  Insurance,  §  3282,  to  be:  "If  a  policy  of  in- 
surance provides  that  notice  and  proofs  of  loss  are  to  be  furnished 
within  a  certain  time  after  loss  has  occurred,  but  does  not  impose  a 
forfeiture  for  failure  to  furnish  them  within  the  time  prescribed,  and 
does  impose  forfeiture  for  a  failure  to  comply  with  other  provisions 
of  the  contract,  the  insured  may,  it  is  held,  maintain  an  action,  though 
he  does  not  furnish  proofs  within  the  time  designated,  provided  he 
does  furnish  them  at  some  time  prior  to  commencing  the  action  upon 
the  policy.  And  this  has  been  held  to  be  true,  even  though  the  policy 
provides  that  no  action  can  be  maintained  until  after  a  full  compli- 
ance with  all  the  requirements  thereof."  The  rule  of  this  text  is 
supported  by  many  well-reasoned  cases :  Northern  Assurance  Co.  v. 
Hanna,  60  Neb.  29,  82  N.  W.  97;  Kenton  Insurance  Co.  v.  Downs 
&  Co.,  90  Ky.  236,  13  S.  W.  882,  12  Ky.  Law  Rep.  115;  Steele  v. 
German  Ins.  Co.,  93  Mich.  81,  53  N.  W.  514,  18  L.  R.  A.  85 ;  Rheimes 
V.  Standard  Fire  Ins.  Co.,  39  W.  Va.  672,  20  S.  E.  670;  Gerringer 
V.  North  Carolina  Home  Ins.  Co.,  133  N.  C.  407,  45  S.  E.  ^771;  Hart- 
ford Fire  Ins.  Co.  v.  Redding  et  al.,  47  Fla.  228,  37  South.  62,  67  L. 
R.  A.  518,  110  Am.  St.  Rep.  118;  Southern  Fire  Ins.  Co.  v.  Knight 
et  al..  Ill  Ga.  622,  36  S.  E.  821,  52  L.  R.  A.  70,  78  Am.  St.  Rep. 
216;  Vangindertaelen  v.  Phenix  Ins.  Co.,  82  Wis.  112,  51  N.  W.  1122, 
ZZ  Am.  St.  Rep.  29;  Kahnweiler  et  al.  v.  Phoenix  Ins.  Co.  (C.  C.) 
57  Fed.  562.  Plaintiff's  failure  to  render  proof  of  loss  within  the 
60  days  provided  by  the  policy  did  not  operate  to  forfeit  his  policy; 
but  his  right  of  action  did  not  mature  thereunder  until  such  condi- 


702  CONSTRUCTION   OF   POLICY PROPKIiTY    INST'RANCE  (Ch.  10 

tion  was  complied  with ;    and.  since  under  all  the  ])roof  in  this  case 
that  requirement  has   never   been  complied   with,   he  cannot   recover 
in  this  action.     *     *     * 
Judgment  affirmed/* 


WHITE  V.  HOME  MUT.  INS.  CO. 

(Supreme   Court   of    California,    1!)00.      128    Cal.    131,    GO    Pac.    666.) 

GauouTTE,  J.  This  appeal  involves  a  contract  of  fire  insurance, 
and  the  first  question  to  be  considered  arises  upon  the  sufficiency  of 
the  complaint.  It  appears  thereby  that  the  fire  occurred  June  8,  1896, 
and  that  proof  of  loss  was  made  October  19th  thereafter.  The  con- 
tract of  insurance  was  attached  to  the  complaint  as  an  exhibit,  and 
in  that  exhibit  we  find  the  following  provisions :  "And  within  sixty 
days  after  the  fire,  unless  such  time  is  extended  in  writing  by  this 
company,  shall  render  a  statement  to  this  company,  signed  and  sworn 
to,"  etc.  And  again :  "No  suit  or  action  on  this  policy  for  the  recov- 
ery of  any  claim  shall  be  sustainable  in  any  court  of  law  or  equity 
until  after  full  compliance  by  the  insured  with  all  the  foregoing  re- 
quirements, nor  unless  commenced  within  twelve  months  ne»t  after 
the  fire."  In  view  of  these  provisions  of  the  policy,  does  the  com- 
plaint state  a  cause  of  action,  proofs  having  been  made  some  four 
months  after  the  fire,  and  the  policy  requiring  such  proofs  to  be  made 
within  60  days  thereafter? 

It  will  be  borne  in  mind  that  no  attempt  is  made  by  the  pleader  to 
set  out  facts  constituting  a  waiver.  Ostr.  Ins.  §  223,  citing  Wood, 
Ins.  §  436,  and  May,  Ins.  §  465,  says :  "The  words  'forthwith'  and 
'as  soon  thereafter  as  possible'  are  construed  to  mean  the  same  thing; 
but  when  a  definite  time  is  specified,  as  'thirty'  or  'sixty'  days,  neglect 
or  delay  beyond  such  time  in  furnishing  proofs  will  be  fatal  if  the 
language  of  the  policy  makes  the  furnishing  of  proofs  within  the 
time  designated  a  condition  precedent."  Thereupon  the  author  quotes 
from  Owen  v.  Insurance  Co.,  57  Barb.  (N.  Y.)  521,  as  follows:  "The 
question  presented  on  this  appeal  is  whether  the  omission  of  plaintiff 
to  deliver  a  particular  account  of  his  loss  and  damage  within  ten  days 
after  such  loss,  according  to  the  seventh  section  of  the  condition  an- 
nexed to  the  policy,  is  fatal  to  his  right  of  recovery.  Such  provision 
is  doubtless  a  condition  precedent,  the  performance  of  which  by  the 
plaintiff   is  indispensable  to  the  right  of   recovery.     *     *     *     Time, 

18  Tlie  weiglit  of  autliority  is  undoubtedly,  in  accord  with  the  principal 
case,  that  under  the  standard  fire  policy  a  failure  to  furnish  proofs  of  loss 
within  the  time  specified  does  not  avoid  the  policy,  but  merely  suspends  the 
right  of  the  insured  to  recover  thereon.  See  Orient  Ins.  Co.  v.  Clark,  59  S. 
W.  863,  22  Kv.  Law  Rep.  1066  (1900)  ;  Northern  Assur.  Co.  v.  Hanna,  60  Neb. 
29,  82  N.  W.  97  (1900);  Welch  v.  Fire  Ins.  Co..  120  Wis.  456,  98  N.  W.  227 
(1904);  Taber  v.  Insurance  Co.,  124  Ala.  681.  26  South.  252  (1899);  Weiss  v. 
Insurance  Co.,  148  Pa.  349,  23  Atl.  991  (1892). 


Sec.  3)  CONDITIONS   OPERATIVE   AFTER   LOSS  703 

too,  is  the  essence  of  the  contract  in  conditions  of  this  kind,  and  there 
is  no  power  in  the  court  to  dispense  with  a  condition,  or  excuse  the 
nonperformance  of  it.  It  is  only  when  a  duty  is  created  by  law  that 
a  party  is  excused  from  performing  it,  if  performance  is  rendered 
impossible  by  act  of  God,  and  not  when  the  duty  is  created  by  con- 
tract." The  author  thereupon  says :  "This  statement  of  the  law 
stands  undisputed,  and  is  strongly  supported  by  a  large  number  of 
decisions  from  the  ablest  courts  in  both  England  and  America." 

In  the  investigation  of  this  question  we  have  found  a  few  cases 
opposed  to  the  foregoing  views,  notably  Insurance  Co.  v.  Downs,  90 
Ky.  236,  13  S.  W.  882,  and  Steele  v.  Insurance  Co.,  93  Mich.  81,  53 
N.  W.  514,  18  L.  R.  A.  85 — the  latter  case  being  decided  by  a  divided 
court.  The  judgment  in  this  latter  case  turned  on  the  construction 
given  the  words  "until  after"  used  in  the  contract  of  insurance.  As 
to  other  contracts  of  insurance  which  have  come  before  that  court 
wherein  the  word  "unless"  was  used  in  the  same  connection  as  the 
words  "until  after"  were  used  in  the  Steele  Case,  an  opposite  con- 
clusion has  been  declared.  In  those  cases  the  words  "until  after" 
were  held  to  substantially  differentiate  the  facts  in  the  two  classes  of 
cases.  It  would  seem  to  require  a  microscopic  inspection  to  discover 
a  substantial  difference  in  the  meaning  of  the  terms  "until  after  com- 
pliance" and  "unless  the  insured  shall  have  fully  complied,"  yet  in 
the  second  class  of  cases,  where  the  proofs  have  not  been  furnished 
within  the  time  agreed,  the  right  to  bring  an  action  is  held  barred 
(Gould  V.  Insurance  Co.,  90  Mich.  302,  51  N.  W.  455),  while  in  the 
first  class  of  cases  it  is  held  that  the  action  is  not  barred.  Steele 
V.  Insurance  Co.,  supra.  It  is  quite  evident,  after  reading  the  various 
decisions  of  the  supreme  court  of  Michigan,  that  this  question  has 
caused  it  considerable  trouble.  But  upon  careful  consideration  we 
are  satisfied  that  the  difference  in  the  two  forms  of  expression  is 
unsubstantial,  and  does  not  justify  contrary  conclusions  in  the  two 
classes  of  cases. 

The  policy  by  direct  words  says  proofs  of  loss  must  be  furnished 
within  60  days  from  the  date  of  the  fire.  This  is  the  contract  be- 
tween the  parties.  The  period  of  time  provided  allows  ample  op- 
portunity to  do  the  work,  and  the  provision  is  a  most  reasonable  one. 
If  this  requirement  of  the  contract  is  binding  to  any  extent,  if  it  is 
binding  upon  the  insured  to  furnish  the  proofs  of  loss,  then  why  is 
it  not  equally  binding  upon  him  to  furnish  proofs  within  60  days? 
Why  should  one  provision  of  the  requirements  be  given  effect,  and 
not  the  other?  It  is  not  for  this  court  to  say  that  the  one  provision 
holds  any  more  of  substance  than  the  other.  It  is  conceded  by  the 
Michigan  court  in  all  its  cases  that  the  proofs  must  be  furnished  be- 
fore the  action  can  be  brought,  and  it  seems  equally  clear  that  they 
should  be  furnished  within  the  time  specified,  or  likewise  action  can- 
not be  brought.     As  the  court  has  already  shown,  the  great  weight 


704  CONSTRUCTION   OF   POLICY rUOrEIlTY    INSURANCE  (Cll.  10 

of  authority  is  in  direct  line  with  these  views.  The  contract  is  that 
the  action  cannot  be  brought  until  after  a  full  compliance  by  the  in- 
sured with  all  the  foregoing  requirements.  One  of  these  requirements 
demanded  the  insured  to  furnish  proofs  of  loss  within  60  days  from 
the  date  of  the  fire.  At  the  time  this  complaint  was  filed  the  insured 
had  not  complied  with  this  requirement  of  the  contract,  and  the  60 
days  had  long  since  gone  by. 

The  court  instructed  the  jury  as  follows:  "The  matter  for  the  jury 
to  determine  in  settling  the  question  as  to  the  right  of  the  defendant 
to  claim  the  loss  of  the  insurance  upon  the  ground  that  the  proofs 
were  not  presented  is,  were  these  proofs  presented  within  a  reason- 
able time,  the  reasonableness  of  the  time  to  be  determined  by  all  the 
facts  and  circumstances  of  the  case?  If  you  find  that  under  these 
facts  and  circumstances  proofs  were  made  within  a  reasonable  time 
to  the  insurance  company,  then  it  is  your  duty  generally  to  find  in 
favor  of  the  plaintiffs."  In  view  of  what,  has  been  said,  this  instruc- 
tion is  wrong. 

It  seems  unnecessary  to  discuss  the  other  questions  raised  by  ap- 
pellant in  its  brief.  For  the  foregoing  reasons,  the  judgment  and  order 
are  reversed.^® 

We  concur:     Van  Dykk,  J.;   Harrison,  J. 

19  See,  in  accord,  Quinlan  v.  Insurance  Co.,  133  N.  Y.  356,  31  N.  E.  31,  28 
Am.  St.  Rep.  645  (1892) ;  Cannon  v.  Insurance  Co.,  110  C,a.  .'63,  35  S  ^•:.  775, 
78  Am.  St.  Rep.  124  (1900).  In  Hatch  v.  United  States  Casualty  Co.,  197  Mass. 
101,  83  N.  E.  398,  14  L.  R.  A.  (N.  S.)  503,  125  Am.  St.  Rep.  332,  14  Ann.  Cas. 
290  (1908),  the  court  held  that  a  provision  in  an  accident  policy  requiring 
written  notice  of  the  injury  within  ten  days  of  the  evrnt  causing  the  same 
was  an  absolute  condition  precedent,  and  failure  to  furnish  the  notice  for- 
feited the  policy,  even  though  the  causal  connection  between  the  event  and 
the  insured's  injury  was  not  discovered  until  after  the  prescribed  period  had 
elapsed.     See  Vance  on  Insurance,  502;  4  Cooley  Briefs  on  Insurance,  3366. 

When  Delay  in  Furnishing  Proofs  of  Loss  Excused. — It  seems  now  to 
be  well  settled,  even  in  those  states  in  which  compliance  with  the  conditions 
of  proofs  of  loss  is  required  as  a  condition  precedent  to  recovery  on  the 
policy,  that  a  failure  on  the  part  of  the  insured  to  comply  strictly  with  their 
terms  will  be  excused,  when  the  circumstances  were  such  as  to  make  strict 
compliance  impossible.  See  Woodman  Ace.  Ass'n  v.  Pratt,  62  Neb.  673,  87 
N.  W.  546,  55  L.  R.  A.  291,  89  Am.  St.  Rep.  777  (1901);  Hayes  v.  Casualty 
Co.,  98  Mo.  App.  410,  72  S.  W.  135  (1903).  Thus  where  the  insured  had  died, 
and  his  personal  representatives  had  no  knowledge  of  the  existence  of  the 
policy,  delay  in  furnishing  proofs  of  loss  beyond  the  required  period  was  ex- 
cused. See  Fuller  v.  Insurance  Co.,  184  Mass.  12.  67  N.  E.  879  (1903).  The 
same  rule  applies  in  life  insurance  to  the  required  notice  of  the  death  of 
the  insured.  See  McElroy  v.  Insurance  Co.,  88  Md.  137,  41  Atl.  112,  71  Am. 
St.  Rep.  400  (1898).  It  is  manifest,  also,  that  where  no  limit  is  placed  upon 
the  time  in  which  notice  of  death  is  to  be  given,  circumstances  will  largely 
determine  what  is  a  reasonable  time.  In  Metropolitan  Life  Ins.  Co.  v.  Peo- 
ple's Trust  Co.,  177  Ind.  578,  98  N.  E.  513,  41  L.  R.  A.  (N.  S.)  285  (1912).  it 
was  held  that  notice  of  the  death  of  the  insured  given  two  years  thereafter 
was  sufficient,  when  the  existence  of  the  policy  was  unknown  until  that  time. 
See  note  in  41  L.  R.  A.  (N.  S.)  285;  Vance  on  Insurance,  503. 

For  similar  reasons  it  is  held  that  mistakes  or  over-valuations  appearing 
in  proofs  of  loss  do  not  invalidate  them,  if  such  misstatements  are  made  in 
good  faith,  and  not  fraudulently.  The  rule  is  thus  stated  in  Warner  v. 
Narragansett  Ins.  Co.,  Ill  Me.  590,  90  Atl.  706  (1914):    "In  both  cases  it  was 


Sec.  3)  CONDITIONS   OPERATIVE  AFTER  LOSS  705 


II.  Arbitration 


AMERICAN   CENT.   INS.   CO.   et   al.  v.   DISTRICT  COURT, 
RAMSEY  COUNTY,  SECOND  JUDICIAL  DIST. 

(Supreme  Court  of  Minnesota,   1914.     147  N.  W.  242.) 

Certiorari  by  the  American  Central  Insurance  Company  and  oth- 
ers to  revivcw  the  action  of  the  district  court  in  denying  an  appli- 
cation of  insurers  to  appoint  an  umpire  to  act  in  making  an  ap- 
praisement of  goods  damaged  by  fire.  Action  of  district  court 
affirmed. 

Taylor,  C.  A  stock  of  clothing  and  men's  furnishing  goods  be- 
longing to  the  Knox-Burchard  Mercantile  Company,  of  St.  Paul, 
and  insured  under  policies  containing  the  provision  as  to  apprais- 
ing losses  required  by  chapter  421,  Law^s  of  1913  (Gen.  St.  1913, 
§  3318),  was  damaged  by  fire  on  February  9,  1914.  The  insurers 
and  the  insured  disagreed  as  to  the  amount  of  the  loss.  The 
policy  provides  that  in  such  an  event  the  loss  shall  "be  ascertained 
by  two  competent  disinterested  and  impartial  appraisers";  one 
to  be  selected  by  the  insurer  and  the  other  by  the  insured.  The 
two  appraisers  chosen  by  the  parties  are  to  select  an  umpire ; 
but,  if  they  fail  to  agree  upon  the  umpire  within  five  days,  he  may 
be  appointed  by  the  presiding  judge  of  the  district  court  upon  the 
application  of  either  party.  The  policy  further  provides  that,  if 
either  party  fails  to  select  an  appraiser  within  the  time  prescribed, 
the  other  appraiser  and  the  umpire  may  act  as  the  board  of  ap- 
praisers. The  insurers  demanded  an  appraisal  in  accordance  with 
the  terms  of  the  policy,  and  designated  C.  S.  Silk  as  the  person 
appointed  by  them  to  make  the  same.  Thereafter,  and  within 
the   specified   time,    the    insured    designated    George    R.    O'Reilly,    a 

arjiued  in  the  defense  tliat  the  plaintiff's  proof  of  loss  included  some  articles 
not  insured,  and  some  articles  not  owned  by  him,  and  that  some  articles  were 
fraudulently  overvalued.  If,  in  his  proof  of  loss,  the  plaintiff  made  inten- 
tional false  statements,  either  as  to  the  articles  insured  or  as  to  the  quantity, 
quality,  or  value  of  them,  such  false  and  fraudulent  statements  would  con- 
stitute a  good  defense  to  an  action  to  recover  the  insurance.  Rovinskv  v. 
Assurance  Co.,  100  Me.  112,  60  Atl.  1025  (1905).  But,  if  the  plaintiff  acted 
honestly  and  in  good  faith  in  making  his  proofs,  he  would  not  be  debarred 
from  maintaining  his  actions  notwithstanding  his  proofs  of  loss  contained 
some  erroneous  statements,  not  chargeable  to  his  falsehood,  but  to  his  mis- 
take of  memory  or  judgment.  And  it  was  a  question  of  fact  for  the  jury  to 
determine  upon  all  the  evidence  whether  or  not  the  plaintiff  did  act  honestly 
and  in  good  faith,  or  whether  he  fraudulently  included  in  his  proofs  articles 
that  he  did  not  own,  or  that  he  knew  were  not  insured,  or  fraudulently  made 
erroneous  statements  as  to  the  value  of  some,  or  the  whole,  of  the  property 
claimed  to  have  been  lost." 
Vance  Ins. — 45 


706  CONSTRUCTION   OF   POLICY — PROPERTY   INSURANCE  (Ch.  10 

practicing  attorney  residing  in  St.  Paul,  as  the  person  appointed 
by  the  insured  to  make  such  appraisal.  The  insurers,  claiming 
that  O'Reilly  was  not  competent  to  act  as  an  appraiser,  refused 
to  recognize  him  as  such ;  and,  upon  the  theory  that  his  appoint- 
ment was  a  nullity,  applied  to  the  district  court,  as  soon  as  suffi- 
cient time  had  elapsed  to  permit  them  to  do  so,  for  the  ap])ointment 
of  an  umpire  to  act  in  conjunction  with  Silk  in  making  the  ap- 
praisement. 

At  the  hearing  the  case  was  submitted  to  the  court  upon  an 
agreed  statement  of  facts,  and  the  claim  that  O'Reilly  was  in- 
competent as  an  appraiser  is  based  wholly  upon  the  facts  stated 
in  the  following  excerpt  from  the  stipulation:  "That  this  appli- 
cation for  the  appointment  of  an  umpire  to  act  with  said  C.  S. 
Silk  in  appraising  the  said  loss  suffered  by  said  assured  is  based 
solely  on  the  claim  that  said  George  R.  O'Reilly  is  not  a  compe- 
tent person  to  act  as  an  appraiser,  because  he  is  an  attorney  at 
law,  and  never  has  been  a  dealer  in  men's  clothing  or  furnishings, 
and  on  the  further  claim  that,  being  thus  incompetent,  the  appoint- 
ment of  said  George  R.  O'Reilly  was  a  nullity,  and  amounted  to 
a  failure  on  the  part  of  the  assured  to  select  an  appraiser."  The 
district  court  denied  the  application  of  the  insurers,  and  they 
brought  the  matter  before  this  court  by  writ  of  certiorari. 

Unless  it  appears  that  O'Reilly  was  not  eligible  for  the  position 
of  appraiser,  the  action  of  the  district  court  was  correct.  The  con- 
tention that  he  was  not  eligible  is  based  solely  upon  the  ground 
that  "he  is  an  attorney  at  law,  and  never  has  been  a  dealer  in  men's 
clothing  or  furnishings."  The  insurers  in  effect  assert  that  a  per- 
son, to  be  competent  as  an  appraiser,  must  possess  expert  knowl- 
edge concerning  the  matter  which  he  is  called  upon  to  appraise 
and  determine,  and  that  an  appointment  of  a  person  as  appraiser 
who  lacks  such  expert  knowledge  may  be  ignored  and  treated  as 
a  nullity.  It  is  perhaps  true  that,  if  one  party  designates  as  an 
appraiser  a  person  who  is  not  eligible  for  that  position,  the  other 
party  may  decline  to  recognize  him  as  such,  but,  if  he  do  so,  he 
assumes  the  burden  of  showing  that  such  appointee  is,  in  fact,  in- 
eligible. 

It  has  long  been  common  for  fire  insurance  policies  to  contain 
a  provision  that  the  amount  of  loss  shall  be  ascertained  by  an 
appraisement  to  be  made  as  provided  in  the  policy.  Similar  pro- 
visions are  frequently  found  in  other  forms  of  contract.  Notwith- 
standing the  different  wording  of  such  agreements  as  found  in  dif- 
ferent contracts,  the  appraisements  made  thereunder  have  gener- 
ally been  considered  as  in  the  nature  of  common-law  arbitrations, 
and  as  governed  by  the  rules  applying  to  such  arbitrations,  except 
as  otherwise  expressly  provided.  This  state  has  always  adopted 
that  view  of  the  law.  The  rules  governing  arbitrations  have  been 
applied  to  proceedings  for  determining  the  amount  of  loss  under 


Sec.  3)  CONDITIONS  OPERATIVE  AFTER  LOSS  707 

insurance  policies,  and  for  making  appraisements  under  other  forms 
of  contract,  irrespective  of  whether  the  persons  determining  such 
matters  were  designated  as  "appraisers,"  "referees,"  "arbitrators," 
or  otherwise.  Powers  Dry  Goods  Co.  v.  Imperial  Fire  Insurance 
Co.,  48  Minn.  380,  51  N.  W.  123;  Mosness  v.  German-American 
Ins.  Co.,  50  Minn.  341,  52  N.  W.  932;  Janney,  Semple  &  Co.  v. 
Goehringer,  52  Minn.  428,  54  N.  W.  481 ;  Levine  v.  Lancashire 
Ins.  Co.,  66  Minn.  138,  68  N.  W.  855;  Christianson  v.  Norwich 
Union  Fire  Ins.  Society,  84  Minn.  526,  88  N.  W.  16,  87  Am.  St. 
Rep.  379;  Produce  R.  Co.  v.  Norwich  Union  Fire  Ins.  Soc,  91 
Minn.  210,  97  N.  W.  875,  98  N.  W.  100;  Redner  v.  New  York 
Fire  Ins.  Co.,  92  Minn.  306,  99  N.  W.  886;  Schoenich  v.  American 
Ins.  Co.,  109  Minn.  388,  124  N.  W.  5. 

In  several  of  the  cases  cited,  the  persons  selected  by  the  parties 
to  determine  the  matter  in  dispute  were  designated  as  "appraisers," 
and  the  third  person  selected  by  the  appraisers  to  act  with  them 
was  designated  as  "umpire."  In  this  respect  the  terms  used  were 
the  same  as  in  the  case  at  bar ;  yet  it  has  been  uniformly  held  that 
such  boards,  whether  appointed  as  "appraisers,"  "referees,"  or 
"arbitrators,"  must  afford  the  parties  a  reasonable  opportunity 
to  be  heard  and  to  present  their  evidence,  and  that,  although  they 
may  make  a  personal  examination  of  the  premises  and  of  the  prop- 
erty under  proper  circumstances,  they  cannot  base  the  award 
upon  their  personal  knowledge  to  the  exclusion  of  pertinent  evi- 
dence offered  by  the  parties. 

In  Janney,  Semple  &  Co.  v.  Goehringer,  52  Minn.  428,  54  N.  W. 
481,  the  lessees  of  certain  premises  constructed  a  building  there- 
on. The  lease  provided  that,  at  the  expiration  of  the  term,  the 
lessors  should  purchase  the  building  at  its  fair  market  value :  such 
value  to  be  determined  by  three  appraisers,  one  selected  by  each 
party,  and  the  third  by  these  two.  The  appraisers  were  duly  ap- 
pointed, but  made  their  award  without  giving  plaintiffs  an  oppor- 
tunity to  be  heard.  It  was  argued  that  the  award  was  valid  on 
the  ground  that  the  appraisers  could  determine  the  value  from 
their  own  knowledge  of  the  subject-matter,  as  the  contract  con- 
tained no  provision  to  the  contrary.  The  court,  however,  held 
the  award  void  because  made  without  giving  plaintiff's  an  oppor- 
tunity to  be  heard,  and  set  it  aside,  saying:  "This  submission  to 
appraisers  to  determine  the  value  of  the  property  which  should  be 
paid  by  the  one  party  to  the  other,  the  parties  agreeing  to  abide 
by  such  decision,  was  in  the  nature  of  an  arbitration,  and  the  rule 
affording  a  right  of  hearing  is  applicable."  The  court  recognized 
that  in  some  cases  an  appraisal  might  be  made  solely  upon  the 
judgment  of  the  appraisers,  but  held  in  effect  that  it  could  not  be 
so  made  in  cases  in  which  the  appraisers,  in  addition  to  fixing  the 
value  of  specific  property,  would  need  to  determine  other  disputed 
questions,  unless  the  contract  provided  that  the  appraisers  should 


708  CONSTRUCTION   OF   POLICY rROrKHTY    INRTTnANCE  (Ch.lO 

act  upon  their  own  judgment.  And,  in  respect  to  the  appraisement 
under  the  lease  then  in  question,  the  court  said:  "The  point  of 
the  argument  is  that  the  appraisers  were  not  merely  to  determine 
the  simple  matter  of  the  value  of  specific  property,  but  necessarily 
to  construe  the  contract  and  determine  its  legal  effect.  In  such 
cases  the  parties  had  the  same  right  to  be  heard  before  their  cause 
was  adjudged  as  they  would  have  in  any  general  arbitration." 

In  the  case  at  bar  the  ai)praisers  must  determine  many  matters 
other  than  the  mere  value  of  specific  proi)crty  produced  before  them 
for  examination  and  appraisal.  They  must  determine  the  quantity 
of  property  covered  by  the  policy  and  on  hand  at  the  time  of  the 
fire,  the  quantity  destroyed,  the  quantity  damaged,  whether  the 
damage  resulted  from  causes  covered  by  the  policy  or  from  other 
causes  not  covered  thereby,  and  various  other  questions,  both  of 
law  and  fact,  upon  which  the  parties  may  differ.  Under  such  cir- 
cumstances the  parties  are  entitled  to  be  heard  unless  the  con- 
tract shows  that  such  was  not  the  intention.  Janney,  Semple  & 
Co.  v.  Goehringer,  supra.  The  contract  contains  no  provision  to 
the  efifect  that  the  appraisers  shall  make  the  appraisement  upon 
their  own  judgment  without  permitting  the  parties  to  present  their 
evidence,  and  the  right  to  be  heard  and  to  present  evidence  in  ac- 
cordance with  the  rules  governing  arbitrations  has  not  been  sur- 
rendered. The  duties  imposed  upon  the  appraisers  do  not  neces- 
sarily require  them  to  be  experts,  and  the  contract  contains  no  such 
requirement,  unless  it  be  inferred  from  the  term  "competent."  In 
the  absence  of  anything  indicating  a  difi^erent  intention,  this  term 
should  be  given  the  same  meaning  usually  given  to  it  when  applied 
to  arbitrators.  It  is  undoubtedly  desirable  that  those  making  an 
appraisal  be  familiar  with  the  matters  and  things  which  they  are 
called  upon  to  appraise ;  but,  unless  so  stipulated  in  the  contract, 
it  has  never  been  held,  so  far  as  we  are  aware,  that  experts  only 
are  competent  as  such  arbitrators  or  appraisers. 

The  former  statute  required  the  policy  to  provide  that  the  amount 
of  loss,  in  case  of  disagreement  thereover,  should  be  determined 
by  three  disinterested  referees  to  be  selected  as  therein  provided. 
The  statute  as  amended  requires  the  policy  to  provide  that  such 
loss  shall  be  determined  by  two  "competent,  disinterested,  and  im- 
partial appraisers,"  and  a  "competent,  disinterested,  and  impartial 
umpire" ;  all  to  be  selected  as  therein  provided.  The  insurers  con- 
cede that  O'Reilly  would  have  been  a  competent  referee  under 
the  former  statute,  but  contend  that,  by  changing  the  statute  as 
above  indicated,  the  Legislature  changed  the  former  rule  to  such 
an  extent  that  the  appraisers  are  now  required  to  be  experts  qual- 
ified to  determine  the  matters  submitted  to  them  from  their  own 
knowledge  and  personal  examination  without  the  aid  of  other  evi- 
dence. They  admit,  however,  that  the  appraisers  must  necessarily 
receive  evidence  as  to  the  quantity  of  goods  totally  destroyed,  and 


Sec.  3)  CONDITIONS   OrERATIVE   AFTER  LOSS  709 

Other  like  matters  not  discoverable  by  examination.  The  language 
used  does  not  require  that  the  construction  contended  for  be  given 
it,  and,  if  the  Legislature  had  intended  to  make  any  such  radical 
innovation  in  the  former  long-established  and  well-understood  rule, 
it  would  have  expressed  such  intention  in  unambiguous  terms,  and 
would  not  have  left  it  to  be  spelled  out  by  the  court  from  such 
uncertain  expressions. 

The  objection  of  the  insurers  was  not  well  taken,  and  the  action 
of  the  district  court  is  affirmed. 


III.  Limitation  of  Actions 


HART  V.  CITIZENS'  INS.  CO. 

(Supreme  Court  of  Wisconsin,  1893.     86  Wis.  77,  56  N.  W.  .3.32,  21  L.  R.  A. 
743,  39  Am.  St.  Rep.  877.) 

Action  upon  a  policy  of  insurance  against  fire.  The  plaintiii' 
appeals  from  a  judgment  in  favor  of  the  defendant. 

WiNSLOW,  J.  The  action  is  upon  a  policy  of  insurance  issued  by 
defendant,  November  11,  1890,  upon  plaintiff's  dwelling-house. 
There  is  no  dispute  as  to  the  facts.  The  house  was  burned  March 
5,  1891.  Proofs  of  loss  were  served  May  1,  1891,  being  within  the 
time  required  by  the  policy.  The  defendant  refused  payment  May 
9.  1891,  and  plaintiff  commenced  this  action  May  3,  1892,  nearly 
fourteen  months  after  the  fire. 

The  policy  contained  provisions  requiring  immediate  notice  of 
loss,  proofs  within  sixty  days  after  the  fire,  examination  of  the 
assured  under  oath  if  desired,  and  appraisal  in  case  of  disagree- 
ment as  to  amount  of  loss;  also  the  following:  "This  company 
shall  not  be  held  to  have  waived  any  provision  or  condition  of 
this  policy,  or  any  forfeiture  thereof  by  any  requirement,  act,  or 
proceeding  on  its  part  relating  to  the  appraisal,  or  to  any  exam- 
ination herein  provided  for;  and  the  loss  shall  not  become  payable 
until  sixty  days  after  the  notice,  ascertainment,  estimate,  and  sat- 
isfactory proof  of  the  loss  herein  required  have  been  received  by 
this  compan}^,  including  an  award  by  appraisers  when  appraisal  has 
been  required.  No  suit  or  action  on  this  policy  for  the  recovery 
of  any  claim  shall  be  sustained  in  any  court  of  law  or  equity  until 
after  full  compliance  by  the  insured  with  all  the  foregoing  require- 
ments, nor  unless  commenced  within  twelve  months  next  after 
the  fire." 

It  was  held  by  the  Circuit  Court  that  the  action  was  barred 
because  not  commenced  within  twelve  months  next  after  the  date 
of  the  fire,  and  plaintiff  appeals. 


710  CONSTRUCTION   OF  POLICY — PROPERTY   INSURANCE  (Ch.  10 

It  is  well  settled  that  a  clause  in  a  contract  limiting  the  time 
within  which  an  action  may  be  commenced  thereon  to  a  time 
shorter  than  that  allowed  by  the  statute  of  limitations  is  valid. 
The  question  here  is  whether  the  expression  "twelve  months  after 
the  fire"  means  what  it  says,  or  something  else.  It  is  to  be  noticed 
that  the  parties  here  have  not  used  the  expression  "after  the  loss 
occurs.'"  Had  this  been  the  language  used,  it  might  reasonably 
be  claimed,  upon  authority,  that  the  "loss  occurs,"  not  at  the  date 
of  the  fire,  but  when  the  loss  is  ascertained  and  established  and 
the  right  to  bring  an  action  exists.  The  decisions  in  favor  of  this 
doctrine  are  numerous.  Steen  v.  Niagara  F.  Ins.  Co.,  89  N.  Y. 
315,  42  Am.  Rep.  297;  Spare  v.  Home  Mut.  Ins.  Co.  (C.  C.)  17 
Fed.  568;  Chandler  v.  St.  Paul  F.  &  M.  Ins.  Co.,  21  Minn.  85,  18 
Am.  Rep.  385;  Ellis  v.  Council  Blufifs  Ins.  Co.,  64  Iowa,  507,  20 
N.  W.  782;  Miller  v.  Hartford  F.  Ins.  Co.,  70  Iowa,  704,  29  N. 
W.  411;  German  Ins.  Co.  v.  Fairbank,  32  Neb.  750,  49  N.  W. 
711,  29  Am.  St.  Rep.  459;  Barber  v.  Fire  &  M.  Ins.  Co.,  16  W. 
Va.  658,  Z7  Am.  Rep.  800. 

There  are,  however,  many  decisions  to  the  contrary:  Chambers 
v.  Atlas  Ins.  Co.,  51  Conn.  17,  50  Am.  Rep.  1 ;  Johnson  v.  Hum- 
boldt Ins.  Co.,  91  111.  92,  ZZ  Am.  Rep.  47;  Fullam  v.  New 
York  Union  Ins.  Co.,  7  Gray  (Mass.)  61,  dd  Am.  Dec.  462; 
Glass  v.  Walker,  66  Mo.  32;  Bradley  v.  Phoenix  Ins.  Co.,  28  Mo. 
App.  7;  Virginia  F.  &  M.  Ins.  Co.  v.  Wells,  83  Va.  736,  3  S.  E. 
349;  Peoria  Sugar  Refining  Co.  v.  Canada  F.  &  M,  Ins.  Co.,  12 
Ont.  App.  418;  Blair  v.  Sovereign  Ins.  Co.,  19  N.  S.  372;  Travel- 
ers' Ins.  Co.  V.  California  Ins.  Co.,  1  N.  D.  151,  45  N.  W.  703, 
8  L.  R.  A.  769;  Schroeder  v.  Keystone  Ins.  Co.,  2  Phila.  (Pa.)  286. 

Other  cases,  bearing  more  or  less  directly  on  the  question,  might 
be  cited  upon  either  side  of  the  proposition.  It  seems  apparent 
that  it  can  hardly  be  said  that  the  great  weight  of  authority  is  on 
either  side.  It  is  a  case  where  there  are  two  directly  opposing 
lines  of  authorities,  both  very  respectable  in  numbers  and  weight. 
It  was  claimed  by  appellant  that  this  court  had  substantially  ap- 
proved of  the  affirmative  view  of  the  proposition  in  Killips  v.  Put- 
nam F.  Ins.  Co.,  28  Wis.  472,  9  Am.  Rep.  506;  and  Black  v. 
Winneshiek  Ins.  Co.,  31  Wis.  74.  Examination  of  these  cases  shows 
that  this  court  expressly  declined  to  pass  upon  this  question.  The 
principle  laid  down  in  them  is  simply  that  if  the  insurance  com- 
pany, by  its  acts,  induces  the  insured  to  suspend  his  proceedings 
and  delay  action  on  the  policy,  the  time  elapsing  during  such  delay 
so  caused  should  not  be  reckoned  as  a  part  of  the  time  limited  for 
the  bringing  of  the  action.  It  is  an  application  of  the  familiar 
principle  of  estoppel. 

Doubtless  the  tendency  of  so  many  courts  to  construe  the  term 
"loss"  as  meaning  the  time  when  liability  was  fixed,  induced  many 
insurance  companies  to  substitute  the  word  "fire,"  as  in  the  policy 


Sec.  3)  CONDITIONS  OPERATIVE   AFTER  LOSS  711 

before  us.  It  would  seem  as  if  the  phrase  "twelve  months  next 
after  the  fire"  was  susceptible  of  but  one  meaning;  yet  the  courts 
have  disagreed  upon  this  question  also.  In  the  following  cases 
it  has  been  held  that  the  word  "fire"  is  to  be  construed  as  meaning, 
not  the  date  of  the  fire,  but  the  time  when  liability  is  fixed  and 
an  action  accrues  to  the  insured.  Friezen  v.  Allemania  F.  Ins.  Co. 
(C.  C.)  30  Fed.  352;  Hong  Sling  v.  Royal  Ins.  Co.,  7  Utah,  441,  27 
Pac.  171 ;  Case  v.  Sun  Ins.  Co.,  83  Cal.  473,  23  Pac.  534,  8  L. 
R.  A.  48. 

On  the  other  hand,  the  following  cases  hold  that  the  limitation 
begins  to  run  from  the  date  of  the  fire.  Steel  v.  Phenix  Ins.  Co. 
(C.  C.)  47  Fed.  863;  State  Ins.  Co.  v.  Meesman,  2  Wash.  459,  27 
Pac.  77,  26  Am.  St.  Rep.  870;  McElroy  v.  Continental  Ins.  Co.,  48 
Kan.  200,  29  Pac.  478;  State  Ins.  Co.  v.  Stoffels,  48  Kan.  205,  29 
Pac.  479;   King  v.  Watertown  Ins.  Co.,  47  Hun  (N.  Y.)  1. 

It  is  noticeable  that  all  of  the  three  cases  above  cited  which  hold 
that  "fire"  means  the  time  when  liability  is  fixed  rely  for  authority 
upon  the  cases  which  construe  the  word  "loss"  as  having  such 
meaning.  No  attention  seems  to  have  been  given  to  the  fact  that 
the  word  "fire"  has  been  substituted  for  the  word  "loss."  It  is 
also  noticeable  that  in  the  case  of  Case  v.  Sun  Ins.  Co.,  83  Cal. 
473,  23  Pac.  534,  8  L.  R.  A.  48,  the  facts  were  that  the  insured  was 
compelled  to  submit  to  examination  by  the  company,  and  to  pro- 
duce books,  bills,  and  invoices,  and  that  he  complied  with  these 
requirements  as  rapidly  as  he  was  able,  but  was  unable  to  fully 
comply  therewith  until  more  than  thirteen  months  after  the  fire, 
or  a  month  after  the  expiration  of  the  time  limited  for  bringing 
suit.  Here,  certainly,  was  a  clear  case  of  estoppel.  The  company, 
by  its  own  acts,  had  postponed  the  time  when  a  cause  of  action 
accrued  until  after  the  limitation  had  run,  and  should  clearly  be 
denied  the  right  to  rely  upon  the  limitation.  See,  to  this  effect, 
Thompson  v.  Phenix  Ins.  Co.,  136  U.  S.  287,  10  Sup.  Ct.  1019,  34 
L.  Ed.  408.  The  cases  of  Friezen  v.  Allemania  F.  Ins.  Co.  (C. 
C.)  30  Fed.  352,  and  Hong  Sling  v.  Royal  Ins.  Co.,  7  Utah,  441, 
27  Pac.  171,  are,  however,  direct  authorities  to  the  effect  that 
"twelve  months  after  the  fire"  means  twelve  months  after  the  lia- 
bility is  fixed.  The  argument  in  support  of  this  view  is  briefly 
that  all  clauses  of  the  policy  must  be  construed  together ;  that 
there  are  clauses  which  necessitate  the  making  of  proofs,  the  sub- 
mission of  the  assured  to  examination  if  required,  the  production 
of  books  and  papers,  and  the  submission  of  the  question  of  the 
amount  of  loss  to  appraisers,  all  of  which  things  will  consume  time ; 
and,  furthermore,  the  loss  not  being  payable  until  sixty  days  after 
the  amount  is  fixed,  it  may  happen  that  more  than  twelve  months 
may  elapse  after  the  date  of  the  fire  before  the  company  can  be 
sued;  and  thus  the  plaintiff's  action  may  be  cut  off  entirely  if  a  lit- 
eral meaning  is  to  be  given  to  the  words.     The  deduction  is  that  the 


712  CONSTRUCTION   OF  POLICY — rROrKItTY   INSURANCE  (Cll.  10 

parties  cannot  have  meant  what  they  said  in  the  clause  under  consid- 
eration, but  must  have  meant  something  else,  which  they  did  not  say. 

We  cannot  assent  to  this  line  of  reasoning.  It  does  violence  to| 
{tlain  words.  It  smacks  too  strongly  of  making  a  contract  which 
tlie  parties  did  not  make.  It  construes  where  there  is  no  room  for 
construction.  Plain,  unambiguous  words  which  can  have  but  one 
meaning  are  not  subject  to  construction.  "Twelve  months  next 
after  the  fire"  has  one  certain  meaning  and  but  one.  It  can  have 
no  other.  It  may  well  be  that  the  insurer  may  by  his  acts  waive 
the  limitation,  or  estop  himself  from  insisting  on  it,  as  held  in  the 
cases  of  Killips  v.  Putnam  F.  Ins.  Co.,  28  Wis.  472,  9  Am.  Rep. 
506;  Black  v.  Winneshiek  Ins.  Co.,  31  Wis.  74,  and  Thompson  v. 
Phenix  Ins.  Co.,  136  U.  S.  287,  10  Sup.  Ct.  1019,  34  L.  Ed.  408. 
but  the  invocation  of  this  principle  does  no  violence  to  the  contract 
of  the  parties.  There  is  no  element  of  estoppel  present  here,  how- 
ever. The  defendant  company  have  done  nothing  which  has  in- 
duced the  insured  to  suspend  proceedings  or  delay  his  action. 
They  notified  him  at  once  on  the  receipt  of  his  proofs  that  they 
denied  liability.  They  did  not  require  him  to  do  anything.  He 
had  nearly  ten  months  in  which  to  bring  his  suit.  By  failing  to  do 
so  he  must  be  held  to  be  barred  by  his  contract. 

The  provision  of  section  1975,  R.  S.,  to  the  effect  that  no  insurance 
policy  shall  contain  a  provision  that  no  action  or  suit  shall  be 
brought  thereon,  is  not  applicable,  because  the  clause  under  con- 
sideration is  plainly  not  such  a  provision. 

Judgment  affirmed. -° 

20  The  weight  of  authority  is  with  the  principal  case.  See  Riddlesbarger 
V.  Insurance  Co..  7  Wall.  (U.  S.)  386.  19  L.  Ed.  257  (1S6S)  ;  Provident  Fund 
Society  v.  Howell,  110  Ala.  508.  18  South.  .311  (1895);  Universal  Mut.  Fire 
Ins.  Co.  V.  Weiss,  106  Pa.  20  (1881)  ;  Chandler  v.  Insurance  Co.,  21  Minn.  85, 
IS  Am.  Rep.  385  (1874);  Wilkinson  v.  Insurance  Co.,  72  N.  Y.  499,  28  Am. 
Rep.  166  (1878) ;  McElroy  v.  Insurance  Co.,  48  Kan.  200,  29  Pac.  478  (1892) ; 
Vance,  Ins.  508;  4  Cooley,  Briefs  on  Insurance.  .3955.  See.  contra.  Miller 
V.  Insurance  Co.,  54  Neb.  121,  74  N.  W.  416,  69  Am.  St.  Rep.  709  (1898) ; 
Sample  v.  London  &  Lancashire  Fire  Ins.  Co.,  46  S.  C.  491,  24  S.  E.  3.34. 
47  L.  R.  A.  696.  57  Am.  St.  Rep.  701  (189.5);  Insurance  Co.  v.  Scales.  101  Tenn. 
G28,  640-642,  49  S.  W.  743  (1898);  Union  Central  Life  Ins.  Co.  v.  Siiinks,  119 
Ky.  261,  83  S.  W.  615,  84  S.  W.  1160,  69  L.  R.  A.  264.  7  Ann.  Cas.  913  (1904). 
In  the  last  case  the  court  in  a  vigorous  opinion  overrules  the  previous  cases 
of  Smith  V.  Herd,  110  Ky.  56,  60  S.  W.  811,  1121  (1901),  and  Lee  v.  Union 
Central  Life  Ins.  Co.,  56  S.  W.  724,  22  Ky.  Law  Rep.  1712  (1900),  in  ac- 
cord with  the  principal  case.  The  reasons  for  this  action  are  epitomized  by 
O'Rear,  J.,  as  follows:  "Stale  claims,  if  allowed,  would  tend  to  encourage 
perjury  and  fraud.  Therefore  a  statute  is  passed  to  restrict  their  as.sertion 
in  the  courts.  On  the  other  hand,  claims  which  are  not  outlawed,  for  the 
reason  just  assigned,  ought  to  have  a  forum  in  which  they  may  be  asserted 
against  an  unwilling  or  dishonest  obligee.  The  existence  of  that  right  is 
of  great  value  to  the  claimant,  but  it  is  likewise  of  great  importance  to  the 
imblic,  as  by  it  the  weak  are  assured  of  their  rights  against  the  strong — • 
the  sum  of  all  government.  A  contract  agreeing  in  advance  that  the  obligee 
will  not  resort  to  the  courts  for  its  enforcement  after  one  year,  when  the 
statutes  of  the  state  allow  fifteen  years  within  which  to  begin  the  action 
upon  it,  is  merely  an  agreement  not  to  resort  to  the  courts,  in  spite  of  the 
rolicy  and  laws  of  the  state  which  give  the  right.     To  enforce  such  is  to  put 


Ch.  11)      CONSTRUCTION  OF  POLICY OTHER  KINDS  OF  INSURANCE         713 


CHAPTER  XI 

CONSTRUCTION  OF  THE  POLICY— OTHER  KINDS  OF 

INSURANCE 


SECTION  1.— LIFE  INSURANCE 
I.  Forfeiture  for  Nonpayment  of  Policy  Loans 


PALMER  V.  MUTUAL  LIFE  INS.  CO.  OF  NEW  YORK. 

(Supreme  Court  of  Minnesota,  1913.     121  Minn.  395,  141  N.  W.  518.) 

Appeal  from  District  Court,  Ramsey  County ;  Frederick  N.  Dickson, 
Judge. 

Holt,  J.  In  1887  the  defendant,  a  life  insurance  company,  insured 
the  life  of  one  T.  R.  Palmer,  then  31  years  old,  for  $5,000.  The  pre- 
miums were  all  to  be  paid  within  15  years,  and  the  insured  was  to 
participate  in  the  annual  dividend  distribution.  The  policy  contained 
no  agreement  as  to  surrender  or  loan  value.  After  all  the  premiums 
were  fully  paid,  and  on  July  1,  1904,  Palmer  borrowed  of  the  defend- 
ant $1,445,  to  be  repaid  September  1,  1905.  For  security,  he  pledged 
with  the  defendant  this  policy  under  a  contract  containing  this  pro- 
vision :  "In  the  event  of  default  in  the  payment  of  said  loan  on  the 
date  hereinabove  mentioned,  the  company  is  hereby  authorized  at  its 
option,  without  notice,  and  without  demand  for  payment,  to  cancel 
said  policy,  and  apply  the  customary  cash  surrender  consideration 
then  allowed  by  the  company  for  the  surrender  for  cancellation  of 
similar  policies,  namely,  $1,445,  to  the  payment  of  said  loan,  with  in- 

it  in  tlie  power  of  one  party  to  practice  oppression,  and  to  close  the  courts 
against  its  relief." 

The  condition  limiting  the  right  to  bring  the  action  may,  like  any  other 
condition,  be  waived  by  the  insurer.  Fellman  v.  Royal  Ins.  Co.,  184  Fed.  577, 
106  C.  C.  A.  557  (1911) ;  Thompson  v.  Phenix  Insurance  Co.,  136  U.  S.  287, 
10  Sup.  Ct.  1019.  34  L.  Ed.  408  (1890);  Godchaux  v.  Merchants'  Mut.  Ins. 
Co.,  34  La.  Ann.  235  (1882) ;  Hanover  Fire  Ins.  Co.  v.  Hatton  (Ky.)  55  S.  W. 
681  (1900). 

Statutes  are  now  numerous  either  making  void  the  limitation  of  action  b.v 
contract  shorter  than  the  statutory  period,  or  providing  a  term  within  which 
a  right  of  action  cannot  be  limited.  See  the  following  cases,  construing  such 
statutes:  Karnes  v.  American  Fire  Ins.  Co.,  144  Mo.  413,  46  S.  W.  166 
(1898);  Vesey  v.  Commercial  Union  Assur.  Co.,  18  S.  D.  632.  101  N.  W.  1074 
(1904),  clause  in  standard  policy  held  void  because  of  the  statute;  Rutherford 
V.  Prudential  Ins.  Co.,  34  Ind.  App.  531.  73  N.  E.  202  (1905) ;  Keys  v.  Wil- 
liamsburg City  Fire  Ins.  Co.,  37  Okl.  482.  132  Pac.  818  (191.3);  Douville  v. 
Pacific  Coast  Cas.  Co.,  25  Idaho,  396,   138  Pac.  506  (1914). 


714    CONSTRUCTION  OF  POLICY — OTHER  KINDS  OF  INSURANCE  (Ch.  11 

terest,  the  balance,  if  any,  to  be  payable  to  the  parties  entitled  there- 
to on  demand,  or  the  company  may,  at  its  own  option,  renew  the  said 
loan  for  one  year  or  less  period  on  the  written  request  of  any  one  of 
the  parties  of  the  second  part  hereto,  and  without  further  notice  to 
any  one  of  the  i)arties  of  the  second  part."  lie  failed  to  pay  the  loan 
at  maturity,  and  thereafter  the  defendant  advised  him  that  on  October 
30.  1905,  it  had  canceled  his  policy  under  the  pledge  agreement,  and 
tendered  to  him  $29  as  a  balance  remaining  of  the  amount  allowed 
by  defendant  on  the  cancellation  after  liquidating  his  debt  to  the 
company.  Palmer  refused  to  accept  the  check  and  objected  to  the  can- 
cellation. 

Nothing  more  was  done  till  after  Palmer's  death,  which  took  place  in 
December,  1908,  when  this  action  was  brought  by  the  plaintiffs,  as 
representatives  of  his  estate,  to  recover  the  amount  of  the  policy  less 
the  debt  of  the  insured  to  the  company.  The  case  was  here  on  de- 
murrer to  the  complaint  in  Palmer  v.  Mutual  Life  Insurance  Co.,  114 
Minn.  1,  130  N.  W.  250,  Ann.  Cas.  1912B,  957,  to  which  reference  is 
made  for  a  more  complete  statement  of  the  alleged  facts.  The  law 
of  the  case  was  also  therein  determined,  to  the  effect  that  the  policy 
was  pledged,  and  not  mortgaged,  to  the  defendant,  and  that  if  the 
amount  agreed  upon  in  the  pledge  contract  as  the  amount  for  which 
the  policy  was  to  be  canceled  in  case  of  default  in  the  payment  of  the 
debt  was  greatly  disproportionate  to  the  then  true  value  of  the  policy, 
the  contract  imposed  a  penalty  for  the  nonpayment  of  a  debt,  and  no 
valid  cancellation  could  be  made  thereunder.  Upon  the  trial  the  court 
found  that  the  policy,  at  the  time  the  defendant  undertook  to  cancel 
it,  was  actually  worth  not  less  than  $1,986.25,  nor  more  than  $2,263.97, 
and  held  this  to  be  so  much  in  excess  of  the  amount  stipulated  in  the 
contract  to  be  allowed  in  case  of  forfeiture  that  the  contract  and  at- 
tempted cancellation  were  of  no  effect,  that  the  policy  was  still  in 
force,  and  that  plaintiffs  were  entitled  to  judgment  for  the  face  value 
thereof  less  the  debt  it  was  pledged  to  secure.  The  defendant  moved 
for  amendment  of  the  findings  and  a  new  trial,  and  now  appeals  from 
the  order  denying  the  motion.^     *     *     * 

The  important  question,  and  the  one  in  our  opinion  determinative  of 
the  appeal,  is  whether  the  finding  that  the  value  of  the  policy  was  not 
less  than  $1,926.25  is  sustained  by  the  evidence.  If  the  agreement  was 
that  it  could  be  canceled  for  $512  less  than  its  true  value,  or  if  the 
attempted  forfeiture  was  for  $1,474,  when  the  actual  value  was  at  least 
$1,926.25,  we  think  the  amount  exacted  is  so  large  that  it  must  be 
held  a  penalty,  the  agreement  void,  and  any  action  taken  under  it,  or 
upon  the  same  basis,  wholly  inefficient  to  cancel  or  forfeit  the  pol- 

ip-y   2  ^  3f:  sjc 

1  A  part  of  the  opinion  relating  to  the  effect  of  the  former  appeal  as  fixing 
the  law  of  the  case  is  here  omitted. 

2  A  part  of  the  court's  very  interesting  discussion  of  the  elements  that  go 
to  determine  the  value  of  a  paid-up  policy  is  omitted. 


Sec.  1)  LIFE   INSURANCE  715 

The  measure  of  damages  for  a  refusal  to  give  a  paid-up  policy  is  not 
the  amount  of  the  premium  paid,  but  the  actual  value  of  such  a  policy. 
Phoenix  Mutual  Life  Ins.  Co.  v.  Baker,  85  111.  410.  That  the  value  of 
any  life  insurance  policy  of  whatever  terms  and  upon  whatever  risk 
is  susceptible  of  judicial  determination  also  appears  from  the  follow- 
ing, among  other,  authorities,  some  of  which,  also,  are  to  the  point 
that  a  nugatory  cancellation  may  be  treated,  at  the  option  of  the  in- 
sured, either  as  a  conversion  or  as  leaving  the  policy  in  full  force : 
Lovell  V.  St.  Louis  Mutual  Life  Ins.  Co.,  Ill  U.  S.  264.  4  Sup.  Ct. 
390,  28  L.  Ed.  423;  Brooklyn  Life  Ins.  Co.  v.  Week,  9  Bradw.  (9 
111.  App.)  358;  Smith  v.  St.  Louis  Mutual  Life  Ins.  Co..  2  Tenn.  Ch. 
727;  New  York  Life  Ins.  Co.  v.  Curry,  115  Ky.  100,  72  S.  W.  736, 
61  L.  R.  A.  268,  103  Am.  St.  Rep.  297;    Mutual  Life  Ins.  Co.  v. 

Twyman,  122  Ky.  513,  92  S.  W.  335,  97  S.  W.  391,  121  Am.  St.  Rep. 
472      *     *     * 

In  respect  to  Palmer's  policy,  the  accuracy  of  the  following  figures 
was  fairly  well  established :  Present  value  of  the  policy  October  30, 
1905,  as  a  continuing  policy,  $2,325.19  (that  is,  said  sum  invested  at 
4  per  cent,  would  produce  the  face  value  of  Palmer's  policy  at  the 
end  of  his  expectancy  of  life,  based  on  the  American  Experience 
Mortality  Tables) ;  the  surrender  charge  on  account  of  adverse  selec- 
tion, according  to  the  experience  of  defendant,  $211.44;  and  charge 
for  expense  element  (loading,  which  really  ought  to  disappear  entirely 
when  the  policy  is  paid  up),  $127.50.  That  would  leave  the  cash  sur- 
render value  $1,986.25.  While  the  company  used  the  American  Ex- 
perience Mortality  Tables  and  4  per  cent,  interest  in  selling  this  insur- 
ance policy — that  is,  in  fixing  the  premiums — when  it  comes  to  taking 
it  back  it  proposes  to  use  6  per  cent,  instead  of  4  per  cent,  and  did  so 
in  this  case.  That  difference  in  interest  makes  a  difference  of  $639 
in  the  surrender  value.  That  the  defendant  does  a  large  business  in 
loaning  money  secured  by  the  pledge  of  policies  issued  by  it,  and  that 
a  great  many  borrowers  have  acquiesced  in  the  customary  exaction  of 
the  company  in  calculating  surrender  values  upon  cancellation  of 
policies  at  6  per  cent.,  may  be  some  evidence  of  the  market  value  of 
such  policies.  It  is,  however,  not  very  persuasive.  When  the  same 
party  is  in  the  business  of  both  buying  and  selling  the  same  com- 
modity, we  do  not  appreciate  his  method  if  the  margin  between  the 
buying  and  selling  price  is  more  than  a  fair  profit.  A  profit  of  $639, 
or  even  $512,  appears  too  great  in  this  instance.  We  think  the  testi- 
mony adduced  warranted  the  court  in  finding  that  the  fair  surrender 
value  of  this  policy  was  not  less  than  $1,926.25. 

In  our  former  decision,  it  is  said :  "The  contention  of  the  defendant, 
to  the  effect  that,  even  though  the  policy  has  never  been  legally  for- 
feited and  canceled,  and  is  still  the  valid  obligation  of  defendant,  plain- 
tiffs cannot  recover,  except  by  showing  a  payment  of  the  loan  or  a 
tender  thereof,  is  not  sound.  If  the  policy  is  still  in  force,  plaintiffs 
may  recover  the  amount  thereof,  less  the  loan,  with  interest."    Defend- 


TIG  CONSTRUCTION  OF  POLICY OTIli:U  KINDS  OF  INSURANCE      (Cll.  11 

ant  insists  that  it  was  not  necessary  to  dclcrminc  the  rehef  plaintiffs 
were  entitled  to  in  the  former  appeal ;  hence  the  quoted  part  of  the 
opinion  is  obiter.  And  it  contends  that  the  recovery  herein  should  be 
limited  to  the  ditYerence  between  the  amount  allowed  uj)on  the  can- 
cellation and  the  actual  value  of  the  i)olicy  at  that  time.  Witiiout  stop- 
l)ing  to  consider  whether  the  rule  announced  in  the  above  quotation 
was  necessary  for  a  disposition  of  the  former  appeal,  we  deem  it  good 
law.  In  the  absence  of  an  agreement,  the  pledgee  may  not,  upon  de- 
fault, without  notice,  appropriate  the  pledge.  The  authorization  to 
cancel  in  the  contract  under  consideration  is  so  intimately  connected 
with  the  terms  upon  which  it  is  to  be  made  that  it  is  not  permissible 
to  reject  the  one  and  retain  the  other.  Therefore,  if  the  amount  agreed 
upon  as  the  one  to  be  allowed  in  case  of  cancellation  is  such  that  it 
imposes  a  penalty,  the  whole  contract  fails,  and  there  is  no  contractual 
authority  in  defendant  to  cancel  or  approj^riate  the  policy.  If,  never- 
theless, it  did,  Palmer  had  three  courses  open :  He  might  have  ratified 
the  cancellation ;  he  might  treat  the  act  as  a  conversion,  and  bring  suit 
for  its  value ;  or  he  might  proceed  on  the  theory  that  the  policy  was 
still  his,  and  as  such  a  subsisting  obligation  of  the  defendant.  Palmer 
had  the  option  to  consider  the  attempt  to  cancel  the  policy  abortive  if 
the  agreement  was  invalid.  He  so  did  by  refusing  to  ratify  the  cancel- 
lation and  protesting  against  it.  It  follows  that,  when  Palmer  died,  the 
representatives  of  his  estate  could  still  treat  the  policy  as  an  existing 
obligation  against  the  defendant  for  the  full  amount  thereof,  less  the 
debt  of  Palmer  to  it.  These  authorities  sustain  this  position :  Day 
v.  Conn.  Gen.  Life  Ins.  Co..  45  Conn.  480,  29  Am.  Rep.  693;  Metro- 
politan Life  Ins.  Co.  v.  McCormick,  19  Ind.  App.  49,  49  N.  E.  44,  65 
Am.  St.  Rep.  392;  Manhattan  Life  Ins.  Co.  v.  Wright,  126  Fed.  82, 
61  C.  C.  A.  138. 

The  defendant  suggests  that,  if  the  contract  be  held  invalid,  there 
was  still  a  right  to  resort  to  the  pledge  to  enforce  payment  of  the  debt, 
and  that  cancellation  would  be  an  appropriate  remedy,  as  held  in  the 
former  opinion,  because  of  the  nature  of  a  life  insurance  policy.  True, 
but  there  is  no  pretense  that  a  cancellation  was  made  under  any  form 
recognized  as  valid  in  law  in  the  absence  of  an  agreement  between 
the  parties.  And  even  if  the  contract  be  entirely  laid  out  of  the  case, 
an  attempted  cancellation  for  an  amount  including  a  penalty  surely  can 
stand  in  no  better  light  than  a  cancellation  under  a  contract  void  be- 
cause of  the  inclusion  of  a  penalty  in  the  same  amount.  No  other 
cancellation  was  made  than  such  a  one  as  is  described  in  the  pledge 
contract.  The  defendant  at  all  times  insisted  that  what  it  did  was  un- 
der and  in  virtue  of  that  contract. 

It  certainly  is  settled  law  that,  where  the  pledge  agreement  does  not 
provide  for  a  forfeiture  of  the  pledge,  the  pledgor's  title  cannot  be 
divested  without  giving  him  notice  of  the  forfeiture  proceeding. 
There  is  no  claim  that  Palmer  was  notified  that  on  October  30,  1905, 
the  policy  would  be  canceled  if  the  debt  was  not  then  paid.    The  notice 


Sec.  1)  LIFE  Insurance  717 

that  the  debt  would  be  due  September  1,  1905,  and  that  the  defendant 
in  case  of  default  would  proceed  under  the  void  contract,  is  not  suffi- 
cient. Plaintiffs  were  therefore  within  their  rights  when,  instead  of 
suing  in  conversion,  as  they  might  have  done,  this  action  was  brought 
on  the  theory  that  the  policy  was  still  in  force. 

The  contention  that  either  laches  or  estoppel  could  be  found  in  this 
case  is  without  force.  The  cancellation  of  this  paid-up  policy  was  at 
once  repudiated  by  Palmer.  If  the  cancellation  was  ineffective,  because 
made  under  an  invalid  contract,  there  was  no  occasion  to  bring  an 
action  to  reinstate  the  policy.  Palmer  was  not  legally  required  to  do 
anything  until  the  defendant  gave  due  notice  of  applying  the  pledge  to 
the  payment  of  the  debt.  Pie  had  paid  all  the  premiums,  and  not  till 
his  death  would  the  policy  mature.  The  plaintiffs,  on  the  facts  herein, 
are  clearly  not  guilty  of  laches.  The  fact  that  the  value  of  this  canceled 
policy  has  gone  into  the  dividend  fund  in  part,  and  been  distributed, 
is,  in  our  opinion,  not  of  sufficient  importance  to  sustain  a  finding  of 
estoppel. 

Some  minor  objections  are  presented  by  the  record  to  the  steps 
taken  by  the  trial  court;  but  these,  in  our  judgment,  cannot  change  the 
result.  For  the  purposes  of  this  case,  the  exact  value  of  the  policy  is 
unimportant,  since  this  is  not  a  suit  for  conversion,  and  even  then  the 
finding  would  be  sufficient  to  sustain  a  judgment  based  on  the  lowest 
value  found.  It  is  enough  here  that  the  finding  shows  that  the  stipu- 
lated amount  in  the  pledge  agreement  includes  a  substantial  penalty 
for  nonpayment  of  the  debt.  The  legal  effect  of  the  attempted  can- 
cellation under  the  invalid  contract,  or  for  the  same  amount  as  therein 
stated,  can  be  none  other  than  a  nullity  in  this  case ;  therefore  no  fur- 
ther findings  in  that  respect  need  be  made.  Nor  is  any  finding  neces- 
sary upon  the  fact  of  the  tender  of  the  $29,  there  being  no  claim  that 
it  was  accepted.  Under  the  ultimate  conclusion  reached  by  the  trial 
court  on  the  vital  issue,  namely,  that  the  cancellation  agreement  was 
invalid,  and  hence  the  policy  was  still  in  full  force,  there  was  no  error 
in  refusing  to  allow  the  proposed  findings  on  these  and  other  imma- 
terial matters. 

The  order  is  affirmed.' 

3  Forfeiture  for  Nonpayment  of  Premiums. — The  rule  that  there  will  be 
no  forfeiture  of  the  policy,  unless  the  contract  clearly  and  unequivocally 
requires  it,  applies  with  equal  force  to  the  nonpayment  of  premiums.  See 
the  interesting  case  of  Haas  v.  Mutual  Life  Ins.  Co.,  84  Neb.  682,  121  N.  W. 
996,  26  L.  R.  A.  (N.  S.)  747,  19  Ann.  Cas.  58  (1909),  in  which  it  was  held  that 
the  failure  of  the  insured  to  pay  the  annual  premiums  for  two  years  did  not 
avoid  the  policy,  in  the  absence  of  an  express  stipulation  in  the  policy  to  that 
■effect.  The  settled  rule  is  thus  expressed  in  De  Michele  v.  London  &  Lan- 
ca.shire  Ins.  Co.,  40  Utah,  312,  120  Pac.  846  (1912).  as  follows:  "A  policy  of 
insurance  will  be  enforced  even  though  it  contains  an  express  provision 
that  no  liability  shall  attach  until  the  premium  is  paid  if  the  policy  was 
unconditionally  delivered  as  a  completed  contract  of  insurance.  The  author 
in  1  Joyce  on  Insurance,  section  79,  states  the  rule  in  the  following  words: 
'Where  the  contract  is  otherwise  complete,  an  unconditional  delivery  of  the 
policy  operates  as  a  waiver  of  the  prepayment  of  the  premium,  notwithstand- 


718         CONSTRUCTION  OF  POLICY — OTIIEU  KINDS  OF  INSURANCE      (Ch.  11 


II.    IxcOXTlvSTARLE   ClAUSU 


PHILADELPHIA  LIFE  INS.  CO.  OF  PHILADELPHIA,  PA.. 

V.  ARNOLD  et  ux. 

(Supreme  Court  of  South  Carolina,  1913.     81  S.  E.  964.) 

Hydrick,  J.  This  action  was  brought  to  have  two  policies  of  insur- 
ance, issued  by  the  plaintifif  on  the  life  of  the  defendant  Q.  L.  Arnold, 
in  favor  of  his  wife,  Alattie  H.  Arnold,  canceled  on  the  ground  that 
they  were  obtained  by  fraud.  The  policies  were  issued  and  dated 
June  11,  1910.  The  premiums  were  duly  paid.  The  policies  contain 
this  clause :  "This  policy  shall  be  incontestable,  except  for  nonpayment 
of  premiums,  after  one  year  from  its  date."  This  action  was  com- 
menced June  3,  1912,  more  than  a  year  after  the  date  of  the  policy. 
On  motion  of  defendants,  issues  were  referred  to  a  jury,  which  an- 
swered them  all  in  favor  of  defendants.  But  the  court  set  aside  the 
verdict,  holding  that  the  fraud  alleged  had  been  proved,  and  adjudged 
the  policies  void. 

From  the  view  which  we  take  of  the  case,  it  will  be  necessary  to 
consider  only  one  question :  Is  the  incontestable  clause  above  quoted 
a  bar  to  the  action?  The  language  is  plain — so  plain  that  it  does  not 
require  interpretation.  There  can  be  no  doubt  of  its  meaning,  and  un- 
less there  is  some  reason  why  an  insurance  company  cannot  lawfully 
make  such  a  contract,  this  action  is  barred.  The  courts,  with  practical 
unanimity,  hold  such  a  stipulation  valid.  It  is  called  by  some  of  them 
a  short  statute  of  limitations  in  favor  of  the  insured,  and  it  is  sus- 
tained on  the  analogy  of  the  cases  which  hold  that  the  parties  to  a 
contract  may,  by  stipulation  therein  fix  a  reasonable  time  within  which 
action  thereon  must  be  brought,  or  claims  made.  We  cannot  agree 
that  such  a  stipulation  conflicts  with  the  statute  of  limitations,  only  in 
the  sense  that  by  its  terms  the  action  must  be  brought  within  a  short- 
er period  than  that  allowed  by  law.  But  the  statute  of  limitations  does 
not  expressly  or  impliedly  prohibit  such  an  agreement.  It  merely  fixes 
the  maximum  time  within  which  actions  may  be  brought. 

ing  an  express  provision  therein  that  the  company  shall  not  be  liable  until 
the  premium  is  actually  paid,  and  the  company  cannot,  under  such  circum- 
stances, cancel  the^policy  for  nonpayment  without  first  putting  the  insured 
in  default  by  some  act,  such  as  a  new  demand.  But  the  mere  nonpayment 
of  the  premium  on  demand,  does  not  of  itself  destroy  the  policy  where  the 
company  fails  to  give  notice  of  its  election  to  rescind  the  contract.'  The 
law  as  stated  by  Mr.  Joyce  is  supported  by  the  following  authorities:  Far- 
num  V.  Phoenix  Ins.  Co.,  S3  Cal.  246,  23  Pac.  869,  17  Am.  St.  Rep.  233  (1890) ; 
Griffith  V.  N.  Y.  Life  Ins.  Co.,  101  Cal.  627,  36  Pac.  113,  40  Am.  St.  Rep.  96 
(1S94)  ;  Berliner  v.  Travelers"  Ins.  Co.,  121  Cal.  451,  53  Pac.  922,  41  L.  R.  A. 
467,  66  Am.  St.  Rep.  49  (1898) ;  Raulet  v.  N.  W.,  etc.,  Ins.  Co.,  157  Cal.  224, 
107  Pac.  296  (1910)." 


Sec.  1)  LIFE   INSURANCE  719 

No  doubt  the  clause  was  inserted  in  the  policy  as  an  inducement  to 
the  public  to  insure  with  the  plaintiff  company.  It  is  matter  of  com- 
mon knowledge  that  insurance  companies  have,  in  the  past,  so  fre- 
quently defended  against  claims  under  their  policies,  and  tried  to  de- 
feat payment  of  them  on  various  grounds — sound  and  unsound — and 
especially  on  the  ground  of  alleged  false  representations  and  warran- 
ties, that  the  Legislature  of  this  state  deemed  it  necessary  to  take  the 
matter  in  hand,  and  in  1878  (16  St.  at  Large,  p.  530)  a  statute  was  en- 
acted (Civ.  Code  1912,  §§  2722,  2723)  which  provides  that,  when  a 
company  receives  the  premiums  on  a  policy  for  the  space  of  two  years, 
it  shall  be  deemed  to  have  waived  any  right  to  dispute  the  truth  of 
the  application,  or  to  allege  that  the  insured  made  false  representa- 
tions. The  same  statute  authorizes  the  companies  to  bring  actions  to 
vacate  policies  on  that  ground,  but  limits  the  time  to  two  years  from 
date  of  the  policy.  This  legislation  goes  far  to  prevent  these  compa- 
nies from  taking  a  man's  hard-earned  money  as  long  as  he  lives,  and 
then  slandering  his  memory  after  he  is  dead.  While  it  is  true  in  this 
case  that  the  insured  is  alive,  that  circumstance  does  not  make  the 
meaning  of  the  clause  or  the  application  of  the  law  different  from  what 
it  would  be  if  he  were  dead.  To  hold  that  the  clause  means  only  that 
the  company  cannot  defend  for  any  cause,  except  nonpayment  of  pre- 
miums, after  the  death  of  the  insured,  is  to  read  into  the  contract,  by 
construction,  what  the  parties  did  not  write  into  it. 

The  objection  to  taking  insurance,  arising  out  of  the  probability  of 
such  a  defense  being  set  up,  whether  founded  in  truth  or  not,  grew  to 
be  such  that  the  insurance  companies  found  it  to  their  advantage  to 
insert  in  their  policies  certain  stipulations  specifying  the  grounds  up- 
on which  they  could  be  contested,  and  limiting  the  time  within  which 
such  contest  must  be  made.  Of  course,  other  things  being  equal,  the 
more  favorable  to  the  insured  these  stipulations  are,  the  more  attrac- 
tive will  the  policies  be  to  insurers,  and  we  have  no  doubt  the  clause 
in  question  was  inserted  for  that  purpose,  and  that  the  company  has 
received  the  benefit  of  it  in  that  intending  insurers  have  been  there- 
by induced  to  take  its  policies. 

By  the  stipulation,  the  plaintiff  practically  agreed  that  it  would  take 
a  year  to  investigate  and  determine  whether  any  fraud  had  been  per- 
petrated in  procuring  the  policies,  and,  if  it  failed  within  that  time  to 
discover  any,  it  would  make  no  further  investigation,  and  would 
not  thereafter  contest  the  validity  of  the  policies  on  that  ground.  The 
evidence  in  the  case  shows  that,  if  plaintiff  had  been  diligent,  it 
could  have  discovered  the  fraud  within  the  year.  Therefore  we  do 
not  feel  that  we  are  condoning  the  fraud  by  enforcing  the  stipulation. 
The  following  authorities  sustain  the  validity  of  such  a  stipulation : 
Kline  V.  Nat.  Ben.  Ass'n,  111  Ind.  462,  11  N.  E.  620,  60  Am.  Rep. 
703;  Wright  v.  Mut.  Ben.  Ass'n,  43  Hun  (N.  Y.)  61,  affirmed  118  N. 
Y.  237,  23  N.  E.  186,  6  L.  R.  A.  731,  16  Am.  St.  Rep.  749;  Clement 
V.  Insurance  Co..  101  Tenn.  22,  46  S.  W.  561,  42  L.  R.  A.  247,  70  Am. 


720  CONSTRUCTION  OF  rOIJCY OTIIKU  KINDS  OF  INSURANCE      (Cll.  11 

St.  Rep.  650,  and  note ;  Massachusetts  Pien.  Life  Ass'n  v.  Robinson, 
104  Ga.  256,  30  S.  E.  918,  42  L.  R.  A.  261  ;  Murray  v.  State  Mut.  Life 
Ins.  Co.,  22  R.  L  524,  48  Atl.  800,  53  L.  R.  A.  743 ;  25  Cyc.  873,  881 ; 
19  A.  &  E.  Enc.  L.  (2d  Ed.)  79  et  sccj. 

Reversed. 

Gary,  C.  J.,  and  Watts,  J.,  concur. 

FrasER,  J.  (dissenting).  I  cannot  concur  in  the  opinion  of  the  ma- 
jority of  the  court.  I  think  the  statutory  right  of  the  company  to  two 
years  may  be  waived,  and  that  the  incontestable  clause  did  waive  it, 
except  for  fraud.  I  think  the  words  in  the  incontestable  clause,  "all 
statements  made  by  the  insured  shall,  in  the  absence  of  fraud,  be  deem- 
ed representations,  and  not  warranties,"  clearly  show  that  the  insurer 
did  not  intend  to  waive  any  of  its  rights  where  there  is  fraud.  The 
policy  also  provides  that  the  question  of  age  may  be  contested.  The 
incontestable  clause,  therefore,  was  not  absolute,  and  I  think  the  plain- 
tiff has  the  right  to  bring  this  action  within  the  statutory  period. 


INDIANA  NATIONAL  LIFE  INS.  CO.  v.  McGINNIS. 

(Supreme  Court  of  Indiana,  1913.     101  N.  E.  289,  45  L.  R.  A.  [N.  «.]  192.) 
See  ante,  p.  622,  for  the  report  of  this  case. 


SECTION  2.— ACCIDENT  INSURANCE 
I.  Death  by  AccidKnt 


BOHAKER  V.  TRAVELERS'  INS.  CO.  OF  HARTFORD,  CONN. 

(Supreme  Judicial  Court  of  Mas.sachusetts,  191.3.     215  Mass.  32,   102  N.  E. 
342,  46  L.  R.  A.   [N.  S.]  543.) 

Exceptions  from  Superior  Court,  Suffolk  County ;  Nathan  D.  Pratt, 
Judge. 

RuGG,  C.  J.  This  is  an  action  of  contract  to  recover  upon  a  policy 
of  accident  insurance  for  the  death  of  the  insured,  John  M.  Babson. 
The  circumstances  under  which  the  insured  lost  his  life  were  these : 
He  was  delirious  by  reason  of  severe  typhoid  fever  in  a  room  with  a 
single  window  which  was  covered  by  a  screen,  and  its  sill  was  28  inch- 
es above  the  floor.  Along  the  outside  of  the  building  slightly  below 
the  window  was  a  balcony  5  feet  wide  with  a  protecting  railing  about 
30  feet  above  the  rough  and  stony  ground  beneath.  He  was  left  alone 
momentarilv  on  an  August  evening  by  his  attendant,  who  on  return- 


Sec.  2)  ACCIDENT   INSURANCE  721 

ing  found  the  room  vacant,  and  the  screen,  whole  and  in  position  when 
he  left  the  room,  torn  from  the  window.  On  immediate  investigation, 
the  insured  was  found  on  the  ground  under  the  room  unconscious, 
with  severe  injuries,  which  according  to  physicians  probably  would 
liave  caused  his  death,  even  if  he  had  not  been  suffering  from  typhoid 
fever.  The  policy  insured  "against  bodily  injuries,  efifected  directly 
and  independently  of  all  other  causes,  through  external,  violent  and 
accidental  means  (suicide,  whether  sane  or  insane,  is  not  covered),  as 
specified  in"  a  schedule  annexed. 

The  case  was  tried  without  a  jury  by  a  judge,  who  found  for  the 
plaintiff  after  refusing  to  rule  as  requested  by  the  defendant  (1)  that 
the  plaintiff  was  not  entitled  to  recover  as  matter  of  law ;  (2)  that  the 
death  of  the  insured  was  not  effected,  directly  and  independently  of 
all  other  causes,  through  external,  violent  and  accidental  means ;  and 
(3)  that  the  death  of  the  insured  was  the  result  of  suicide,  sane  or 
insane,  and  hence  not  covered  by  the  policy. 

1.  The  defendant's  first  request  was  denied  rightly.  "Accidental 
means,"  is  used  in  the  contract  of  insurance  in  its  common  significance 
of  happening  unexpectedly,  without  intention  or  design.  U.  S.  Mu- 
tual Accident  Ass'n  v.  Barry,  131  U.  S.  100,  9  Sup.  Ct.  755,  33  L.  Ed. 
60.  The  cause  of  injuries  was  not  wholly  conjectural  as  matter  of  law. 
It  is  plain  that  the  immediate  cause  was  the  fall.  This  manifested  it- 
self in  evidence  which  was  violent  and  external.  There  was  basis  for 
the  inference  that  it  was  accidental,  as  we  have  defined  that  word.  It 
may  have  been  that  the  deceased,  in  the  heat  of  his  fever  and  the 
warm  season,  in  an  effort  to  reach  fresh  air  went  to  the  balcony  just 
outside  his  window,  and  there  without  premeditation  or  purpose  or  de- 
lirium, but  only  through  weakness,  lost  his  balance  and  went  over 
the  low  railing,  and  received  mortal  harm.  Cases  where  it  has  been 
necessary  for  a  plaintiff  to  show  negligence  of  some  person  as  the  cause, 
and  where  it  has  been  said  that  the  cause  was  conjectural,  are  clearly 
distinguishable.  Accident  is  a  far  more  comprehensive  term  than  neg- 
ligence. Noyes  v.  Commercial  Travelers'  Eastern  Accidental  Ass'n, 
190  Mass.  171,  76  N.  E.  665;   Wicks  v.  Dowell,  [1905]  2  K.  B.  225. 

2.  It  would  have  been  error  to  rule  as  matter  of  law  that  the  insur- 
ed's death  was  not  effected  "directly  and  independently  of  all  other 
causes"  through  accidental  means.  The  point  of  difficulty  in  this  con- 
nection is  whether  the  disease  did  not  contribute  to  the  injuries,  or  at 
least  was  it  not  a  cause  co-operating  with  the  fall  in  inducing- the  re- 
sult. But  the  disease  may  have  been  found  to  have  been  simply  a  con- 
dition, and  not  a  moving  cause  of  the  fatal  injuries.  A  sick  man 
may  be  the  subject  of  an  accident,  which  but  for  his  sickness  would 
not  have  befallen  him.  One  may  meet  his  death  by  falling  into  im- 
minent danger  in  a  faint  or  in  an  attack  of  epilepsy.  But  such  an 
event  commonly  has  been  held  to  be  the  result  of  accident  rather  than 
of  disease. 

Vance  Ins. — 46 


722  CONSTRUCTION  OP  POLICY — OTHER  KINDS  OF  INSURANCE      (Ch.  11 

In  Manufacturers'  Accident  Indemnity  Co.  v.  Dorgan,  58  Fed.  945, 
at  page  954,  7  C.  C.  A.  581,  at  page  590.  22  L.  R.  A.  620,  it  was  said 
by  Taft,  ].:  "If  the  deceased  suffered  death  hy  drowning,  no  matter 
what  was  the  cause  of  his  falling  into  tlie  water,  whether  disease  or 
sHpping,  the  drowning  in  such  case  would  be  the  proximate  and  sole 
cause  of  the  disability  or  death,  unless  it  appeared  that  death  would 
have  been  the  result,  even  had  there  been  no  water  at  hand  to  fall  in- 
to. The  disease  would  be  but  the  condition ;  the  drowning  would  be 
the  moving,  sole,  and  proximate  cause."  To  the  same  effect  in  sub- 
stance are  Winspear  v.  Accident  Insurance  Co.,  6  Q.  B.  D.  42 ;  Law- 
rence V.  Insurance  Co.,  7  Q.  B.  D.  216;  Ludwig  v.  Preferred  Accident 
Insurance  Co.,  113  Minn.  510,  130  N.  W.  5 ;  Preferred  Accident  In- 
surance Co.  V.  Muir,  126  Fed.  926,  61  C.  C.  A.  456.  The  language 
of  this  contract,  to  the  eft'ect  that  the  "accidental  means"  must  have 
operated  "independently  of  all  other  causes"  to  produce  the  death, 
does  not  change  the  general  rule  of  law,  that  the  proximate  and  not  a 
remote  cause  is  the  one  to  which  the  law  looks.  Many  instances  are 
found  where  two  equally  dominant  causes  co-operate  or  concur  in  pro- 
ducing a  result.  The  very  numerous  cases  arising  out  of  joint  or  si- 
multaneous torts  are  illustrations.  Two  or  more  causes,  each  prox- 
imate in  character  and  only  one  of  which  is  accidental,  may  co-operate 
in  producing  an  injury.  In  such  cases  the  limiting  language  of  the 
policy  would  apply. 

The  present  policy  does  not  stipulate  that  there  shall  be  no  recov- 
ery, if  any  other  circumstances  than  the  accident,  directly  or  indirectly 
wholly  or  in  part,  proximately  or  remotely,  contribute  to  the  injury,  as 
do  some  insurance  contracts  which  have  come  before  the  courts.  The 
policy  in  the  case  at  bar  does  not  go  so  far  as  to  require  the  court  to 
search  beyond  the  active,  efficient,  procuring  cause  to  a  cause  of  a 
cause.  When  one  single  predominant  agency  is  disclosed,  directly 
producing  as  a  natural  and  probable  result  the  injury,  which  is  acci- 
dental, and  which  operates  independently  of  other  like  causes,  then 
the  effectual  means  required  by  the  policy  have  been  found.  This  con- 
tract does  not  require  a  further  and  nicer  analysis  to  ascertain  whether 
in  the  chain  of  causation  another  source  less  demonstrative  and  more 
attenuated  in  its  effect  or  more  ulterior  in  its  origin  may  be  found 
which  may  more  indirectly  have  a  causal  connection  with  injury. 
Freeman  v.  Mercantile  Accident  Ass'n,  156  Mass.  351,  30  N.  E.  1013, 
17  L.  R.  A.  753 ;  Daniels  v.  N.  Y.,  N.  H.  &  H.  R.  R.,  183  Mass.  393,  67 
N.  E.  424,  62  L.  R.  A.  751.  See  Newton  v.  Worcester,  174  Mass.  181, 
187,  54  N.  E.  521. 

The  single  operating,  proximate  cause,  therefore,  might  have  been 
found  to  be  the  fall  and  not  the  fever.  Accident  Insurance  Co.  v. 
Crandal,  120  U.  S.  527,  7  Sup.  Ct.  685,  30  L.  Ed.  740;  Scheffer  v. 
Railroad  Co.,  105  U.  S.  249,  26  L.  Ed.  1070;  Isitt  v.  Railway  Passen- 
gers Assur.  Co.,  22  Q.  B.  D.  504 ;  Continental  Casualty  Co.  v.  Lloyd, 
165  Ind.  52,  59,  73  N.  E.  824;    Modern  Woodmen  Accident  Ass'n  v. 


Sec.  2)  ACCIDENT  INSURANCE  723 

Shryock,  54  Neb.  250,  74  N.  W.  607,  39  L.  R.  A.  826;  Fetter  v.  Fi- 
delity &  Casualty  Co.,  174  Mo.  256,  IZ  S.  W.  592,  61  L.  R.  A.  459,  97 
Am.  St.  Rep.  560.  This  being  a  fact,  and  there  being  some  supporting 
evidence,  the  finding  of  the  trial  judge  will  not  be  disturbed. 

3.  The  defendant  urges  strongly  that  the  death  of  the  insured  was 
the  result  of  suicide,  sane  or  insane,  and  hence  there  could  be  no  re- 
covery. But  while  that  might  have  been  found  as  a  fact,  it  could  not 
have  been  ruled  as  matter  of  law.  Suicide  is  a  crime  and  involves  a 
high  degree  of  moral  turpitude.  Com.  v.  Mink,  123  Mass.  422,  25 
Am.  Rep.  109.  It  cannot  be  assumed  without  clear  proof.  The  pre- 
sumption is  that  one  does  not  commit  suicide.  Such  a  presumption,  be- 
ing one  of  fact,  stands  until  overthrown  by  evidence.  Travelers'  In- 
surance Co.  V.  McConkey,  127  U.  S.  661,  8  Sup.  Ct.  1360,  32  L.  Ed. 
308.  If  it  be  assumed  in  favor  of  the  defendant  that  the  burden  was 
on  the  plaintiff  to  prove  that  death  was  not  due  to  suicide,  the  pre- 
sumption against  self-destruction  in  the  absence  of  compelling  circum- 
stances sustains  this  burden.  Even  though  the  insured  was  suffering 
from  delirium,  as  it  is  agreed  that  he  was,  the  facts  do  not  require  the 
inference  that  he  jumped  to  the  ground.  It  was  open  to  the  trial  court 
to  find  that  it  was  through  weakness  or  otherwise,  and  not  through 
conscious  adaptation  of  means  to  an  end  by  a  mind  unbalanced  by  fe- 
ver, that  he  fell  to  the  earth. 

Exceptions  overruled.    Judgment  affirmed.* 


II.  Accide;nt  Due;  to   Intoxication 


SHADER  V.  RAILWAY  PASSENGER  INS.  CO. 

(Court  of  Appeals  of  New  York,  1876.    66  N.  Y.  441,  23  Am.  Rep.  65.) 

Action  on  an  accident  insurance  policy. 

The  death  of  the  insured  occurred  under  the  following  circumstanc- 
es :  The  insured  and  one  Ward  had  dinner,  including  considerable 
quantities  of  wine  and  whisky,  together.  They  fell  to  boasting  of 
their  prowess  in  shooting,  when  the  insured  remarked  to  Ward  that  the 
latter  could  not  shoot  a  frog.  Ward  rejoined  that  he  was  quite  able  to 
shoot  the  insured  through  the  ear.  Thereupon  the  insured  said  he 
might  try  it  for  ten  cents.     The  trial  was  made,  but  Ward  aimed  so 

4  There  are  numerous  interesting  cases  involving  the  question  of  what  is 
an  accident,  and  also  the  other  clause,  usually  inserted  in  accident  policies, 
insuring  against  injury  by  "external,  violent,  and  accidental  causes."  See 
Hooper  v.  Standard  Life  &  Accident  Ins.  Co.,  166  Mo.  App.  209,  148  S.  W. 
116  (1912),  where  insured  died  of  apoplexy,  and  the  question  was  whether 
his  fall  was  caused  by  apoplexy,  or  his  apoplexy  by  the  fall ;   Lovelace  v. 


724  CONSTRUCTION  OF  POLICY — OTIIP.R  KINDS  OF  INSURANCE      (Ch.  11 

badly  that,  instead  of  piercing  the  insured's  ear,  he  shot  him  tin-ough 
the  abdomen,  so  that  he  (bed. 

In  the  trial  court  the  plaintilT  Iiad  judgment,  which  was  reversed 
at  General  Term  (3  Hun,  424),  and  a  new  trial  ordered. 

MiLivKR,  J.  The  question  arising  directly  ui)on  this  appeal  relates 
to  the  charge  of  the  judge  and  to  his  refusal  to  charge  as  requested 
by  the  counsel  for  the  defendant.  The  policy  provided  that:  "No 
claim  shall  be  made  under  this  policy  where  the  death  or  injury  may 
have  happened  while  the  insured  was,  or  in  consequence  of  his  having 
been,  under  the  influence  of  intoxicating  drinks."  The  judge  in  his 
charge  to  the  jury  stated  that  the  question  was  not  simply  whether  the 
deceased  was  under  the  influence  of  intoxicating  liquors  at  the  time, 
but  it  was  whether  the  injury  occurred  in  consequence  of  that,  and  it 
was  the  natural  and  reasonable  result  of  his  being  in  that  condition ; 
and  he  charged,  in  substance,  that  if  the  injury  happened  in  conse- 
quence of  his  being  under  the  influence  of  intoxicating  liquors,  the 
plaintiff  could  not  recover.  The  court  was  requested  to  charge  that, 
if  at  the  time  Shader  was  shot  he  was  under  the  influence  of  intoxicat- 
ing drinks,  the  plaintiff  could  not  recover;  and  this  was  so  whether 
the  influence  of  the  liquor  occasioned  the  discharge  of  the  pistol  or  not. 
This  was  declined.  Exceptions  were  duly  taken  to  the  portion  of 
the  charge  made  and  the  refusal  to  charge. 

The  first  inquiry  which  presents  itself  to  our  consideration  is  the 
construction  to  be  placed  upon  the  proviso  referred  to.  An  exact  and 
accurate  interpretation  of  the  language  employed  manifestly  conveys 
the  idea  that  it  was  intended  to  comprehend  all  cases  where  injury 
or  death  might  happen  while  the  assured  w^as  under  the  influence  of 
intoxicating  drinks,  as  well  as  such  as  might  occur  by  reason  of  the 
use  thereof.  As  to  the  first  class  of  cases  stated  in  the  proviso,  the 
words  imply  that  it  is  not  required  that  the  use  of  intoxicating  drinks 
should  be  the  moving  cause  in  producing  the  injury  or  death,  and  quite 
sufficient  to  avoid  a  liability  that  the  person  in  whose  .favor  the  policy 
was  issued  was  under  the  influence  of  such  stimulants,  without  regard 
to  the  effect  which  might  result  from  such  a  condition.  The  limita- 
tion in  the  policy  related  to  the  condition  of  the  insured,  not  to  the 
cause  which  might  produce  his  death.  And  here  lies  the  distinction 
which  is  to  be  drawn  in  its  construction,  for,  by  any  other  or  different 
interpretation,  the  words  used  would  not  only  be  unnecessary  but 
meaningless  and  without  point.  As  the  policy  was  rendered  void  if 
the  assured  was  injured  or  killed  while  under  the  influence  of  intox- 

Travelers'  Protective  Ass'n,  126  Mo.  104,  28  S.  W.  877,  30  L.  R.  A.  209,  47 
Am.  St.  Rep.  638  (18D4),  where  the  insured  was  sliot  while  trying  to  expel 
from  a  tavern  a  fellow  guest  whose  indecent  conduct  provoked  him.  See. 
also,  McGlinchey  v.  Fidelity  &  Cas.  Co.,  80  Me.  251,  14  Atl.  13,  6  Am.  St. 
Rep.  190  (1888).  In  the  last  case  it  was  held  that  internal  injuries  received 
by  straining  efforts  to  hold  a  horse  that  was  running  away  came  from  "ex- 
ternal, violent,  and  accidental  causes."  See  Vance  on  Insurance,  566;  4 
Cooley,  Briefs  on  Insurance,  3156-3162. 


Sec.  2)  ACCIDENT   INSURANCE  725 

icating  drinks,  it  was  not  essential,  to  work  a  forfeiture,  that  injury  or 
death  should  occur  in  consequence  of  the  use  of  the  same. 

As  to  the  second  class  of  cases  the  policy  was  designed  to  provide 
for  the  possible  contingency  which  miglit  arise  after  the  influence  of 
intoxicating  liquors  had  ceased  to  operate  directly,  and  the  subse- 
quent effects  produced  thereby  in  consequence  of  the  previous  use 
thereof.  The  intention,  evidently,  was  to  limit  the  liability  of  the  com- 
pany by  the  contract  with  the  assured,  and  not  to  incur  any  responsi- 
bility when  the  injury  occurred  while  the  assured  was  directly  under 
the  influence,  or  where  the  result  was  remotely  produced  by  intoxicat- 
ing drinks.  Accidental  policies  are  issued  principally  to  travelers  or 
persons  exposed  to  unusual  peril  and  danger,  and  the  risk  in  such  cases 
being  extremely  hazardous  it  is  by  no  means  unreasonable  that  the 
insurer  should  require  that  the  assured  should  be  under  no  exciting 
influence  which  may  affect  his  self-possession  or  judgment,  or  seriously 
interfere  with  the  free,  full  and  deliberate  exercise  of  his  faculties  in 
protecting  himself  from  accident  or  harm.  It  follows  that  the  proposi- 
tion laid  down  by  the  judge  was  erroneous ;  and  he  also  erred  in  refus- 
ing to  charge  as  requested.^     *     *     * 

As  the  judge  erred  upon  the  trial  the  judgment  was  properly  re- 
versed and  a  new  trial  granted.  The  order  must  be  affirmed  and 
judgment  absolute  ordered  for  the  defendant,  with  costs. 


III.  Accident  Due  to  Violation  oe  Law 


MURRAY  V.  NEW  YORK  LIFE  IXS.  CO. 

(Court  of  Appeals  of  New  York,  1SS4.     06  N.  Y.  614,  4S  Am.  Rep.  658.) 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme  Court, 
in  the  second  judicial  department,  entered  upon  an  order  made  Sep- 
tember 11,  1883,  which  affirmed  a  judgment  in  favor  of  defendant, 
entered  upon  a  verdict  and  affirmed  an  order  and  denying  a  motion 
for  a  new  trial.  This  action  was  brought  upon  two  policies  of  insur- 
ance issued  by  defendant  upon  the  life  of  Wisner  Murray. 

Andrews,  J.  The  policies  upon  the  life  of  Wisner  Alurray,  each 
contain  a  condition  that  if  the  assured  "shall  die  in,  or  in  consequence 
of  a  duel,  or  of  the  violation  of  the  laws  of  any  nation,  state,  or  prov- 
ince," the  policy  shall  be  void.  The  assured  died  from  a  pistol  shot 
from  a  pistol  in  the  hands  of  one  Berdell,  upon  whom  the  deceased 
and  his  brother  had  committed  a  violent  assault,  and  the  defense  is 

5  A  part  of  the  opinion,  distinguishing  the  cases  of  Bradley  v.  Mut.  Benefit 
Life  Ins.  Co.,  45  N.  Y.  422,  6  Am.  Rep.  115  (1S71).  and  Welts  v.  Connecticut 
Mut.  Life  Ins.  Co.,  48  N.  Y.  34,  8  Am.  Rep.  518  (1S72),  is  omitted. 


726  CONSTRUCTION  OF  POLICY — OTIIEU  KINDS  OP  INSURANCE      (Ch.  11 

based  upon  this  condition  in  the  policy.  It  is  an  undisputed  fact  that 
the  brothers,  acting  in  concert,  planned  the  assault  upon  Berdell. 
They  stationed  themselves  in  the  waiting-room  of  the  station  await- 
ing his  arrival,  and  when  he  entered  the  room,  Si)cncer  Murray  seized 
him  by  the  arms  from  behind  and  held  him,  while  his  brother  Wisner 
Murray,  standing  in  front,  beat  him  over  the  head  and  face  with  a 
raw-hide,  striking  from  ten  to  twenty  blows,  inflicting  severe  and 
painful  wounds  from  which  the  blood  flowed  profusely,  covering  his 
face  and  clothing.  The  assault  was  a  brutal  one,  and,  so  far  as 
appears,  without  provocation.  Berdell  testified  that  in  the  struggle 
to  escape  from  Spencer  Murray,  his  hand  was  involuntarily  brought 
into  contact  with  his  hip  pocket  containing  a  pistol.  He  drew  it  from 
his  pocket,  and  it  appears  that  Wisner  Murray,  seeing  the  pistol, 
started  toward  the  lunch  counter,  keeping  his  face  toward  Berdell 
and  calling  on  his  brother  to  "hold  him  and  not  to  let  him  shoot." 
Wisner  Murray  jumped  over  the  lunch  counter,  and  as  he  was  pass- 
ing through  a  door  into  another  room,  the  pistol  in  the  hands  of  Berdell 
was  discharged,  the  ball  hitting  the  assured  in  the  forehead,  causing 
his  death. 

Berdell,  who  was  called  as  a  witness  by  the  defendant,  testified, 
in  substance,  that  the  firing  of  the  pistol  was  accidental,  and  was 
caused  by  the  sudden  jerking  of  his  arm  by  Spencer  Murray,  who  was 
still  holding  him,  and  that  he  had  no  intention  of  firing  at  the  de- 
ceased. It  is  established  by  the  great  preponderance  of  testimony, 
that  until  after  the  pistol  was  fired,  Berdell  was  in  the  grasp  of 
Spencer  Murray,  and  was  struggling  to  release  himself.  Berdell  also 
testified  that  the  deceased,  during  the  time  he  was  retreating,  had  a 
pistol,  which  he  pointed  at  the  witness  as  if  aiming  at  him.  He  is 
confirmed  as  to  the  deceased  having  a  pistol  by  another  witness,  and 
a  pistol  was  found  after  the  afifray  on  the  floor  near  where  the  de- 
ceased fell,  a  distance  of  about  thirty  feet  from  the  place  where  Ber- 
dell was  when  the  shot  was  fired.  The  witnesses  differ  as  to  the 
time  which  elapsed  between  the  commencement  of  the  aft'ray  and  the 
firing  of  the  pistol,  the  highest  estimate  given  by  any  witness  being 
thirty  seconds. 

It  is  not  disputed  that  the  assault  made  upon  Berdell  was  a  viola- 
tion of  law.  But  it  is  contended  that  as,  according  to  the  evidence 
of  Berdell,  the  firing  was  accidental  and  not  intentional,  and  as  it 
also  appears  that  it  happened  after  the  assured  had  abandoned  the  com- 
bat, his  death  was  not  "in,  or  in  consequence  of,  a  violation  of  law," 
and  was  not,  therefore,  a  death  excepted  from  the  operation  of  the 
policy.  The  argument  is  that  death  under  such  circumstances  from 
an  accidental  shooting,  cannot,  in  a  legal  sense,  be  attributed  to  the 
violation  of  law,  which  preceded  it,  so  as  to  bring  it  within  the  con- 
dition of  the  policy.  There  must,  no  doubt,  be  a  relation  between 
the  act  causing  the  death  and  the  violation  of  law  to  avoid  the  pol- 


Sec.  2)  ACCIDENT   INSURANCE  727 

icy.  In  the  case  of  Bradley  v.  Mutual  Ben.  L.  Ins.  Co.,  45  N.  Y. 
422,  6  Am.  Rep.  115,  involving  the  construction  of  a  similar  clause 
in  a  life  policy,  the  court  said :  "It  seems  to  be  clear  that  a  relation 
must  exist  between  the  violation  of  law  and  the  death  to  make  good 
the  defense ;  that  the  death  must  have  been  caused  by  the  violation 
of  law." 

It  may  be  that  the  proviso  in  the  policy  was  primarily  intended  to 
exempt  the  company  from  the  hazard  of  a  death  from  violence  to 
which  persons  engaged  in  the  execution  of  criminal  acts  are  exposed, 
and  especially  where  the  unlawful  or  criminal  act  is  such  as  is  likely 
to  be  met  by  forcible  resistance.  It  is  plain  that  homicide  committed 
in  self-defense  would  be  a  death  within  the  condition ;  so,  also,  a  death 
at  the  hands  of  justice  in  punishment  for  crime.  The  death  in  these 
cases  would  be  the  direct  and  legitimate  result  of  the  criminal  act. 
Another  case,  a  little  further  removed  from  the  violation  of  law  as 
its  cause,  would  be  one  where  a  party  assailed,  in  the  heat  of  pas- 
sion, engendered  by  the  act  of  the  assured,  on  the  moment  takes  the 
life  of  the  aggressor,  although  the  provocation  might  not  be  a  legal 
justification  of  the  homicide.  Such  a  death  we  conceive  might  be 
within  the  condition,  depending  upon  circumstances.  If  the  violation 
of  law  in  which  the  deceased  was  engaged  was  trivial,  although  cal- 
culated to  some  extent  to  excite  opposition  or  resistance,  but  the  tak- 
ing of  life  was  a  result  which  no  reasonable  man  could  have  contem- 
plated as  likely  to  follow  from  the  unlawful  act,  there  would  be  no 
such  relation  between  the  act  and  the  death  that  the  former  could  be 
said  to  be  the  cause  of  the  latter.  But  if,  on  the  other  hand,  the 
party  killed  was  engaged  in  committing  a  violent  assault,  the  natural 
result  of  which  would  be  to  arouse  the  passions  and  excite  the  anger 
of  the  party  assailed,  and  in  the  heat  of  passion  he  killed  his  assailant, 
the  death  would,  we  think,  be  the  result  of  the  unlawful  act  within 
the  meaning  of  the  policy,  although  the  party  causing  it  exceeded  the 
bounds  of  lawful  resistance.  As  between  the  company  and  the  as- 
sured, his  violation  of  law  ought  justly  to  be  treated  as  the  cause 
of  the  death,  because  the  deceased  must  be  assumed  to  have  known 
the  danger  he  incurred,  and  that  a  party  resisting  an  assault  under 
such  circumstances,  and  whose  anger  is  naturally  excited,  does  not 
mark  with  exactness  the  line  which  separates  lawful  defense  from  ex- 
cessive and  unjustifiable  force. 

We  have,  so  far,  had  in  view  cases  where  the  death  of  a  person 
insured  was  the  result  of  the  intentional  act  of  another,  or  of  the 
law.  But  while  it  is  probable,  as  we  have  said,  that  cases  of  this 
kind  were  primarily  in  the  contemplation  of  the  parties  to  the  con- 
tract, the  words  of  the  condition  are  too  broad  to  permit  them  to  be 
confined  to  this  narrow  and  rigid  limitation.  The  proviso  clearly  ex- 
empts the  company  from  all  risks  of  life  which  attend  the  violation 
of  law,   which   are  the   natural   and    reasonable   concomitants   of   the 


72S         CONSTRUCTION  OF  POLICY — OTHKU  KINDS  OF  INSURANCE      (Cll.  11 

transaction.  Prize  fighting  is  prohibited  l)y  law,  and  is  attended  with 
sonic  danger.  Suppose  in  such  a  friendly  contest,  by  misiiap  one  of 
the  combatants  strikes  a  blow  which  causes  the  death  of  the  otlier. 
Would  a  death  under  such  circumstances  be  a  death  in  the  violali')n 
of  law  witliin  the  policy,  although  there  was  no  intention  to  kill? 
However  this  might  be  answered,  we  think  it  is  clear  that  there  may 
be  a  death  in  violation  of  law  within  the  meaning  of  the  policy,  al- 
though not  intentionally  inflicted,  and  although  it  was  not  occasioned 
by  the  act  of  another.  A  burglar,  wdio  in  consequence  of  a  misstep, 
or  to  escape  detection,  falls  or  jumps  from  the  roof  of  a  house  which 
he  is  attempting  to  enter,  and  is  killed,  dies  in  violation  of  law  a= 
plainly  as  if  he  had  been  shot  by  the  owner  in  defense  of  his  dwelling. 
In  the  former  as  in  the  latter  case,  the  death  results  from  the  crim- 
inal act,  within  the  policy,  as  a  natural  and  reasonable  consequence, 
because,  although  the  immediate  cause  of  the  death  was  the  fall,  yet 
the  exposure  to  the  danger  was  encountered  in  the  prosecution  of 
the  criminal  purpose. 

Another  case  may  be  stated,  of  which  there  may  perhaps  be  more 
doubt.  Suppose  the  assured  in  this  case  instead  of  having  been  killed 
by  the  pistol  had,  in  the  struggle  with  Berdell,  ruptured  a  blood  ves- 
sel, or,  being  predisposed  to  heart  disease,  it  had  been  brought  on 
by  the  excitement  of  the  affray,  and  he  had  died  from  either  of  these 
causes  in  the  midst  of  the  struggle.  Death  from  a  rupture  of  a  blood 
vessel,  or  from  disease  of  the  heart,  occurring  independently  of  any 
violation  of  law,  would  be  covered  by  the  policy.  The  company  as- 
sumes the  risks  of  death  from  these  causes  under  ordinary  circum- 
stances. But  do  they  assume  such  risk  when  the  immediate,  exciting 
cause  of  the  death  is  the  struggle  originating  in  a  criminal  assault  in 
which  the  deceased  was  engaged  at  the  time?  To  exempt  the  com- 
pany, must  the  death  result  from  some  peculiar  and  special  risk  con- 
nected with  the  commission  of  crime?  It  seems  to  us  not,  and  that 
it  is  sufficient  to  bring  a  case  within  the  condition,  if  there  is  such  a 
relation  between  the  act  and  the  death  that  the  latter  would  not  have 
occurred  at  the  time  if  the  deceased  had  not  been  engaged  in  the  vio- 
lation of  law. 

In  the  case  before  us  it  is  said  that  the  shooting  was  accidentah 
and  not  voluntary  or  intentional,  and  consequently  was  not  a  death 
in  or  in  consequence  of  a  violation  of  law.  What  incidents  would  at- 
tend the  assault  by  the  Murrays  could  not  be  foreseen.  They  proba- 
bly did  not  know  that  Berdell  had  a  pistol,  and  if  they  had  known  it, 
they  could  not  have  anticipated  that  it  would  be  discharged  in  the 
manner  stated  by  him.  But  they  took  the  risk  of  his  resistance  to 
any  extremity.  They  took  the  risk  of  any  injury  which  might  hap- 
pen to  them  in  consequence  of  his  handling  a  deadly  weapon,  whether 
such  injury  was  intentional  or  accidental.  The  case  is  to  be  consid- 
ered under  the  actually  existing  circumstances  of  the  assailants  and 


Sec.  2)  ACCIDENT  INSURANCE  729 

assailed,  and  if  the  killing  under  these  circumstances  was  not  an 
unnatural  result  of  the  attack,  the  case  is  within  the  condition. 

Assuming  that  Berdell's  statement  that  the  shooting  was  uninten- 
tional was  binding  on  the  jury,  and  that  the  killing  was  accidental, 
yet  the  accident  was  the  result  of  the  struggle  of  Berdell  to  free 
himself  from  the  grasp  of  Spencer  Murray,  and  the  jerking  of  his 
arm  by  the  latter.  The  accident,  so  called,  was  caused  by  the  as- 
sault, and  the  risk  of  injury  from  the  discharge  of  the  pistol  was 
occasioned  by  the  criminal  act  of  the  Murrays.  The  claim  that  Wisner 
Murray  had  abandoned  the  combat  before  the  firing  of  the  pistol,  if 
true,  does  not  meet  the  difficulty.  He  was  a  party  to  the  original 
encounter.  The  struggle  with  Spencer  Murray  was  continuing  when 
the  pistol  was  fired.  If  the  shot  had  killed  Spencer  Murray,  and 
he  had  been  the  person  insured,  there  could,  we  think,  be  no  doubt. 
It  killed  his  brother  who  was  unfortunately  within  its  range,  but  at 
a  time  when  it  was  said  he  was  attempting  to  escape  from  the  scene. 
But  he  was  not  relieved  from  responsibility  for  the  act  of  his  con- 
federate in  a  crime  jointly  planned,  who  was  continuing  the  assault, 
and  the  act  of  Spencer  Murray  in  jerking  the  arm  of  Berdell,  causing 
the  explosion,  is  as  to  the  company  the  act  of  both. 

We  are  of  opinion,  assuming  as  true  to  its  full  extent  the  state- 
ment made  by  Berdell,  that  the  defense  was  established.  If,  as  there 
is  some  slight  evidence  to  show,  Berdell  fired  the  pistol  after  he  had 
escaped  from  Spencer  Murray,  the  case  is  not  changed.  At  all  events 
the  jury  upon  that  theory  of  the  case  might  well  have  found,  and  could 
not  justly  have  found  otherwise,  that  it  was  fired  by  Berdell  in  the 
heat  of  passion,  and  under  circumstances  which,  if  they  did  not  fully 
justify  him,  made  the  firing  and  the  consequent  death  a  natural  and 
reasonable  consequence  of  the  assault.  Whether,  therefore,  the  fir- 
ing of  the  pistol  was  intentional  or  not,  or  whether  Wisner  Murray 
had  or  had  not  abandoned  the  combat,  the  jury  upon  the  evidence 
were  justified  in  finding,  as  they  did  by  the  general  verdict,  that  the 
assured  died  in,  or  in  consequence  of,  a  violation  of  law.  This  conclu- 
sion answers  the  points  made  upon  the  exceptions  to  the  charge."  *  *  * 

We  think  the  judgment  should  be  affirmed.  All  concur,  except 
Daxforth,  J.,  absent. 

Judgment  affirmed.'^ 

6  A  part  of  the  opinion  omitted  deals  with  the  action  of  the  trial  court 
in  submlttini:  to  the  jury  certain  special  questions,  held  to  lie  immaterial, 
and  distinguishes  Ebersole  v.  Northern  Central  Railroad  Co.,  23  Hun,  114 
(ISSO). 

'  other  cases  construing  this  same  condition  are :  Litter  v.  Insurance  Co., 
65  Mich.  545,  32  N.  W.  812,  8  Am.  St.  Rep.  913  (1SS7);  Goetzman  v.  Insur- 
ance Co.,  3  Hun  (N.  Y.)  515  (1875);  Supreme  Lodge  v.  Bradley,  73  Ark.  274, 
83  S.  W.  1055,  67  L.  R.  A.  770.  108  Am.  St.  Rep.  38,  3  Ann.  Cas.  872  (1904); 
Railway  Mail  Ass'n  v.  Moseley  (C.  C.  A.)  211  Fed.  1  (1914),  and  cases  cited 
therein. 


730  CONSTKUCTION  OF  POLICY — OTUER  KINDS  OF  INSURANCE      (Ch.  11 

SECTION  3.— LIABILITY  INSURANCE 


CHAPIN  V.  OCEAN  ACCIDENT  &  GUARANTEE 
CORPORATION. 

(Supreme  Court  of  Nebraska,  1914.    147  N.  W.  465.) 

LiCTTON,  J.  Action  to  recover  upon  an  automobile  indemnity  insur- 
ance policy.  Defendant  demurred  to  the  petition.  The  demurrer  was 
overruled.  Defendant  elected  to  stand  thereon,  and  judgment  was  ren- 
dered for  plaintiff.     Defendant  appeals. 

The  petition  in  substance  alleges  that  on  March  30,  1910,  the  de- 
fendant, in  consideration  of  a  premium  of  $78,  issued  and  delivered  to 
plaintiff  an  insurance  policy  by  the  terms  of  which  it  agreed  for  one 
year  thereafter  to  indemnify  the  plaintiff  against  loss  for  liability  im- 
posed upon  him  by  law  for  damages  on  account  of  bodily  injuries  acci- 
dentally suffered  as  the  result  of  the  use  of  an  automobile  owned  by 
plaintiff,  to  contest  and  defend  suits  brought  on  account  of  such  in- 
juries, and  to  reimburse  plaintiff  for  expenses  incurred  in  providing 
immediate  surgical  relief  in  case  of  accident.  On  March  1,  1911, 
plaintiff's  automobile,  when  being  driven  by  his  employe,  collided  with 
one  William  N.  Lewis,  who  was  then  riding  a  bicycle.  The  fender 
struck  Lewis  with  sufficient  force  to  throw  him  from  the  bicycle  to 
the  pavement  and  shocked  him.  Plaintiff  was  immediately  notified, 
and  at  once  interviewed  Lewis,  and  was  told  by  Lewis  that  he  was 
not  hurt.  Relying  on  this  statement,  plaintiff  did  not  notify  defendant 
of  the  collision.  Lewis  continued  in  his  usual  and  customary  employ- 
ment, and  the  plaintiff  heard  nothing  further  about  the  collision  until  on 
or  about  February  22,  1912,  when  he  was  advised  that  Lewis  was 
suffering  from  a  species  of  paralysis,  and  at  the  time  claimed  that  his 
condition  was  traceable  to  and  caused  by  the  fall  upon  his  collision 
with  the  plaintiff's  automobile.  Immediately  upon  receipt  of  this  ad- 
vice, plaintiff  notified  defendant  of  the  facts  and  circumstances  touch- 
ing the  accident,  and  the  statement  by  Lewis  that  he  was  not  hurt  at 
the  time,  and  also  of  the  condition  of  Lewis  at  that  time,  and  of  the 
claim  that  it  was  traceable  to  the  fall  received  in  the  collision  afore- 
said. During  the  interval  between  the  collision  and  the  time  of  receiv- 
ing the  notice  of  claim  of  Lewis,  plaintiff  honestly  believed  the  state- 
ment of  Lewis  that  he  had  received  no  injury  from  the  collision,  for 
which  reason  plaintiff  did  not  give  notice  of  the  collision  to  defendant. 
Afterwards  plaintiff  was  notified  by  an  attorney  that  Lewis  was  about 
to  bring  suit  for  damages.  He  thereupon  at  once  notified  defendant 
of  this  fact,  and  requested  defendant  to  take  up  the  matter  and  settle 
or  defend  any  suit  brought  by  Lewis  on  account  of  the  injury. 

Defendant  disclaimed  any  liability,  for  the  reason  that  plaintiff  had 


Sec.  .3)  LIABILITY  INSURANCE  731 

not  given  notice  at  the  time  of  the  colhsion.  About  August  1,  1912, 
Lewis  died  of  a  disease  alleged  to  have  resulted  from  the  fall.  An 
administratrix  was  appointed,  who  brought  suit  against  this  plaintiff. 
Defendant  again  refused,  upon  demand,  to  defend  the  action.  Plain- 
tiff was  compelled  to  employ  counsel,  who,  after  full  investigation, 
advised  plaintiff  that  the  claim  contained  elements  which  might  subject 
plaintiff  to  a  large  judgment  upon  a  trial  of  the  case  to  a  jury,  and 
recommended  a  settlement  if  the  same  could  be  reached  upon  a  reason- 
able basis.  Finally  by  agreement  a  judgment  for  $2,500  and  costs  was 
rendered  against  him.  A  number  of  other  facts  are  set  out,  showing 
proper  diligence  in  the  effort  made  by  plaintiff  to  defend  the  action 
against  him.  It  is  also  alleged  that  plaintiff  incurred  a  liability  for 
legal  expenses  and  services  in  the  sum  of  $500. 

A  copy  of  the  policy  is  attached  to  the  petition  which  contains  the 
following  provisions :  "The  assured,  upon  the  occurrence  of  an  acci- 
dent, shall  give  immediate  written  notice  thereof,  with  the  fullest 
information  obtainable  at  the  time,  to  the  American  head  office  of  the 
corporation,  or  to  one  of  its  duly  authorized  agents.  The  assured  shall 
give  like  notice,  with  full  particulars,  of  any  claim  made  on  account 
of  such  accident." 

The  demurrer  of  plaintiff  is  based  upon  the  thought  that  no  liability 
exists  on  account  of  the  failure  of  the  insured  to  give  immediate 
written  notice  of  the  accident  as  required  by  the  terms  of  the  policy. 
A  provision  in  an  insurance  policy  of  this  nature  requiring  immediate 
written  notice  of  the  occurrence  of  an  accident  is  not  unreasonable. 
Its  purpose  is  to  enable  the  insurer  to  promptly  inform  itself  concern- 
ing the  same,  so  that  it  may  investigate  the  circumstances,  prepare  for 
a  defense,  if  necessary,  or  be  advised  whether  it  is  prudent  to  settle 
any  claim  arising  therefrom.  Some  courts  construe  such  provisions 
strictly  in  favor  of  the  insurer.  Northwestern  Telephone  Exchange 
Co.  V.  Maryland  Casualty  Co.,  86  Minn.  467,  90  N.  W.  1110;  Under- 
wood Veneer  Co.  v.  London  Guarantee  &  Accident  Co.,  100  Wis.  378, 
75  N.  W.  996;  Employers'  Liability  Assurance  Corporation  v.  Light, 
Heat  &  Power  Co.,  28  Ind.  App.  437,  63  N.  E.  54;  Travelers'  Ins. 
Co.  V.  Myers,  62  Ohio  St.  529,  57  N.  E.  458,  49  L.  R.  A.  760;  National 
Construction  Co.  v.  Travelers'  Ins.  Co.,  176  Mass.  121,  57  N.  E.  350; 
Rooney  v.  Maryland  Casualty  Co.,  184  Mass.  26,  67  N.  E.  882. 

The  principle  stated,  however,  in  our  view  does  not  cover  or  deter- 
mine the  question  presented  in  this  case.  The  agreement  in  the  policy 
is  that  defendant  will  "indemnify  the  assured  against  loss  from  the  lia- 
bility imposed  by  law  upon  the  assured  for  damasres.  on  account  of 
bodily  injuries  (including  death  at  any  time  resulting  therefrom)  acci- 
dentally suffered,"  etc.  Defendant  agrees  further  "to  contest  claims 
and  to  defend  suits,  even  if  groundless,  made  or  brought  against  the 
assured  on  account  of  such  bodily  injuries  or  death."  The  notice  re- 
quired is  "upon  the  occurrence  of  an  accident"  and  "of  any  claim 
made  on  account  of  such  accident."     An  insurance  contract,  like  any 


7.">2  CONSTRUCTION  OF  POLICY OTHER  KINDS  OF  INSURANCE      (Cll.  11 

otlicr,  must  be  reasonably  construed.  The  contract  does  not  require 
that  all  accidents  resulting  from  the  use  of  the  automobile  should  be 
made  the  subject  of  a  notice,  and  many  accidents  might  happen  in 
the  use  of  the  machine  which  are  not  the  subjects  of  indemnity  under 
the  policy.  Accidents  resulting  in  injury  to  the  owner  himself  or  to 
the  property  of  others  are  not  included.  The  purpose  was  to  protect 
the  insured  from  liability  against  damages  for  bodily  injuries  acci- 
dentally suffered,  and  it  is  only  those  accidents  wdiich  result  in  bodily 
injuries  which  are  embraced  within  its  terms.  In  determining  the 
question  presented,  the  meaning  of  the  terms  "immediate  written  no- 
tice" and  of  the  word  "accident,"  as  used  in  the  policy,  becomes  im- 
portant. Since  the  giving  of  "immediate"  notice  would  in  most  cases, 
if  the  word  were  defined  in  its  strictest  sense,  be  impossible,  courts 
generally  hold  that  the  w^ord  "immediately"  does  not  mean  instantly, 
but  is  to  be  construed  as  meaning  within  a  reasonable  time  having 
regard  to  all  the  circumstances.  Empire  State  Surety  Co.  v.  Northwest 
Lumber  Co.,  203  Fed.  417,  121  C.  C.  A.  527;  Columbia  Paper  Stock- 
Co.  V.  Fidelity  &  Casualty  Co.,  104  Mo.  App.  157,  78  S.  W.  320;  Na- 
tional Paper  Box  Co.  v.  ^F:tna  Life  Ins.  Co.,  170  Mo.  App.  361,  156 
S.  W.  740;  Odd  Fellows'  Fraternal  Accident  Ass'n  v.  Earl,  70  Fed. 
16,  16C.  C.  A.  596. 

The  word  "accident"  is  susceptible  of  and  has  received  many  defini- 
tions, varying  with  the  connection  in  which  it  is  used.  It  is :  "An 
event  that  takes  place  without  one's  foresight  or  expectation ;  an  un- 
designed, sudden,  and  unexpected  event ;  chance ;  contingency  ;  often 
an  undesigned  and  unforeseen  occurrence  of  an  afflictive  or  unfortunate 
character ;  casualty ;  mishap ;  as,  to  die  by  an  accident."  Webster's 
New  International  Dictionary.  In  the  Century  Dictionary,  among  the 
definitions  given  are :  "2.  Specifically,  an  undesirable  or  unfortunate 
happening;  an  undesigned  harm  or  injury;  a  casualty  or  mishap."  As 
used  in  an  indemnity  policy  such  as  this,  we  are  of  opinion  that  the 
word  "accident"  means  an  undesigned  and  unforeseen  occurrence 
of  an  afflictive  or  unfortunate  character,  resulting  in  bodily  injury  to  a 
person  other  than  the  insured.  It  is  evident  that  it  cannot  have  been 
the  intention  of  the  parties  that  such  an  accident  as  a  mishap,  casualty, 
or  misadventure  occurring  without  bodily  injury  to  any  one  should  be 
reported,  since  with  such  an  occurrence  defendant  has  no  concern. 

To  illustrate :  Suppose  that  in  carelessly  closing  the  door  of  the 
automobile  the  man  in  charge  should  inflict  a  slight  or  trivial  bruise 
upon  a  passenger  or  bystander,  of  which  no  present  external  indica- 
tion appeared,  and  as  to  which  the  individual  disclaimed  any  injury 
or  suppose  that  the  finger  of  such  a  one  was  pricked  or  his  skin  abrased 
in  some  manner,  resulting  from  the  use  of  the  automobile — would 
the  policy  make  it  imperative  that  immediate  notice  of  such  occurrence 
should  be  given,  upon  the  penalty  of  a  loss  or  forfeiture  of  the  insur- 
ance in  case  an  injury  later  developed?    We  cannot  take  this  view.    If 


Sec.'?)  LIAP.ILITY   INSURANCE  733 

no  aj^parent  injury  occurred  from  the  mishap,  and  there  was  no  rea- 
sonable ground  for  beheving  at  the  time  that  bodily  injury  would  result 
from  the  accident,  there  was  no  duty  upon  the  assured  to  notify  the 
insurer.  The  Court  of  Appeals  of  Missouri  has  said:  "An  injury 
might  be  of  such  character  as  to  afiford,  at  first,  no  reasonable  ground 
for  thinking  that  it  might  support  a  claim  for  damages  against  the  em- 
ployer. In  such  case  jve  think  the  assured  would  not  be  required,  un- 
der the  reasonable  rule  of  construction  we  are  discussing,  to  give  the 
assurer  notice  until  such  time  as  the  facts  of  the  injury  and  its  progress 
began  to  suggest  to  a  person  of  reasonable  care  and  prudence  that  a 
possible  liability  of  the  assured  to  answer  in  damages  lurked  in  them. 
*  *  *  Frequently  an  injury,  apparently  too  trivial  to  cause  any 
damage  or  inconvenience,  develops  into  a  most  serious  phase.  The 
duty  of  the  assured  in  such  instances  with  respect  to  giving  notice  is 
performed  if  he  gives  notice  within  a  reasonable  time  after  the  injury 
first  takes  on  a  serious  aspect,  an  aspect  suggestive  of  a  possible  claim 
for  damages."    National  Paper  Box  Co.  v.  yEtna  Life  Ins.  Co.,  supra. 

This  language  states  the  true  principle,  and  in  our  opinion  is  deter- 
minative of  this  case.  Accidents  occurring  to  bicycle  riders,  which 
throw  them  to  the  pavement,  are  of  very  frequent  occurrence,  and 
it  is  a  matter  of  common  knowledge  that  as  a  rule  they  do  not  result  in 
serious  consequences.  At  the  time  and  shortly  after  the  collision  Lewis 
stated  that  he  had  received  no  injury.  If  he  had  received  no  injury, 
or  if  the  accident  would  not  in  an  ordinary  mind  induce  a  reasonable 
belief  that  it  might  result  in  bodily  injury,  there  was  no  obligation  to 
notify  the  insurance  company.  At  the  time  that  the  plaintiff  first 
received  knowledge  that  Lewis  was  injured,  and  that  a  claim  was 
liable  to  be  made  upon  him  for  damages,  he  immediately  notified  the 
insurance  company,  and  from  that  time  on  performed  all  the  condi- 
tions which  he  was  required  to  perform  under  the  conditions  of  the 
policy.  We  cannot  say  as  a  matter  of  law  that  the  conditions  attending 
the  accident  were  such  as  to  bring  it  within  the  class  of  which  it  was 
his  duty  to  give  notice,  or  that  the  notice  he  did  give  was  not  given 
within  a  reasonable  time  considering  all  the  circumstances  of  the  case. 
We  have  said  with  respect  to  a  case  where  notice  was  not  given  within 
the  time  specified  in  a  policy  and  an  excuse  was  offered :  "The  ques- 
tion of  the  sufiiciency  of  the  excuse  offered  and  the  reasonableness  of 
the  time  in  which  the  act  is  performed  [is]  to  be  determined  accord- 
ing to  the  nature  and  circumstances  of  each  individual  case,  the  bene- 
ficiary in  all  cases  being  required  to  act  with  due  diligence  and  without 
laches  on  his  part."  Woodman  Accident  Ass'n  v.  Pratt,  62  Neb.  673, 
687,  87  N.  W.  546,  551  (55  L.  R.  A.  291,  89  Am.  St.  Rep.  777). 

The  defendant  having  elected  to  stand  upon  the  demurrer,  the  facts 
alleged  in  the  petition  are  admitted,  and  since  we  cannot  say  as  a  mat- 
ter of  law  that  the  notice  was  insufficient,  the  judgment  of  the  dis- 
trict court  was  correct,  and  is  affirmed. 


INDEX 


[the  figures  refer  to  pages] 


ACCIDENT  INSURANCE, 

See  Insurance. 

ACTION  ON  THE  POLICY, 

Limitation  of  time  of,  709-712. 
Validity,  710,  712,  n.  20. 
Wlien  period  begins  to  run,  710-712. 

ADMIRALTY, 

Jurisdiction  over  insurance  contracts,  1-6. 

AGENTS, 

Knowledge  of  agent  knowledge  of  the  company,  483,  516,  n.  19. 

Provisions  of  policy,  556,  n.  39. 
Liability  of  insurer  for  negligence  of  the  agent  in  forwarding  application, 

195-201. 
Of  insured  or  of  insurer,  509,  511,  n.  18,  512,  548,  550,  n.  38,  554. 

Provisions  of  policy,  549. 
Subagents,  516. 
Who  is  an  agent,  483. 

Statutory  provisions  defining  agency,  482. 
See  Waiver  and  Estoppel. 

ALIENATION  CLAUSE, 
See  Change  of  Interest. 

AMENT)MENT  OF  BY-LAWS, 
See  Mutual  Benefit  Insurance. 

APPRAISERS, 

See  Arbitration. 

ARBITRATION, 

In  general,  705-709. 

Governed  by  rules  of  common-law  arbitration,  706. 

Who  may  be  an  appraiser,  706,  708. 

ASSIGNMENT, 

After  loss,  579,  580,  n.  4. 
Consent  of  insurer,  578. 
Of  marine  policies,  576,  n.  2. 

Rights  of  assignee  as  affected  by  acts  of  assignor,  581. 
Transfer  as  collateral,  580,  n.  4. 
See  Insurable  Interest. 

ASSIGNEES,  636. 

BAILOR  AND  BAILEE,  572. 

BENEFICIARIES, 

As  affected  by  wrongful  acts  of  the  insured,  137. 

Defeasible  interest  of,  625. 

Expectancy  of  interest,  628,  n.  27. 

Murder  of  insured  by  beneficiary,  613,  n.  21. 

Rights  against  creditors,  615-621.  621,  n.  24. 

Right  to  change  beneficiary  reserved,  625-628,  629. 

Right  to  pay  premiums  and  preserve  policy,  152-155,  155,  n.  46,  637. 

Vance  Ins.  (735) 


736  INDKX 

[The  figures  refer  to  pages] 

BENEFiriARIES— ContiiiutHl, 

Kiirlit  to  prcniiuiiis  roiuiid,  C41,  n.  ^7. 

Vostod  iuterost  of,  (511'  CM),  013,  n.  21,  618,  635. 

SiiiTi'iulor  of  policy  by  insured,  G12. 

Kiidowiiieiit  policies,  (il."{,  n.  21. 

Mutnal  benefit  insurance,  029. 

lUTROLAKY  INSURANCE,  11,  n.  6. 

BTRIAL  INSFRANCE,  83-37. 

liY-EAWS. 

See  Mutual  Benefit  Insurance. 

CANCELLATION  OF  THE  POLICY, 

As  affectini,'  rights  of  the  1  eneficiary,  612. 

Return  of  premiums  not  condition  precedent,  641,  n.  37. 

CHANGE  OF   INTEREST, 

Definition,  062,  064. 

In  general ,  600-607. 

By  executory  sale,  660-665. 

By  mortgage,  665. 

By  transfers  between  partners,  661,  n.  4. 

CHARTER  PROVISIONS, 

Limiting  insurance  to  part  of  the  value  of  property,  602. 

com:\iexcement  of  the  risk, 

Delivery  of  the  policy,  212-219. 
Preliminary  agreement,  191-194. 

CONCEALMENT. 

In  general,  234-243. 

Concealment,  representation,  and  warranty  compared,  272-276. 

Constructive  knowledge  of  insured,  248-255,  259-263. 

Knowledge  of  agent,  250-255. 

Knowledge  of  broker,  259-263. 
English  rule,   287,  288,   n.  22,  291-292. 
American  rule,  283,  305-306. 

Innocent  concealment,  236,  248,  273-274,  274,  n.  16,  281-284,  303. 
Statement  of  half  truths,  275,  288-299. 
What  need  not  be  disclosed,  236-237. 
When  duty  to  disclose  terminates,  313-316,  310,  n.  35. 
Marine  insurance,  244-270. 

In  general,  247. 

Comparison  with  fire  and  life  insurance,  302-.303. 

ConiiK^tency  of  master,  204-265. 

Destination,  244-245. 

Dutv  of  insured  to  use  diligence  to  notify  insurer  of  material  facts, 
255-259. 

Innocent  concealment,  236,  248,  273. 

Other  insurance,  26.5-270. 

Loss  of  vessel,  248-255. 

Master's  knowledge  of  material  facts,  248-255. 

Marine  Insurance  Act,  265. 

Riiniors  of  peril  of  vessel,  244. 
Fire  insurance,  270-284. 

Detined,  283. 

Compared  with  concealment  in  marine  insurance,  277-278. 

Innocent  concealment,  274,  274,  n.  16,  280-284. 

Must  be  fraudulent,  280-284. 

Non-disclosure  when  question  asked,  275. 

Knowledge  of  insurer,  284,  n.  20. 

What  must  be  disclosed, 
In  general,  279. 
Special  risks,  271-272,  274,  n.  16. 


INDEX  737 

[Tlie  figures  refer  to  pages] 

C'0NCEAL:MEXT— Continued, 
Life  insurance,  285-307. 
English  rule,  287. 
Incomplete  answer  to  question.  288-299,  299,  n.  26. 

Waiver  of  ohiection  to.  294-299. 
Innocent  concealment,  300-307. 

Nature  of  the  fact  concealed  as  eA'idence  of  fraud,  30-1. 
What  must  be  disclosed, 

State  of  mental  faculties,  285-288. 
Refusal  of  other  ]»roposals,  288-294. 
Moral  character  of  insured  need  not  be,  301. 
Guaranty  insurance,  307-312. 

CONSTRUCTION  OF  THE  CONTRACT  OF  INSURANCE,  65G-733. 

CONTRACT  OF  INSURANCE, 

Application, 

Duty  of  insurer  to  act  upon,  19."-  'JOl. 

Incorporated  as  warranty,  403,  407. 
Contract  to  insure,  201-211. 

Breach  of,  201-211. 
Delivery,  212-219. 

Not  necessary  to  conpilete  the  contract,  214,  219,  n.  4. 

Failure  of  agent  to  delivei".  215-219. 
Mutual  benefit  insurance,  219-233. 

See  Mutual  Benefit  Insurance. 
Parol  contracts,  186-190,  201-211. 

Usual  conditions,  201-211. 

Effect  of  standard  P'olicy  acts,  20.3-211. 
Prospectus  not  a  part  of  the  contract,  495,  n.  10. 
Renewal  of  the  contract.  186-190. 
Temporary  agreement,  191-194. 
When  completed,  214,  219.  n.  4. 
Written  and  printed  portions   of  the  policy,   678. 

COURT  OF  INSURANCE  COMMISSIONERS,  3,  n.  2. 

CREDIT  INSURANCE,  10,  18,  19. 

CREDITORS, 

Right  to  proceeds  of  insurance,  131-134,  616-618,  638,  n.  35. 

Right  to  premiums  paid  by  insolvent  insured,  619. 

Creditor  insuring  life  of  debtor,  637. 
See  Insurable  Interest. 
CROP  GUARANTY,  6-11. 

DEATH   BY   EXECUTION, 

See  Implied  Conditions. 

DEATH    WHILE    ENGAGED    IN   ILLEGAL   TRANSACTION, 

Effect  on  interest  of  beneficiary,  137-13S. 
DELIVERY  OF  THE  POLICY, 

See  Contract  of  Insurance. 
DEVIATION, 

See  Implied  Conditions. 

EQUITABLE  LIEN, 

Of  mortgagee  on  proceeds  of  insurance  taken  out  by  mortgagor,  595.  n.  12. 
ESTOPPEL, 

In  general,  506-547. 

Definition  and  theory  of,  483,  509,  546. 

Application  filled  out  by  agent,  506.  523. 

Agent's  knowledge  of  facts  constituting  forfeiture,  511,  518,  52.5-547, 
530,  n.  29. 

Vance  Ins. — 47 


738  iNDiox 

[The  figures  refer  to  pages] 

ESTOPPEL— Continued, 

As  affocted  by  provisions  of  polity  liinitiui^  power  of  waiver,  480,  490, 

r)41.  545. 
Duty  of  insured  to  read  policy,  524. 

Insurer  presumed  to  deliver  a  valid  policy,  514,  510,   n.   10. 
Parol  evidence  rule,  507,  510-522,  5.";4,  551. 
Stipulations  in  policy  against  estoppel,  55(1,  n.  ."JO. 

See  Waiver  and  Estoppel,  Waiver,  Parol  Evidence  Rule. 

EXCEPTED  KISKS, 

See  Implied  Conditions. 

FIDELITY  IxXSURAXCE,  1G-20. 

FIRE  INSURANCE, 

See  Insurance,  Insurable  Interest,  Loss  or  Damafc'e,  Concealment,  Repre- 
sentation, Warranty. 

FORFEITURE  OF  POLICY, 

Breach  of  warranty,  .■)73-444. 

Of  implied  warranty,  445—476. 
Concealment,   2;J4-24.S. 

Lack  of  insuralile  interest,  38,  39,  40-43,  48,  50,  71,  117,  121,  147,  152,  170. 
Misrepresentation,  317-372. 
Non-payment  of  policy  loans,  713-717. 
Nun-payment  of  premiums,  717,  n.  3. 

See  Warranty,  Representation,  Concealment,  Insurable  Interest,  Pre- 
miums, Loans  on  the  I'olicy. 

FRAUD,  234. 

See  Concealment,  Representation. 

GUARANTY  INSURANCE, 

Guaranty  of  bank  deposits,  29-31. 
See  Fidelity  Insurance. 

HISTORY  OF  INSURANCE, 

As  part  of  law  merchant,  1-6. 
Early  history,  6,  n.  4. 

ILLEGALITY, 

See  Implied  Conditions,  Insurance,  Insurable  Interest. 

IMPLIED   CONDITIONS, 
Deviation,  448. 
Illegality,  453,  455,  n.  7. 
Seaworthiness,  445. 
Death  by  execiition,  468-476. 

As  against  public  policy,  468. 

As  an  excepted  risk,  473-476. 

Forfeiture  of  the  policy  compared  with  attainder,  469-473. 
Suicide,  455-467. 

As  against  public  policy,  458,  463-467. 

As  an  excepted  risk,  456,  459-462. 

Evidence  of,  467,  n.  14. 

Fraud,  460,  463. 

Presumption  against,  723. 

As  affecting  rights  of  beneficiary,  467,  n.  14. 

INCONTESTABLE  CLAUSE, 
In  general,  718-720. 

Effect  when  no  insurable  interest,  59,  n.  IS. 
Fraud,  623,  718. 

As  a  limitation  upon  actions,  718. 
Validity,  623. 


INDEX  739 

[The  figures  refer  to  pages] 
INCREASE  OF  RISK, 

Coudition  of  policy  against,  G74-G77. 

INCUMBRANCES, 

Effect  upon  sole  ownership,  659,  n.  3. 
Effect  upon  change  of  interest,  665. 

INDEMNITY. 

Basis  of  insurance,  12,  35,  54,  644. 
Except  life  insurance,  126. 

INSOLVENT,  INSURANCE  BY, 
As  fraud  upon  creditors,  620. 
See  Creditors. 

INSURABLE  INTEREST, 
In  general,  38-65. 

Propert.y  insurance,  38-55. 

Life  insurance,  56-65. 
Contracts  held  void  for  lack  of, 

Property  Insurance,  3s,  39.  40-43,  48,  71,  117. 

Life  insurance,  56,  121.  147.  152,  170. 
Development  of  the  requirement  for,  56-59. 
Interest  and  expectation  distinguished,  71-80. 
"Interest  or  no  interest"  policies,  43-44. 
"P.  p.  i."  policies,  48-52. 

In  limited  interest  under  statute  14  Geo.  III.  c.  48,  129-131. 
No  one  but  insurer  can  raise  question,  165-166. 
Insurance  of  profits,  47-48.  48,  n.  12,  52-55. 
Effect  of  incontestable  clause,  59,  n.  18. 
New  Jersey  doctrine,  60-65,  65,  n.  21. 
Recovery  of  premiums,  638. 
Valued  policies,  47-48,  52-55. 
Marine  insurance. 

On  lien,  80-87,  90. 

On  outfit  sold  to  sailors,  80-87. 

On  wages,  85. 

On  prizes  of  war,  65-66. 

On  profits,  47-48,  52-55,  67-71. 

Of  bailees,  94,  n.  26. 

Of  consignees,  93-94. 

Of  government  officials  charged  with  custody  of  captured  ships,  71-80. 

"Lost  or  not  lost"  policies,  90. 

"On  account  of  whom  it  may  concern"  policies,  87-93,  93,  n.  25. 

Policy  based  on  bottomry  bond,  38. 

As  affected  by  usages  of  trade,  86. 
Fire  insurance. 

In  general,  98,  104,  110-111,  114-115. 

Interest  acquired  subsequently  to  issue  of  policy,  119-121,  121,  n.  36. 

In  building  condemned  by  public  authority.  IDS,  n.  31. 

In  building  being  erected  at  risk  of  contractor,  106-108. 

In  public  property,  11.3-115. 

Of  general  creditors,  96-103. 

Of  judgment  creditors,  95-96. 

Of  husband  in  wife's  realty,  115-117,  117.  n.  34,  118. 

Of  stockholders  in  property  of  the  corporation,  104-106. 

Of  sureties  in  whisky  in  bond,  109-112,  118,  119,  u.  35. 

Of  vendor-assignee,  40-43. 
Life  insurance, 

Insurable  interest  defined,  144,  151,  171. 

Of  assignee,  170-185. 

Assignment  as  evasion  of  the  requirement,  174-176. 

Beneficiai-v  designated  by  the  insured  need  have  none,  147-160,  160, 
n.  50,  165-170. 


740  INDKX 

[The  figures  refer  to  pages] 

INSURABLE  INTEREST— CoiitiiuuMl, 

Evasion   of  re(iuiivim'iit  of  insuralik'  intcrost   bv  such    designa- 
tion, 148-14!). 
Of  beueflciary  soekinj;  to  iireserve  policy  abandoned  l.y  the  insured, 

15L'-155,  155,  n.  4(J,  G.'!?. 
Who  lias  an  insurable  interest,  in  general,  143-144.  150. 
lnt(>rest  based  on  blood  relationship,  145,  14G,  n.  44,  151. 

Of  son  in  life  of  niofher,  141-140. 

Of  father  in  life  of  son,  i:;i-134. 

Of  sister  in  life  of  brother,  134-1:58. 
In  life  of  adult  foster  dauj,'hter,  140,  n.  42. 
Of  one  dependent  on  insured  for  sui)port,  134-138. 
Of  one  voluntarily  snpportin.i;  infant  insured,  138-140. 
Of  creditors, 

In  jieneral,  G0-G5,  122,  n.  37. 

AVhen  debtor  is  an  infant,   121-122. 

Gambling  debt,  121-122. 

Effect   of  subsequent  payment,   122-127,   1(J0-1G5. 

Debt  barred  by  the  statute  of  limitations,   16G-1G7. 
Of  copartnership  in  lives  of  the  partners,  179-180. 
Of  one  expecting  pecuniary  benefit  from   the   life   insured,   128-12!) 

134-138. 
Assignment  of  the  right  to  insure  life  of  third  person,  140-141. 

See  Wagering  Contracts,  Insurance. 

INSUKAi\'CE, 

Accident  insurance, 

What  is  an  accident,  721,  723,  n.  4,  732. 

What  is  death  by  accident,  720. 

Accident  due  to  intoxication,  723. 

Accident  due  to  violation  of  law,  725. 

No  subrogation,  G55,  u.  41. 
Insurance  distinguished  from  suretyship,  31,  n.  14. 
State  regulation  of, 

In  general,  7,  27-28,  33-37,  149-150,  211,  n.  3,  434-444. 

Defining  insurance  agent,  482. 

Regulation  of  insurance  rates,  37,  n.  1  :J. 

Valued  policy  acts,  605. 

Cannot  be  changed  by  contract,  607. 
Wagering  contracts, 

Distinguished,  12-14. 

Insurance  of  profits. 

See  Insurable  Interest. 

Lack  of  insurable  interest,  38-65. 

"Lost  or  not  lost"  policies,  90. 

Marriage  insurance,  15-16. 

Return  of  premiums,  51-52. 

Statutes  prohibiting,  44-47. 

\'alidity  at  common  law,  44,  n.  7. 
What  is  insurance, 

Deflnitions,  8,  17,  18,  27,  35,  36. 
Statutory  definitions,  8. 

Burial  insurance,  33-37. 

Credit  insurance,  10,  18,  19. 

Crop  insurance,  6-11. 

Not  interstate  commerce,  37,  n.  16. 

Investment  companies,  11,  n.  6. 

Life  insurance,  60-65. 

Marriage  insurance,  15-16. 

Physicians'  defence  contracts,  11,  n.  6. 

Railway  relief  associations,  11,  n.  6. 

Surety  bonds,  31,  n.  14. 

See  Fire  Insurance,  Guaranty  Insurance,  Insurable  Interest,  Lia- 
bility Insurance,  Marine  Insurance. 


INDKX  741 

[The  figures  refer  to  pages] 
INSURANCE  COMPANY, 

Derives  its  powers  from  the  state,  434. 
Duty  to  applicants.  199-201. 
Public  character,  199-201. 

INTERSTATE  COMMERCE, 
See  Insurance. 

LIABILITY  INSURANCE, 

In  general,  730-7.>1. 

What  is  an  accident  covered  by,  732. 

Immediate  notice  of  accident,  732. 
Common  carrier,  indemnity  against  negligence,  20-26. 
Defence  of  physicians  in  malpractice  suits,  11,  n.  6. 
Miscellaneous  indemnity  contracts,  11,  n.  6. 
Personal  injury  by  automobile,  32-33. 
Not  obnoxious  to  doctrine  of  maintenance,  .33. 

Statute  prohibiting  defence  of  indemnity  contract  between  employer  and 
employe,  26,  n.  10. 

LIABILITY  OF  INSURER, 

See  Loss  or  Damage,  Measure  of  Recovery. 

LIFE  INSURANCE, 

Nature  of  the  contract,  60-6u. 
Subrogation.  655,  n.  41. 

See  Insurance,  Insurable  Interest,  Concealment,  Representation,  War- 
ranty. 

LIGHTNING, 

Whether  loss  bj',  is  loss  by  fire,  692. 

LOANS  ON  THE  POLICY, 

Forfeiture  for  nonpayment,  71.3-717. 

Insured's  right  to  paid  up  value  of  the  policy,  715. 

LOSS  OR  DAMAGE, 

I^oss  by  reason  of  negligence,  348-319. 
I'roximate  cause,  694,  696-700. 
What  is  loss  by  fire,  690-700. 

Earthquake,  700,  n.   16. 

Explosion,  693. 

Lightning,  692. 

MARINE  INSURANCE, 

Assignment  of  marine  policies,  576,  n.  2. 
Deviation,  448. 
Illegality,  453. 
Seaworthiness,  445. 

See  Concealment,  Representation,  Warranty. 

MARRIAGE   INSURANCE,  15-16. 

MATERIALITY, 

Of  facts  concealed,  248-255,  259-263. 

Of  representations,  362. 

Of  warranties,  379,  .391,  393,  407,  419,  422,  n.  .32. 

MEASURE  OF  RECOVERY, 

When  insured's  interest  is  limited, 

Market  value  of  interest  not  conclusive,  608-610. 
Life  tenant's  interest,  610,  n.  20. 
Husband's  interest  in  wife's  property,  610,  n.  20. 
Valuation  of  premises,  603. 
Valuation  fixed  under  statute,  605. 

Cannot  be  changed  by  contract,  C07. 
See  Charter  Provisions. 


742  iNi.Kx 

[The  flgures  refer  to  pages] 

MOIlTGAnOR  AND  MOKTGAGKE, 

liisui-iUKi'  by  iiiortpi^or.  .W"),  n.  12. 

rayabk'  to   iiiui-tKii^-'i't-'.   r>Sl,   51)7. 
Jlortfiaf-'oe's  duty  to  lurnish  proofs  of  loss,  C.Ol,  GOl,  n.  17. 
Insiiraiu-e  by  niortf-'aRoe,  T/Jl. 

AVhen  for  t)\vii  beiiofit,  HOG. 
Change  of  iiitcrost  as  affected  by  inortiraiie.  (\(>~j. 
Sole  ownershiii  as  affeeted  by  uiortfiajie,  ('.5!),  n.  3. 
Standard  elanse,  597,  n.  14. 
iMortj;a|j;ee's  rij^hts  under  the  .standard  clau.se,  598. 

As  affected  by  niortfiaKor's  breaches  of  warranty,  599. 

As  affectt'd  by  acts  of  tlie  niortjiat,'or,  5S1. 
Subrogation  of  the  insurer,  see  Subrogation. 

MUTUAL  BENEFIT  INSURANCE, 
Nature  of,  221. 
Amendment  of  by-laws,  210-2.^S.  23:5,  n.  5. 

Assessments,  219-225,  232-233. 

Benefits,  229-2:53. 

Reservation  of  the  right  to  amend,  231. 
Designation  of  lieneficiaries,  G36,  n.  33. 
Interest  of  beneficiaries,  G29. 

Not  "otlier  insurance"  witliin  terms  of  ordinary  life  policy,  28,  n.  12. 
Special  statutory  provisions.  28,  n.  12.  220,  221. 
Whether  within  statutory  definition  of  insurance,  27-28. 

NATURE  OF  THE  INSURANCE  CONTRACT,  6-37. 
Life  insurance,  60-65,  123. 

NEGLIGENCE, 

See  Loss  or  Damage. 

NOTICE  AND  PROOF  OF  LOSS, 
In  general,  700-704. 
As  condition  precedent,  703,  704,  n.  19. 
Effect  of  delay,  700,  702,  n.  IS. 

"When  delay  excused,  704,  n.  19. 
Immediate  notice,  732. 
Mistake  in  proof  of  loss,  704,  n.  10. 
I'arol  contracts,  205-206. 

OTHER  INSURANCE, 
In  general,  682-689. 
Concurrent  insurance,  687. 
Insurance  effected  by  third  party,  682. 
Mutual  benefit  insurance  not  "other  insurance,"  28,  n.  1. 
"Other  insurance"  void,  683. 

PAROL  CONTRACT, 

See  Contract  of  Insurance. 

PAROL  EVIDENCE  RULE, 

Policy  not  to  be  varied  by  parol,  493. 

Not  admissible  to  show  custom  or  prospectus  of  the  company,  495,  n.  10. 
As  affecting  doctrine  of  estoppel,  507,  519-522,  525-547,  551. 
Subsequent  waiver  of  conditions,  501,  n.  12. 

PREMIUMS, 

Forfeiture  for  non-payment,  717,  n.  3. 

Waiver  of.  500. 
Extension  of  time  of  payment  of  premium  notes,  488,  495. 
Right  of  beneficiary  to  pay,  152,  155,  155,  n.  46,  637. 

See  Recovery  of  Premiums. 


INDEX  743 

[The  figures  refer  to  pages] 

I'ROHIRITED  ARTICLES. 

Conditious  in  policy,  ((77-081. 

Articles  necessarily  included  in  spite  of  prohibition,  JO.l,  n.  10,  G77,  GSl, 
n.  12. 

PROOF  OF  LOSS, 

See  Notice  and  Proof  of  Loss. 

PUBLIC  POLICY, 

Common  carrier  indemnified  asainst  negligence,  20-26. 
Death  by  legal  execution,  468. 

Insurance  on  life  without  insurable  interest,  171-17:2. 
Statute  founded  on  public  policy  cannot  be  waived,  GU7. 
Suicide,  458,  463-467. 

RAILWAY   RELIEF  ASSOCIATIONS,  11,  n.  6. 

RECOVERY  OF  PREMIUMS, 

In  general,  641,  n.  37. 
No  insurable  interest.  638. 
Right  of  beneficiary.  041,  n.  37. 
Wager  policies,  51-52. 

REINSURANCE,  44,  n.  8.  ' 

RENEWAL  OF  POLICY, 

See  Contract. 

RESPONDENTIA  LOANS,  INSURANCE  OF,  38,  n.  1. 

REPRESENTATION, 

Distinguished  from  warranty,  366-372. 

Of  expectations,  327,  329-334,  333,  n.  8,  335-338. 

Fraudulent,  inducing  issue  of  the  policy,  359. 

Incomplete  answers,  371. 

Representation  made  to  previous  underwriter,  360. 

Marine  insurance,  317-338. 

Cargo,  334. 

Destination,  323-324. 

Equipment,  328-329. 

Ownership  of  goods,  3l7. 

Time  of  sailing,  328. 

When  last  sighted,  324-326. 
Fire  insurance,  338-358. 

As  to  fire  protection,  348-351. 

As  to  other  insurance,  354^356. 
Life  insurance,  359-372. 

Health  of  insured,  359-363. 

Immaterial  ailments,  360,  370, 

Other  insurance,  364. 

As  to  beneficiary,  365. 
RISK, 

See  Commencement  of  Risk,  Loss  or  Damage. 

RIGHTS  UNDER  THE  CONTRACT, 

In  general,  572-655. 

Of  insured's  personal  representatives  when  beneficiarv  without  interest, 

167-170. 
Right  of  insured's  heirs  to  proceeds  of  fire  policy,  ■">94.  n.  10. 

See    Assignment,   Bailor   and   Bailee,    Beneficiaries,   Creditors,    Mort- 
gagor and  Mortgagee,  Recovery  of  Premiums,  Vendor  and  Vendee. 

SOLE  OWNERSHIP. 
In  general,  656-660. 
Estate  less  than  fee,  659. 
Insured's  building  on  anotlier's  land,  659. 


744  INDEX 

[The  flguro5  refer  to  pages? 

SOLK  OWNKKSniP— Contiiiui'd, 
KHiH't  111'  niDrt^af^e,  (iHi),  n.  '.i. 
(.)(  vendor  aiul  voiuUt',  05(5. 
Effect  of  voidable  lonveyaiices,  GHD,  u.  3. 

STANDARD  rOLK'Y, 

Effect  of  standard   judicv   acts  upon   the  insurance  contract,   in  general. 
211.  n.  ;;. 
As  affecting'  l)arol  contracts,  202-211. 
Description  of  the  property  in  fire  insurance,  397,  n.  19. 
Mortsragee  clause,  597,  n.  14. 
Standard  life  policy,  440. 

STATUTES, 

19  CJeo.  II,  c.  37,  13,  44. 

14  CJeo.   Ill,  c.  48,  12,  4b. 

Marine  Insurance  Act,  G  Edw.  VII,  c.  41,  40.  205,  443,  453. 

9  Edw.  VII.  c.   12,  40. 

California  Civil  Code,  sec.  2G03-2012,  444. 

STATUTE  OF  FRAUDS, 

Parol  agreement  to  renew  policy,  187. 
Parol  contracts  of  insurance,  186-190. 

SUBROGATION, 

In  general,  034-655. 

As  governed  l).y  principle  of  indenniity,  045. 

To  claims  against  common  carriers,  052. 

To  contract  rights  of  insured,  043,  049,  n.  40. 

To  tort  rights  of  insured,  049-055. 

Effect  of  settlement  by  insured,  049. 
Of  insurer  to  mortgagee's  rights,  594,  595,  n.  12. 
Of  insurer  to  vendor's  rights,  043. 

Of  .indgment  creditor  to  claims  against  liability  insurance  comiiany,  055. 
In  life  and  accident  insurance,  055,  n.  41. 

SUICIDE, 

See  Implied  Conditions. 

SURETYSHIP, 

Distinction  between  insurance  and,  31,  n.  14. 
Surety  bonds,  31,  n.  14. 

UNCONDITIONAL  OWNERSHIP, 

See  Sole  Ownership. 

USAGES  OF  TRADE, 

Admissible  to  include  articles  prohibited  by  policy,  495,  n.  10.  077,  081, 
n.  12. 

VACANCY, 

In  general,  008-074. 

Compared  with  unoccupancy,  0G8. 

Temporary  absence  from  premises,  073. 

VALUED  POLICY, 

Policy  made  valued  by  statute,  005. 

Valuation  cannot  be  changed  by  contract,  007. 

VENDOR  AND  VENDEE, 

Change  of  interest,  000. 

Transfers  between  partners.  061,  n.  4. 
Vendee  has  no  interest  in  vendor's  insurance,  577. 
Rights  under  option  of  purchase,  593. 

Rights  as  between  vendor  and  vendee,  585,  588,  n.  7,  591,  n.  8,  592. 
Sole  ownership,  050. 
Subrogation  of  insurer,  043,  049,  u.  40. 


INDEX  745 

[The  figures  refer  to  pages] 

WAGERING  CONTRACTS, 

See  Insurance,  Insurable  Interest. 

WAIVER, 

Consideration  to  support,  565,  n.  41. 
Effect  of  limitations  on  agent's  authority  to  waive.  499. 
Effect  of  by-laws  of  mutual  benefit  societies,  470,  549. 
Implied  waiver,  491. 

Whether  elements  of  estoppel  necessary,  5C5. 
Parol  waiver  prior  to  issue  of  policy,  492. 

Not  estoppel,  493. 
Waiver  of  proof  of  loss,  207-209. 

Re(piirement  that  chauiies  in  policy  be  endorsed  thereon,  50.^,  .127. 
Waiver  subsequent  to  the  issue  of  the  policy,  49o-50o. 

Authority  of  the  asent  to  waive,  499,  .jOI.  n.  12,  503,  505,  n.  15. 

Oral  consent  to  additional  insurance,  503. 
What  constitutes,  560-571. 

General  rule,  503. 

Adjustment  of  loss,  560. 

Inaction  of  insurer,  565,  n.  41. 

See  Waiver  and  Estopp'el,  Estoppel. 

WAIVER   AND   ESTOPPEL, 

In  general,  480,  490.  541,  545,  5-56.  n.  ,39. 

Bad  faith  of  insured,  545,  567,  570,  n.  42. 

As  affected  by  limitations  upon  the  authority  of  the  agent,  54S-559. 

Limited  to  taking  applications  and  receiving  jiremiums,  554. 

Policy  limiting  power  of  all  agents,  556,  n.  .39. 
Effect  of  standard  policy  act,  484,  544. 
Waiver  and  estoppel  distinguished,  477-492,  487,  n.  6,  491,  n.  9. 

See  Agents,  Estoppel,  Parol  Evidence  Rule,  Waiver. 

WARRANTY, 

Definition  and  theory  of,  373,  392. 
Compared  with  representations,  383,  n.  8,  385. 
Warranty  a  condition  precedent,  377,  385,  393,  407. 
Writing  on  margin  of  policy,  379. 

Riders,  379,  n.  5. 
Affirmative  and  promissory  warranties  distinguished,  395,  408,  n.  23. 
Continuing  warranties^  395,  4('0,  407. 

Temporary  breach  of,  414,  n.  28. 
Implied  warranties,  382. 

See  Implied  Conditions. 
Liabilitv  arising  prior  to  breach  of  warranty,  3S.j,  u.  9. 
Materiality,  379,  .391,  393,  407,  419,  422,  n.  .32. 
Not  to  be  varied  by  parol,  388,  409. 

Effect  of  usage,  391,  401. 
Rule  of  construction  of.  391. 
Must  be  strictly  complied  with,  385,  393,  429. 
Statements  held  not  warranties,  306-372. 
Effect  of  statutory  provisions,  434—444. 

:Must  be  fraudulent  or  material  to  the  risk.  4.34-439. 

Deemed  representations  and  not  warranties,  439,  n.  43,  440. 

Statutory  provisions,  443 
Marine  insurance,  373-391. 

Armament,  382. 

Course  of  vessel,  390. 

Departure  with  convoy,  372-375,  380. 

Name  of  ship,  386. 

Nationality,  387. 

Neutral  property,  375. 

Seamen,  376-378,  38.**>. 

Time  of  sailing,  379,  u.  4,  389. 


7-l()  INDKX 

[The  figures  refer  to  pages] 
VVAKH  ANT  Y— Continued, 
Fire  insurance,  :{i)2^ir). 

Couii):iro(l  with  warrantios  in  marine  insurance,  -11.3. 
Description  of  tlie  proiiorty,  ;i!)L'-:;!)7,  3!>4,  u.  Hi,  u.  17,  :J"J7,  n.  I'J. 

Standard  policy  clause,  .'!'.)7,  n.  19. 
Fire  protection,  414,  n.   L'S. 
Iron  safe  clause,  408,  411,  n.  26. 
Sniokinj;  on  the  premises,  408,  n.  2'.i. 
Valuation  of  property,  402. 
Watchman,  398. 
Life  insurance,  41G-433. 

Warranty  of  health,  410-417,  427,  n.  -7,  431. 

(Jood  faith  only  of  insured  warranted,  427,  n.  37,  429-433.  433, 
n.  39. 
Of  freedom  from  diseases,  423-433. 
Of  family  history,  422,  n.  32. 
Qualified  answers,  424. 

See  Implied  Conditions. 


WB8T  PUBLISHING  CO.,   PRINTERS,   8T.  PA0I,,   MINlf. 


T.AW  LIBRARY 

T7NTVFJ/c;7XY  OF  CALIFORNIA 


AA    000  885  233    7 


St*"'  ■■'.              1    ■    ■  ■                   •  t  r      ■                                                                                                               -r-m 

••■V 

Hw£*i:V:i^B9:firi;  ■                                -'X 

1 

^^        1      : 

,-:»:?a2: 


".?stS5S8!«S!''l'''-' 

:     ] 


.: 


5 


•r<t*<4^>HM*V*W«tf 


.'5. 


